Corporate social responsibility, often abbreviated “CSR,” is a corporation’s initiatives to assess and take responsibility for the company’s effects on environmental and social wellbeing. Corporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local community and society at large, to improve their lives in ways that are good for business and for development. The concept of CSR rests on the ideology of give and take. Companies take resources in the form of raw materials, human resources etc from the society. By performing the task of CSR activities, the companies are giving something back to the society.
Corporate social responsibility in India has been one of the oldest traditions among other countries. In the pre-industrialization period, which lasted till 1850, wealthy merchants shared a part of their wealth with the wider society by way of setting up temples for a religious cause. Moreover, these merchants helped the society in getting over phases of famine and epidemics by providing food from their godowns and money and thus securing an integral position in the society With the arrival of colonial rule in India from the 1850s onwards, the approach towards CSR changed. The industrial families of the 19th century such as Tata, Godrej, Bajaj, Modi, Birla, Singhania were strongly inclined towards economic as well as social considerations. However, it has been observed that their efforts towards social as well as industrial development were not only driven by selfless and religious motives but also influenced by caste groups and political objectives. During the independence movement, there was increased stress on Indian Industrialists to demonstrate their dedication towards the progress of the society. This was when Mahatma Gandhi introduced the notion of “trusteeship”, according to which the industry leaders had to manage their wealth so as to benefit the common man. The emergence of mixed economy saw the private sector taking a back seat while the public sector was seen as the prime mover of development. But, the public sector was effective only to a certain limited extent. This led to shift of expectation from the public to the private sector and their active involvement in the socio-economic development of the country became absolutely necessary. In the 1990s the first initiation towards globalization and economic liberalization were undertaken. Controls and licensing system were partly done away with which gave a boost to the economy the signs of which are very evident today. Increased growth momentum of the economy helped Indian companies grow rapidly and this made them more willing and able to contribute towards social cause
Section 135 of companies act 2013 requires registered company with:
(1) a net worth of `500 crore or more;
(2) a turnover of `1000 crore or more; or
(3) a net profit of `5 crore or more in any fiscal year.
To constitute a Corporate Social Responsibility Committee of the Board and to contribute at least 2% of the average net profits of the company during the three immediately preceding financial years towards CSR activities as listed out in Schedule VII to the said Act.
It is important to note that the words “three immediately preceding financial years” seems to indicate that only consistent profit making entities would be bound by the CSR mandate.
Further the law requires that the CSR committee will consist of three or more directors, out of which at least one director shall be an independent director. There are few exceptions for private company. It is specified that a private company which is not required to appoint independent director on the board, shall have CSR committee without an independent director. Also, if the private company has only two directors the CSR committee can be constituted with such two directors.
The CSR Committee shall formulate and recommend Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the company as specified in Schedule VII and shall also recommend the amount of expenditure to be incurred on the CSR activities.
Where the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. The Company shall give preference to local areas where it operates, for spending amount earmarked for CSR activities.
The CSR works on principle of – Comply or Explain. And Although there is no penal provision for non compliance under section 135, penalties can be levied under section 134(3)(o) & section 134(8)
Section 134 which deals with Board’s Report ,sub section (3)(o) states that Board’s report should include details about the policy developed and implemented by the company on CSR initiates taken during the year. Not discharging the above mention duties will attract penalties as specified in section 134(8) which are Fine, not less than fifty thousand rupees, may extend to twenty-five lakh rupees; and Every officer of the company in default shall be: punishable with imprisonment for a term which may extend to three years; or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
An assessment of CSR expenditure of 7,334 companies for 2014-15 showed that 4,195 companies did not incur any CSR expenditure. Collectively, 3,139 companies have spent a total of Rs 8,803 crore on various CSR initiatives. Recently it was in the news that “ 530 companies violated the CSR norm as instances of “non-compliance” as well as “non-disclosure” and have been detected for the 2014-15 fiscal –which was also the first year of implementation of the norm.
What is the reason of such violation ? Some experts say that there is acute shortage of CSR trained manpower or company officials do not get adequate time to look at CSR functions as they do not think it is a priority over business. Some companies claim that they do not find suitable NGO for implementation of the project and such other lame excuses. The companies need to understand the main purpose of CSR. Company does business and earns profits only when there is a society around consisting customers, employees, vendors who help company in producing and selling goods and services. The company also uses natural resources like air, water, minerals, oil, energy etc. for producing goods. The process of manufacturing certainly causes some damage to the planet by way of pollution. It is therefore the responsibility of the company to compensate for such losses to the planet and should voluntarily carry out social activities under CSR irrespective of the law.
As Company secretaries are often described as the ‘conscience of the company’ we as a Company Secretary owe something to the Society on behalf of the company in which we work. A company secretary, being a vital employee, holds office based on the concept of trust, reflecting the confidentiality of the role. They are considered as the direct nexus to the board of directors, and therefore is suited to playing a significant role in CSR formulation and implementation. Shareholders expect the board of directors to manage the board in their best interests as a primary responsibility. The company secretary has a duty to act on behalf of the stakeholders for any unethical behaviour. We as Governance professionals should ensure effective CSR program is implemented and supported by corporate levels, oversight mechanisms, training programs and accountability measures.