CSR may become mandatory for larger business, but the government is unlikely to be too stringent on companies that seek business benefits from them.
The recent inclusion of corporate social responsibility (CSR) has become a point of widespread debate among various industries that either have been spending or need to spend on social development. In a seminar organised recently in Navi Mumbai, industry leaders and CSR practitioners outÂ¡lined the Section 135 of the Companies’ Act, which now includes CSR as a mandate for large companies, and debated its relevance in a developing economy that needs the private sector to participate in social development. The government finalised the contours of the clause whereby companies that make Rs 5 crore profits, or have a turnover of Rs 1,000 crore, or have a net worth of Rs 1,000 crore, will need to spend at least 2 per cent of the average of their profits before tax (PBT) over three years.
RSM Astute Consulting, a Mumbai-based accounting and auditing firm with CSR advisory capabilities, organised the seminar along with its partner, General Carbon, an advisory firm that merged with RSM Astute recently.
The draft corporate responsibility rules (Section 135 of the Companies Act 2013) document is now being circulated for public comments. KH Viswanathan, Director of RSM Astute, is sceptical how the rollout of the CSR clause will be implemented by the government. "It should have been executed in a phased manner," he told this publication, "including only listed companies to begin with, then larger unlisted ones, and so on. This would have resulted in better focus and enabled the government infrastructure to be more structured and more effective in its implementation by addressing smaller bunches." Viswanathan foresees much activity in the CSR segment starting 2014, when the law will come into effect.
Companies have been debating of the fairness and potential implications of the rule that the CSR Policy of a company should provide that surplus arising out of the CSR activity will not be part of business profits of a company. While it may be possible to delink CSR activiÂ¡ties (a list of which is already a part of Section 135) from core business activities, social development can play a big role in public perception and company valuation. Experts believe that if that economic benefit is seen, it will create the necessary motivation for companies and reduce any reluctance. "It is important to monetise the beneÂ¡fits of CSR," says Viswanathan.
Firms like RSM Astute would like to work with companies as operators of CSR, facilitating its "outsourcing", since for most companies, the activities would be alien and unaligned with the core business competencies. Companies that have already committed to social development may feel the need to restructure the activities by making them a more mainstream segment of the companies with a directorial board to oversee CSR. On the other hand, smaller companies and those that have not yet ventured into CSR will need to invest in a whole new system, department and a board. Recovery of this "team cost" could be a matter of concern to companies.
HCC’s CSR official said they’re already big in CSR and will continue to do so. A senior CSR executive of another major corporate group is positive about CSR. She said they are "putting systems in place to see that we’re well prepared by the time the section in the Act actually comes into force [next year]." But she said CSR activities must reflect the mandates of core business objectives.
"The Act doesn’t say anything contrary to a company’s long term business benefit from CSR," explained P Ram Babu, CEO, General Carbon. "Shared value has direct business benefit. A CSR ‘toolbox’ will evolve eventually, setting standards to help auditors and regulators decide on how CSR activities can be implemented."
The government has recently taken steps to listen to the industry. Union Corporate Affairs Minister Sachin Pilot met several business leaders and listened to concerns, which included rotation of auditors every five years, and that religious donation or work cannot pass as CSR. Many family-owned, large businesses have been big donors of religious activities. Panellists at the Navi Mumbai seminar also cautioned the industry against confusing product innovation and research and development (R&D) with CSR.
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