Thursday, February 27, 2014

Indian Government notifies rules for CSR activities under Companies Act 2013

Government notifies rules for CSR activities

In an official release today, Corporate Affairs Minister Sachin Pilot said the rules have been finalised after extensive consultations with all stakeholders.
In an official release today, Corporate Affairs Minister Sachin Pilot said the rules have been finalised after extensive consultations with all stakeholders.
NEW DELHI/ KOLKATA: The government has notified the rules for corporate social responsibility (CSR) spending under the new companies law, putting in place the much-debated plan aimed at encouraging companies to spend a portion of their profits on projects that benefit society. Under the plan, companies above a certain threshold have to spend 2% of average profit of the previous three years on CSR activities specified by the government, which does not include political funding. Companies that are unable to do so have to give reasons for falling short.

The government has amended Schedule VII of the Act to include more activities under CSR than what had been defined earlier, but has withdrawn the discretion promised to boards earlier. "CSR will include all the programmes and activities undertaken by the board of directors... subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act," said the notification by the ministry on Thursday.

Areas that have been defined by the government in the CSR policy include eradicating hunger, poverty and malnutrition; promoting preventive healthcare and sanitation; and the Prime Minister Relief 's Fund, among others.

The policy will also consider measures for the benefit of armed forces veterans, war widows and their dependents, homes and hostels for women and orphans, old age homes, day-care centres and other such facilities for senior citizens as coming under CSR.

"Including new items under CSR is a welcome move as it would help divert corporate spending to areas which are otherwise neglected," senior company law expert Vinod Kothari said.

"The CSR policy will now be different from conventional policy statements as the rule stipulates the requirement of listing the projects/programmes and also the monitoring process for such programmes," said Santhosh Jayaram, technical director, sustainability, KPMG India. 
"The CSR policy will now be different from conventional policy statements as the
rule stipulates the requirement of listing the projects/programmes and also the
monitoring process for such programmes," said Santhosh Jayaram, technical
director, sustainability, KPMG India.
Government notifies rules for CSR activities
Company having a net worth of at  least Rs 500 crore or a minimum turnover of Rs 1,000 crore or those with a net  profit of at least Rs 5 crore are covered by this policy.

India Inc.  doesn't seem to be too enthused about the latest rules. "Precluding  the corporate boards from determining what would constitute CSR goes against the very premise of the Act, which is built on self-governance and enhanced  disclosures," said Chandrajit Banerjee, director general of the Confederation of  Indian Industry lobby group.

S Santhana Krishnan, chairman of the corporate laws committee of the chartered  accountants' institute and member of the rule committee of the corporate affairs  ministry, said the board of a company will have to work within the broad  framework prescribed by the CSR rules."It will not have the freedom to pick and  choose a new area outside the broad guidelines. I feel the new rule will enable  companies to continue their spend on CSR activities," she said.

The rules also clarify that any private company that does not have independent  directors can form CSR committees without such directors. Interestingly, the  government has excluded state government funds from Schedule VII after the  Chhattisgarh government interpreted the law uniquely, asking firms to deposit  their contributions to the Chief Minister's Community Development Fund rather  than undertake CSR projects on their own. The rules were finalised after the ministry examined over one lakh suggestions  from various stakeholders.

