CSR: A case for Co-operate or Collective SR
By Yogesh Kochhar
The passage of the Companies Bill, directing corporates to spend a percentage of profit on CSR is a big step in the right direction. However, a lot more needs to be done to ensure efforts are brought to their fruition.
“A recent report by National Sample Survey Organization (NSSO), based on a comparison of data on household spending patterns for 1999-2000 and 2011-12, indicates that in rural areas the disparity between the haves and the have-nots increased nine times in these 12 years.”
“If a corporate entity sells its goods and services in an area, howsoever remote, it is equally its responsibility to contribute to the sustainability in the area. For, that alone can be surmised as responsible selling or it is undue profiteering.”
Backdrop and the current law
Indian markets offer an exciting opportunity with its billion+ and growing population. We have one third of America’s area and four times its population, and offer twelve times more customers to any prospective entrant with its bags of goods and services. While the opportunity to work with the economies of scale on the logistics and distribution side of the trade offers an attractive arbitrage; however, such an entrant also examines the encompassing hygiene that shall ensure the sustainability and growth of its business. Thus, the legal structure, the political, economic and social stability or uncertainties; are equally of paramount importance.
The reality also is that the surface area of commercial opportunity today in India is under threat, with 25% of it compromised. What with over 170 districts out of 640 notified as terror ridden. Clearly that indicates a view of the parched land, unaddressed aspirations with lack of opportunity that rants, cries out, and raises its head in the form of terror outfits. The income disparities are only widening and leading up to serious repercussions of unease, unrest, and restive populations. A recent report by National Sample Survey Organization (NSSO), based on a comparison of data on household spending patterns for 1999-2000 and 2011-12, indicates that in rural areas the disparity between the haves and the have-nots increased nine times in these 12 years. These are the disparities that manifest as open wounds and as a result we have naxals and Maoists etc festering on our country. To call them outlaws would be to live in denial. These need to be treated and can’t be surgically removed.
Let’s look at a different perspective now. If the Companies Bill 1956 produced landlords, the Companies Bill 2012 looks to empower the LAN to lord over its stock. The Local Area Network gets a shot in the arm. If the goals and objectives of a company are self-centered, as it may be, it’s her radius that shall matter now! The Law mandates companies to spend an average @2% of profit after tax of the preceding three years on CSR, the lowest common denominator being a company that makes a profit of rupees five crores annually. What the Bill does to India, with her official GDP of USD 1.8 trillion and GDP based on PPP of USD 4.7 trillion, is that it directs the flow of this 2% of profit.
The Bill in its fine print, mandates that the said 2% be spent in the area of company’s operations. Thus, not only will there be an account of what is spent; it will also cover the geo-spread of that spend. If a corporate entity sells its goods and services in an area, howsoever remote, it is equally its responsibility to contribute to the sustainability in the area. For, that alone can be surmised as responsible selling or it is undue profiteering.
The new law also reflects and affirms India’s intent to be counted as more than a mere statistic in the Millenium Development Goals (MDG) rankings of the United Nations Global Compact (UNGC); and improve its stock to reduce disparities, improve governance, and attract investment and growth. In effect, it is evident that both the UNGC and the MDGs in the Indian context, translated in the form of the new law (Clause 135 read with Schedule VII of the Bill), deals with the concept of CSR and even identifies activities and expenses that shall qualify as valid spend on CSR. These should be read and run, hand in glove with the UNGC and the MDGs. This heralds a new era for corporate India–for corporate governance, shareholders, stake holders, employees, customers, and markets. The bill has landed and revealed truth or Satyam.
Companies Bill: Its executable challenges
In order for the law to be executed well, it must set standards that define, measure, analyze, improve, and control adequately because as philanthropist Rohini Nilekeni has said, “Since the money on the table could equate a large nationwide program involving billions of dollars.” It is imperative now more than ever earlier.
While the companies start following this, it shall at best remain a disparate story, with each company identifying and pulling their stock behind such issues as they deem fit, without considering work undertaken by the others or impact created or studied. This requires a shepherd’s crook, to ensure that initiatives several as they are, don’t run all over the place. CSR Initiatives and interventions must serve the objective of rearing and grooming India in a manner that’s equitable and equanimous. This calls for collective wisdom and endeavor.
