India Inc Needs to Wake Up to its Social Responsibilities
Image: Dinodia Photo
n a recent Saturday morning at 9 am, Wipro Chairman Azim Premji walked into the JN Tata Auditorium at the Indian Institute of Science in Bangalore to hand out the Earthian awards to students from around the country. For over a decade Wipro has been advocating quality education in schools. Four years ago it added ecology to its social agenda. The Earthian awards, given to students for writing a paper on sustainability, is one way in which Wipro has been trying to build awareness about tackling environmental issues among the youth of this country.
The symbolism of the venue (IISc was set up with grants given by the Tatas) was hard to overlook. Premji has been a big admirer of the Tatas model of philanthropy. For over a decade now he has tried to push Wipro on a similar path by using the enormous resources of the company to solve a crucial social issue such as education.
After the awards Premji took some questions from the audience. A young schoolgirl, around 15 years of age, asked Premji to pick the most defining moments of his life. Premji chose two. The first moment, he said, was at the age of 21, when he realised how dependant he was on people around him (Premji had to take over his family business upon his father’s sudden death). And second, almost three decades later, in the year 1999-2000, when he had the epiphany that he must contribute to a social issue.
“The new world order needs three Es—economic growth, equitable society, and ecological sustainability,” wrote Premji in Wipro’s recent sustainability report. “We also believe that business must play a crucial role in making this happen. Government and civil society are equal stakeholders in this mission, but as a crucible of innovation, problem solving and value creation, the business sector is uniquely positioned to make a vital difference.”
The relationship between business and society has never been an easy one. In a country like India, where socialism has had a long history, it has been even more thorny. The mantle of being the protector, the provider belongs to the government, at least in the mind of the society. Business exists to make money. It is opportunistic. It is out to exploit. Can this thinking change? Can business and society find a way to talk to each other?
THE 2% DOCTRINE
The government certainly thinks so. The new Companies Bill has introduced a small measure that has the potential to change the way business and society engage with each other. The Bill recommends that companies earning a turnover of more than Rs 1,000 crore spend up to 2 percent of their average net profits (of past three years) on corporate social responsibility (CSR). The Bill makes reporting of spends on CSR mandatory in company balance sheets. In case the company is unable to spend 2 percent, it needs to explain why it has not been able to do so in a public document.
The Bill has not yet become a law. It is yet to be passed by the Rajya Sabha, upon which it will go to the President for clearance. The exact provisions of the Bill are still being debated with the various industry bodies. But the government has signalled its intent. By our calculations, over the next few years, as much Rs 5,611 crore could flow to social causes ranging from poverty alleviation to tech incubators, from the top 100 Indian listed companies alone. The number will obviously be much higher if we consider the larger universe of multinational companies operating in India, mid-cap companies and SMEs.
The government directive isn’t a knee-jerk reaction. Research done by CSRidentity.com shows that the top 100 companies in India are already spending upwards of Rs 1,750 crore every year on CSR. This sum would be approximately 1 percent of their net profits.
All that is now happening is that the random acts of kindness will become more focussed and hence impactful. Reliance Industries (RIL), State Bank of India (SBI), Tata Steel, National Thermal Power Corporation (NTPC), Coal India (CIL) and Steel Authority of India (SAIL) are all spending more than Rs 100 crore each year on CSR. All these companies and some more are now experimenting and trying to make CSR an integral part of their business.
Now this entire move to get corporations to spend 2 percent of profits has critics. One of the detractors is Azim Premji himself who doesn’t think it is a good idea to force companies to spend money. This is a fair observation but the government isn’t really being coercive. There are no punitive measures as long as an independent director in the firm can explain the lack of spending. In some time most companies will be able to develop a CSR strategy simply because every year they will be publicly stating what they did or did not do.
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