Tuesday, February 11, 2014

The CSR Value Continuum: From Value Distribution to Shared Value Creation

The CSR Value Continuum: From Value Distribution to Shared Value Creation

Wayne the teacher copy
By Wayne Dunn
“That is shared value not corporate social responsibility.”
That is the reaction I received two weeks ago after sending a note about my value-centric approach to CSR and highlighting the economic sustainability inherent in CSR projects that have robust value propositions that can align the social, economic and developmental interests of companies, communities, shareholders and other stakeholders.
CSR is a complex, evolving and exciting area that is finding new ways to create and distribute value. Simultaneously, the language and frameworks around CSR are evolving rapidly and helping executives, practitioners and academics with practice and understanding. We are all learning and none of us is an “expert.” I want to share some of my thoughts on CSR, shared value and a framework that has helped me to be more effective in this space.
The concept of shared value has been eloquently described with powerful voices that have done well to help business and society understand what it is, to think about how to develop it and realize the compelling value propositions that it can create. Professor Michael Porter and his team, through their work, their writing and the gravitas they carry, have helped many to see and think about business differently. As they wrote, shared value “generates opportunity, innovation, and competitive advantage for corporations—while solving pressing social problems.” To my thinking, this makes shared value an important aspect of CSR and good business strategy.
I believe that we do a disservice to business and corporate social responsibility if we place shared value actions outside of the scope of CSR, and I don’t think this is what Professor Porter and others intended at all.
I’ve spent a couple of decades developing, analyzing, evaluating and supporting CSR-related projects and programs around the world and across industries and sectors. Working on more than 60 projects in that time, I’ve developed some frameworks and tools that I find very helpful to allow me to analyze and understand specific situations and strategies. One I nearly always use is the CSR Value Continuum. It helps to look at the various CSR programs, projects and initiatives that a company is doing and place them on a continuum ranging from value distribution through to value creation.
Clearly, shared value is at the value creation end of this continuum, focused on finding those opportunities where 1+1=3; identifying value propositions that can align corporate, stakeholder, community, environment and other interests — creating new value by making the pie larger. At the other end of the continuum are value distribution actions. These too are important. They are where companies share or distribute value in a voluntary and strategic manner so that communities, stakeholders, environment and other interests receive new value, and some level of value is created for the company through goodwill, reputational capital, social license enhancement, etc. Notice that at both ends of the continuum the actions produce value for the company, that there is some alignment of shareholder and stakeholder interest. If there wasn’t, why on earth would the company do them?
The mistake that people sometimes make is to assume that those CSR projects and initiatives that are at or closer to the value creation end are necessarily more important, that companies should do more of these and less of other projects. The full range of CSR actions — grants, donations, scholarships, education, training, community development, environmental restoration, local institutional development, local infrastructure, employment and skills development, local procurement and business development — are all important tools.They can be important for the company and for local stakeholders.
Depending on the specifics of each one, they will situate differently on the continuum. But in general something like grants, donations and scholarships would fit more towards the value distribution end of the continuum, while local procurement and business development would tend to be closer to the value creation end. The value continuum is useful in revealing to companies how their actions fall on a distributive-to-creative scale, and this understanding can help both strategically and tactically to optimize value return from CSR investments.
Companies and projects stand to maximize benefit by consciously thinking of their CSR projects and activities in terms of the value continuum and have a spectrum of activities that span the continuum. This benefit includes discovering new strategies and opportunities for creating and capturing more value from existing activities — opportunities which risk being overlooked if focussing only on one end of the spectrum.
CSR is a complex and evolving field. There are some great projects and great innovations happening, and value is being created in exciting and innovative ways. I’ve found that practical tools and frameworks like the value continuum can help companies and practitioners to enhance their understanding of the value aspects of their CSR activities and to be more efficient at creating and distributing value.
Wayne Dunn is a Professor of Practice in CSR at McGill University in Canada (he calls himself an accidental academic). He has over two decades of practical experience in CSR at all levels and all over the world. His work has been used for a Stanford Case Study and has won many awards including the first ever private sector project to win a World Bank Development Innovation Award. He is currently the Executive Director of the CSR Training Institute and is developing and delivering Executive Programs around the world. He is a Stanford Business School Sloan Fellow and lives on Vancouver Island in Canada. He can be reached at

Tuesday, February 4, 2014

What does 'sustainable' mean to you?

To sustainability professionals, the word "sustainable" means more than just environmentally friendly - but that's not the case for consumers, according to a new study. How can we fix this?

