Reading Nicpic’s blog post about “Exxon Mobil and the value of CSR “ and Nourann’s post “CSR or just a façade?“ really got me thinking about this broad topic that seems to be on everyone’s lips. Not just because of its positive impact on society as a whole and on the environment,but because it is being harshly criticized and branded as a mere marketing tool that helps companies to revamp their image and at the same time cut costs.
During my research I stumbled upon a case in India which captured my attention and inspired me to discuss the question whether Corporate Social Responsibility should remain voluntary or become mandatory in order to assure that all companies are socially responsible.
The government of India is a considering to pass a law that would make CSR mandatory for the Indian industry. The debate was started last year in December when the Indian government proposed to change the Original Companies act from 1956 and add a number of amendments to the Companies Bill. The new Bill decrees that companies worth $100 million or above or that meet similar standards should dedicate 2% of their net profits to CSR activities.
According to news.biharprabha.com making CSR compulsory results from the need of pushing the Indian industry into more philanthropy in the social sector.
Sitaram Jindal,philanthropist and head of the Sitaram Jindal foundation claims:
The domestic corporate sector can work wonders for the social sector in the country, but they need to be pushed by the government through legislation “.
Furthermore, Jindal argues that corporations won’t listen to any advice unless it is in their own interest. Therefore only law can force them to promote charity.
Jindal adopted 117 villages in Karnataka through his foundation since he truly believes that CSR can do wonders if only business people and industrialists spend one part of their income. He observed:
Our country must get help from the rich. We business people are businessmen by nature and we can spend money where we can get returns…“
The octogenarian explains the India has 350 million people who live below the poverty line and business people are the ones who could eradicate this poverty.
The Government not only sought to force companies to invest 2% of their net profits in CSR actions but also to make reporting mandatory so companies would provide explanation whether they were able to allocate this annual amount to CSR activities.
This year the Indian government decided that CSR will remain voluntary but reporting is compulsory.
Business tycoon, philanthropist and chairman of Wipro Limited Azim Premji does not agree with Jindal and instead contends that there is no need for a law on mandatory CSR spending. The third wealthiest Indian( according to Forbes) adds that large companies must have enough social consciousness to accept responsibility without being forced to do so.
His opinion is echoed by other experts in the IT industry. Infosys Technologies CEO Kris Gopalakrishnan reasons that CSR should not be mandated, but it should be voluntary given proper disclosures.
Adi Godrej from Godrej Group supports this argument and maintains:
Philanthropic organizations should be allowed to operate reasonably freely and not with control to my mind. When governments start controlling things, things don’t work as well as when people are motivated to do these things.”
So far we have taken a closer look at the situation in India, but what is it like in other countries? What about Europe?
Juan Villamayor for example writes in his blog post that CSR is about the “power of convictions“ and should remain voluntary. He gives examples of other countries like Denmark, UK and France where reporting on CSR practices is mandatory but investing in CSR is not.
The question that Villamayor raises in this context is definitely justified. He asks his readers if companies that are forced to provide disclosure of CSR information are more responsible than those who do it on a voluntary basis.
I’ve found a comment on this issue on another blog called csrfootprint.wordpress.com. One reader states:
Asking or forcing companies to pay so much into a CSR fund would be giving a license to businesses to move away from their social and environmental responsibilities. Whereas, asking “companies to quantify and state their environmental, social and economic impacts, along established principles and via accepted procedures” should be the norm adopted to ensure CSR means what it was intended to mean.“
Juan Villamayor questions the positive effect of a government regulation and states:
I doubt that mandatory CSR could be a global solution. After all, CSR is a way to manage a company. It defines your dialogue with the stakeholders. Whether companies choose to be responsible or not, has to be left to their discretion.“
He mentions several reasons why he is in favor of voluntary CSR. Villamayor insists that CSR should be promoted and not imposed because it is closely linked to values which cannot be forced. Besides he asks whether the government is going to define CSR.
A framework or set of rules for CSR already exists. It was devoleped by the industry itself, what we need now is a better public CSR regulation. One blogger commented on this particular issue and remarks:
We already have regulation across certain elements of the CSR agenda such as the Carbon Reduction Commitment in the UK.(…) being personally in favour of better regulation, rather than more(…).“
But having binding rules means that there will be fraud. The tempation to break the rules can be high and the price to pay as well. And what are the consequences if a company doesn’t act in a socially responsible way?
With regards to CSR and competitiveness Villamayor points out that companies have to decide how to imrove their competitiveness, if it should be with the help of CSR or not.
But perhaps if CSR would be mandatory L’Oréal wouldn’t have acquired The Body Shop, which was a pioneer in the field of CSR, in 2006 to save their reputation.
What do you think? Would mandatory CSR have a better effect? Do you agree with Rana Gajraj :
Nothing works without fear or self interest . Companies should be FORCED. We all get free air from this planet. still how many of us care to give back to this planet. All natural resources are from this planet, how much do we give back.The only answer is ..FORCE “
Or is Frea Haandrikman’s comment more in alignment with your personal conviction?
(…)In my opinion, by definition CSR must be something that is linked to a company’s core activities. Putting money in a jar that can used for anything is in no way linked to what a company actually does, and is therefore not CSR.(…) Most largest companies in the world easily make that 2%, by renaming some things. A lot of new business ventures can be dubbed CSR as well. “Opening an oil-well in Nigeria”… hm… no, let’s call it “creating job opportunities to battle poverty in rural Nigeria”. Pointless. Who says this is not CSR? Build a school next to the well and you can be sure that the entire business can be called CSR, and you’ll be considered “good practice” as well, and use this CSR-sort of thing as a marketing tool. And what about the actual influence on the world? Let’s say a gun-maker makes the 2% CSR mark. And the company that makes all organic clothes (without using child labour or underpaid workers) does not. So the organic company would have to pay a fine and the killers do not?“