Before we address as to how it can be managed, lets use an illustration. On a recent visit to Puduchery, I saw hundreds of boats littered on the beach at Mammalapuram on the east coast road from Chennai to Puduchery; a post Tsunami result of supposedly well-meaning CSR. It isn’t difficult for those of us that have gone there in recent times to imagine that fishing villages that may have had a 100 fishermen and 10 boats Pre-Tsunami perhaps returned Post-Tsunami only with a 100 boats and 10 fishermen. That happens due to no metrics or measures available. However most donors while they are happy having done their bit, do rarely go beyond accounting their contributions in their books; while what is needed is to study impact of such spend and check if this is leading to colossal overstuffing waste or duplication of efforts. Absence of cohesion; dispersed; diverse; and all kinds of initiatives being undertaken by the corporates in silos largely add up to nothing even as these are individually reported in their annual reports. It is also here that UNGC and MDGs or now our CSR law shall become casualties.
Thus a corporate entity’s challenges and limitations in line with the breadth of their operations are:
— To scope their areas of contribution, in as much as any single corporate can, given that it can only provide its own finished goods and services. (e.g: a Telco can provide bandwidth alone, which cannot build a school from ground upwards)
— To scale their CSR outreach. This can only be limited to a certain radius where it may have access based on its presence by virtue of its offices and employees, all in an effort to capture a few human interest stories and be seen as good corporate citizens.
— To align itself with all the MDGs, due to its marginal ability to identify partners and collaborations, to optimize investment returns on CSR, and increase the surface of its contribution and impact. The scenario is similar to the eight blind people around the elephant each of whom feel sure in their respective description.
Corporate houses are ever willing to ‘seek’ opportunities, while on the other hand the several NGOs and Trusts are ever willing to help communities ‘soak’ that giving. What is needed is a collaborative platform that helps them conjoin their strengths and re-discover the extent and economies of scale and scope in their grass root engagements.
It is precisely here that there is need to set up an electronic CSRealm or CS Registry under the Ministry of Corporate Affairs, in the form of a one page view that identifies spaces for interventions, creates a database, catalyses CSR partners, and gives such initiatives both a deeper and a wider scale and scope. Thus, identify and plot the spread and cascade of ‘seekers’ and ‘soakers’ with exactitude on an electronic platform across the states, districts, and blocks. It would deliver a package that’s better than the sum of its parts. Thus on such an e-registry, it would be possible to identify ‘seekers’ and ‘soakers’ that can:
— ‘LEAD’ an initiative if it has its own offices or establishment down from its head offices across the states to the various districts all the way to the block level. Block, since it is the last administrative outpost of the government, or
— ‘SUPPORT’ an initiative if it has its products and services selling through dealers, distributors, and franchisees.
If such initiatives can in turn be identified with the help of the ‘soakers’ and the BDO (block development officer) in the backdrop of MDGs or the schedule VII, the CS Registry will help identify resources available in such a block.
There is a good chance that a primary school with five classrooms can be created in a remote block of the nation, through SUPPORT coming from companies registered on the CS registry that sell cement, steel, computers, electrical and hardware, Soaps, TVs, gensets, inverters and batteries, tiles and knobs and the like. To lead, it is possible that a business house with its offices there can second an engineer who builds that school.
It follows logically, thus, that there could be several seekers and soakers working in each block in disparate streams oblivious of other seekers and soakers presence, all keen to collaborate, all blissfully unaware of each other.
Through an electronic CS Registry, we can identify need gaps in any geography with the help of the BDO and a Lead Corporate and go on to execute, measure, monitor, control and grow sustainably, even as we exploit economies of scale and economies of scope.
Thus, it can be ensured that a boat to that fishing hamlet is taken only if it needs it and its provisioning there does not lead to the econometrics getting confounded, compromised, or complicated. For that may mean, creation of a sum of its parts that’s better than the whole, through a mechanism that has metrics built into it. If a company can sell in an area that is terror ridden, it must equally contribute to CSR there. How good is seeking without soaking.
Equally pertinent is the need to develop metrics that assess the spend and the spread. Only a method that helps measure the spend and the spread will pay in the long run. Example, if one sold its goods across 2100 blocks and one’s CSR interventions were spread only across 30 blocks, its effective contribution is 1.43%. That’s opportunity for improvement (OFI) of upto 98.57% where one still sold and never supported. Lack of information pertaining to other likely partners in such deficient geographies and a mechanism to deliver, restrains intervention across such 98.57%. What counts must also be counted.
That Columbus discovered America is not to disregard that America existed before he set foot on it. This act of discovery does not lie in looking for new lands alone, it lies equally in looking with new eyes. Lack of evidence does not mean lack of existence. CSR is a marketplace. There is a space in the market and there is a market in the space.
The author is Director -Policy, Microsoft Corp India. Views are personal.