A woman sits on a grass-made sofa in Frankfurt, Germany. The so-called
Sustainability means more than just 'green' to industry pros, but will the broader definition ever reach the mainstream lexicon? Photograph: Frank Rumpenhorst/AFP/Getty Images
The debate about the word "sustainability" continues.
"We use it openly and freely, and it's not really a consumer word," said Carol Fitzgerald, CEO of online research company BuzzBack, at a Rainforest Alliance event in New York City on Thursday.
She was presenting new research from a not-yet-completed study on perceptions about sustainability. Only the US portion of the study, which will ultimately also include research from the UK, India, China and Brazil, has been finished.
One surprise is how few US respondents said they hear the word sustainability regularly: only 16% said they see it "very often", with 56% reportedly seeing it "occasionally", according to Fitzgerald.
And in several different activities meant to help researchers understand consumers' view of sustainability, US respondents chose environmental words such as "environmentally friendly", "natural", "organic," "green", "recycle" and "renewable" as most similar to "sustainability", she said.
Meanwhile, words such as "ethical," "trust", "trustworthy", "collaboration", "community" and "transparency" ranked low in their perceived relationship to sustainability, she said.
Different generations also had different definitions. "Among baby boomers, there's some confusion about what it is," Fitzgerald said. Baby boomers were more likely to choose words such as "health" and "life", but selected fewer words that reflect the idea of preserving for the future than Gen X or Gen Y respondents.
The results signal the need to build more awareness about non-environmental aspects of sustainability, Fitzgerald said: "The words they're using are 'natural', 'organic'. I think we all feel sustainability is more than that. So we need to develop a new lexicon."
The different consumer and industry definitions raise the question: Who's right? Given that definitions are derived from words' use, what does it mean that the general public relegates sustainability to the environmental realm while professionals, who use the word more often, think it means more? And are sustainability pros just talking to themselves?
BuzzBack isn't the first to question the wisdom of using words – including the "S" word – that remain more like jargon than everyday language.
But is it really time to give up on the word "sustainability" all together? The industry will need to decide whether to work to change the definition of "sustainability" or eliminate its use – or a bit of both, said KoAnn Skrzyniarz, CEO of sustainable-business community Sustainable Brands. While challenges remain, such as the word's currently narrow definition, she said, "the sustainability word is coming into the common vernacular in some way".
What do you think? How can we – executives, employees, investors, activists, policymakers, stakeholders and consumers – help to broaden the discussion beyond the environment (without leaving environmental issues out)?
Is it a matter of bringing a deeper vocabulary, beyond just a few buzzwords, into mainstream usage? Is more marketing and outreach needed to show that these broader topics are a key part of sustainability? Or should we give up the word "sustainable" as a lost cause, instead favoring words like "ethical", "responsible" and "conscious"?
We'd like to hear your thoughts.

Sunday, February 2, 2014

Is CSR a sustainable business model?

The concept of social responsibility and philanthropy has been a part of charitable initiatives of the Indian business houses, as also by the zamindars in the days of the permanent settlement as a tribute to God. A later phase was triggered by the Gandhian movement and the initiatives of industrialists of that time, such as, , , and who were inspired in undertaking similar initiatives as a part of the Gandhian philosophy starting with dharamshalas and places of worship.

These initiatives were undertaken under the Indian Trust Act, based on the principles of trusteeship and the fiduciary requirement to provide a return for the gains of business. It is only in the new (2013) that statutory provisions and responsibilities pertaining to () have been made mandatory under law, requiring companies having a net worth of Rs 1,000 crore or more to constitute a separate Corporate Social Responsibility Committee of the Board, of which one member has to be an independent director. As privatisation waned due to policy changes in the nationalisation era, the public sector became an active player in setting up schools and hospitals in their townships.

Though the productivity of the public sector plummeted in the eighties, with privatisation, the public sector still remains active in its social initiatives and the large corporations, such as ONGC and Indian Oil Corporation continue to serve the community in various ways. The revival of CSR in the 1990s can be traced to the upsurge of environmental concerns, which fathered the initial public interest litigations, and more recently the Green Tribunal. Auto manufacturers and others engaged in industries which involve pollutants tend to be targeted, and the Mahindra's are one of the foremost in CSR as Maruti.

The question is whether CSR is warranted and corporates are happy with CSR featuring in the Companies Act being made mandatory. There are divergent views. Certain companies believe CSR provides an opportunity for being inclusive and the process benefits the outlook of employees as well as customers. Essentially, it is the state's duty to provide welfare to society under the Constitution. It is another matter if a corporation decides to utilise its funds in social welfare, without being coerced by regulations. There is also a difference in green investing and social projects. If the company's activity involves production or use of alternative natural resources and other environmentally conscious business people or invest in given mutual funds, that itself goes a large way.

If the company's business is healthcare, then pro-bono work in that sector also has its positive business indicators. But the CSR schedule to the Act involves unwarranted expenditure by corporations in certain activities in respect of issues which are not within their domain expertise. There is also an element of intrusion of investor rights in introducing mandatory CSR. Both the investor and the corporation are taxpayers. Investment decisions are not made on the basis of CSR projects, but on the dividends issued by the company and the net value. In the zeal for corporate governance and other forms of compliances, lawmakers should not lose sight of the purpose of a limited liability company.

For multinationals that operate in a global market, it is not possible to have separate approaches and staffing for their social responsibilities. Every jurisdiction has its specific regulations for companies and their compliances. In addition, there are international CSR standards and guidelines to comply with, all of which is a full time task, particularly, if it has no nexus with the corporations business.

Undoubtedly, there are other worthy activities in which companies' funds may be deployed such as self-regulation and good governance. A business ethics initiative is more important for business and also a worthy cause. Businesses are fighting for survival in adverse conditions. This is not the appropriate time to engage in expenses which do not bring value addition to their businesses and eat into profits.

Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at