XVII Annual International Seminar Proceedings; January, 2016 ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM Page 214 CORPORATE SOCIAL RESPONSIBILITY: CONTEMPORARY INDIA AND COMPARATIVE ANALYSIS Neeati Narayan Student Symbiosis Law School, Pune New Airport Road, Viman Nagar, Pune INTRODUCTION The paper will help gauge the actual ramifications of a mere statutory provision and will help streamline corporate efforts into activities which do not directly profit them as a part of conventional channels. Furthermore, it will be an original study into the comparative analysis of CSR and how India has taken a concrete step in order to promote social activities by the corporate players and help the stakeholders. It will also support other studies which scrutinize the realities of the CSR rules. India witnessed the enactment of a new Companies law regime when the Companies Act of 2013 was signalled a green flag by the legislature. As a part of several developments and much needed standardization in terms of grey areas and loopholes, corporate social responsibility (hereinafter referred to as “CSR”) was enshrined as a corporate reality and duty for the companies governed under this Act. India is the first country in the world to have mandatory CSR spending (with provisions for exemption) along with mandatory reporting. It is now statutorily mandatory for all companies above a certain size to spend 2 percent of their profits towards meeting CSR. Indian legislature realized the trend shift in terms of the corporate players and as a concrete step towards tangible globalization based on foreign models, promulgated definite rules emanating from previously voluntary guidelines.
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XVII Annual International Seminar Proceedings; January, 2016
ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM Page 214
CORPORATE SOCIAL RESPONSIBILITY: CONTEMPORARY INDIA AND
COMPARATIVE ANALYSIS
Neeati Narayan
Student
Symbiosis Law School, Pune
New Airport Road, Viman Nagar, Pune
INTRODUCTION
The paper will help gauge the actual ramifications of a mere statutory provision and will help
streamline corporate efforts into activities which do not directly profit them as a part of
conventional channels.
Furthermore, it will be an original study into the comparative analysis of CSR and how India
has taken a concrete step in order to promote social activities by the corporate players and
help the stakeholders. It will also support other studies which scrutinize the realities of the
CSR rules.
India witnessed the enactment of a new Companies law regime when the Companies Act of
2013 was signalled a green flag by the legislature. As a part of several developments and
much needed standardization in terms of grey areas and loopholes, corporate social
responsibility (hereinafter referred to as “CSR”) was enshrined as a corporate reality and
duty for the companies governed under this Act.
India is the first country in the world to have mandatory CSR spending (with provisions for
exemption) along with mandatory reporting. It is now statutorily mandatory for all companies
above a certain size to spend 2 percent of their profits towards meeting CSR.
Indian legislature realized the trend shift in terms of the corporate players and as a concrete
step towards tangible globalization based on foreign models, promulgated definite rules
emanating from previously voluntary guidelines.
XVII Annual International Seminar Proceedings; January, 2016
ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM Page 215
Corporate Governance
The phrase “corporate governance” describes “the framework of rules, relationships, systems
and processes within and by which authority is exercised and controlled within corporations.
It encompasses the mechanisms by which companies, and those in control, are held to
account.1
The OECD principles define corporate governance as involving “a set of relationships
between a company’s management, its board, its shareholders, and other stakeholders.
Corporate governance also provides the structure through which the objectives of the
company are set, and the means of attaining those objectives and monitoring performance are
determined. Good corporate governance should provide proper incentives for the board and
management to pursue objectives that are in the interests of the company and its shareholders
and should facilitate effective monitoring. The presence of an effective corporate governance
system, within an individual company or group and across an economy as a whole, helps to
provide a degree of confidence that is necessary for the proper functioning of a market
economy.”2
Appropriate organizational structures, policies and other controls help promote, but do not
ensure, good corporate governance. Governance lapses can still occur through undesirable
behaviour and corporate values.
Effective corporate governance is not only the result of “hard” structural elements, but also
“soft” behavioural factors driven by dedicated directors and management performing
faithfully their duty of care to the institution.3
In India, corporate governance is imposed by virtue of Clause 49 of Listing Agreement, a
covenant entered into by the listed companies with the stock exchanges. In terms of the
unlisted and private entities, Ministry of Corporate Affairs regulates such aspects relating to
corporate governance norms.
1 Justice Owen in the HIH Royal Commission, The Failure of HIH Insurance Volume 1: A Corporate Collapse
and Its Lessons, Commonwealth of Australia, April 2003 at page xxxiv
2 OECD Principles of Corporate Governance, revised April 2004, originally issued June 1999, available at
www.oecd.org/dataoecd/32/18/31557724.pdf
3 The Principles for Sound Compensation Practices were published by the Financial Stability Forum (FSF) in
April 2009 (the FSF is now the “FSB” –Financial Stability Board)
XVII Annual International Seminar Proceedings; January, 2016
ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM Page 216
Clause 49 of the Equity Listing Agreement consists of mandatory as well as non-mandatory
provisions. Those which are absolutely essential for corporate governance can be defined
with precision and which can be enforced without any legislative amendments is classified as
mandatory.
Others, which are either desirable or which may require change of laws are classified as non-
mandatory. The non-mandatory requirements may be implemented at the discretion of the
company.
A few important sub clauses enshrined within Clause 49 of the Listing Agreement include
extensive description of ownership structure (with majority shareholding by shareholders,
directors and promoters), establishment and working norms of Audit and Remuneration
Committees, duties and responsibilities of independent directors, formation of whistleblower
policy and corporate social responsibility. The Listing Agreements of Indian Stock
Exchanges and the reporting requirements therein are deemed to be highly stringent and
regulated in nature as India has gone a step ahead of the best market practices established by
the developed jurisdictions.
BACKGROUND
While there is no particular definition which is globally accepted, CSR is regarded as
voluntary behaviours that contribute to the society welfare. Based on the concept of
sustainable development, corporations should not only stress on their economic and business
outcomes, but also pay attention to their effect on the society and environment. With the
acceleration of global integration, CSR has become a main concern by the public, and is
considered as an essential part of the business strategy4, and yet, it remains to be a disputed
concept.
CSR in the current global form and as a corporate norm has been adopted by corporate bodies
and has gained bigger momentum in the last decade.5
However, it can be defined effectively as the formal and informal ways in which commercial
makes a contribution to refining the governance, social, ethical, labour and environmental
4 Moon, 2002
5 Kiyoteru Tsutsui, CORPORATE SOCIAL RESPONSIBILITY IN A GLOBALIZING WORLD (Cambridge University
Press, 2015)
XVII Annual International Seminar Proceedings; January, 2016
ISBN no. 978-81-923211-8-9 http://www.internationalseminar.in/XVII_AIS/INDEX.HTM Page 217
conditions of the emerging countries in which they operate, while remaining sensitive to
prevailing religious, historical and cultural contexts.6
While theoretical perspectives on corporate social performance or stakeholder management
have been developed for over two decades7, it is only in the last decade that businesses have
begun to exhibit serious evidence of CSR in their strategic management and stakeholder
social reporting.
When we delve into the Indian scenario, it must be noted that the Ministry of Corporate
Affairs recently notified Section 135 and Schedule VII of the Companies Act 2013 as well as
the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 to
come into effect from April 1, 2014. The guidelines that were created by Bhaskar Chatterjee,
Director General and Chief Executive of the Indian Institute of Corporate Affairs (hereinafter
referred to as “IICA”), a Delhi-based government affiliated think tank for corporate
regulation and reform.8
Now, every company, whether a public or a private limited one, which either has (a) a net
worth of Rs 500 crore or (b) a turnover of Rs 1,000 crore or net profit of Rs 5 crore; needs to
spend at least 2% of its average net profit for the immediately preceding three financial years
on corporate social responsibility activities.9
A further condition is that the CSR activities should not be undertaken in the normal course
of business and must be with respect to any of the activities mentioned in Schedule VII of the
2013 Act. Contribution to any political party is not considered to be a CSR activity and only
activities in India would be considered for computing CSR expenditure.
As a part of the notified rules, we find that the activities that can be undertaken by a company
to fulfil its CSR obligations include (a) eradicating hunger, poverty and malnutrition, (b)