Corporate Responsibility, Government Mandate and the Action Against Covid-19
02/06/2020
While the world grapples with Coronavirus and with a total of more than two million people affected, the Jack Ma and Alibaba foundations have announced their support to the affected areas and Bill Gates has also committed $100 million to aid global research on the treatment of Covid-19[i]. In India, during an address to the nation on March 19, the Prime Minister Narendra Modi appealed to corporate India to support their employees and the nation.
The corporate social responsibility (CSR) rules within the Indian Company’s Act 2013 make it mandatory for large Indian firms to spend at least 2% of their average net profit on socially responsible activities. This law is applicable to firms with a net profit of at least Rs 5 crore (~USD 770,000 or more) or a turnover of Rs 1,000 crore (~USD 154 million or more) or a net worth of Rs 500 crore (~USD 77 million or more). The list of activities included under CSR is decided by the government and this mainly includes social activities that are beyond their normal course of business. Within the Covid-19 context, the Ministry of Corporate Affairs has recently clarified that expenditures made by corporates to deal with the coronavirus outbreak will be considered as CSR spend under the Companies Act rules, and this will include activities involving promotion of preventive healthcare, sanitation and disaster management for fighting Covid-19[ii].
The government’s decision to allow money reserved by listed companies for battling the Covid-19 crisis to qualify as their mandatory CSR spend has encouraged many firms to commit to the cause, perhaps making it an apt decision which is aligned with the need of the hour. In response to these announcements, companies have been making monetary contributions, setting up hospitals, reducing prices of essential commodities like hand-washes, and committing to support their employees and the communities within which they operate. The mining giant Vedanta, for example, has set aside Rs 100 crore to support daily wage workers and contract employees working in their factories. Some hotels are being used as quarantine centres following the shortage of hospital rooms. Indian corporates are thus assisting their government in the fight against Coronavirus.
A great part of this is that some companies are actually utilising their skills, resources and expertise to contribute towards the fight against Coronavirus. Some others are contributing through donations to specified funds. Prime Minister Narendra Modi has recently launched a new fund called “PM CARES” to collect donations from individuals and businesses to provide relief to those affected by the virus. Less than two weeks after its launch, private firms have committed at least $295 million to this fund[iii]. This indeed is a positive development and will be expected to generate some crucial on-the-ground impact and benefit, although the actual benefit generated will only be evaluated in due course. Increasing number of corporates are therefore spending their mandatory CSR funds through this route, generating some concern from non-profits that some funds are now getting rerouted away from already committed causes[iv].
These are extraordinary times needing extraordinary measures and support. But during times of normalcy do government level mandates on CSR such as the Indian CSR law actually generate value for the intended beneficiaries? Should government’s make companies contribute to socio-economic development by, for example, making them engage in social activities beyond their normal course of business?
During 2016-2018 I have been investigating whether India’s CSR law, (Company’s Act 2013, Section 135), which mandates organisational engagement (and spend) in CSR, redresses some of the systemic problems associated with the practice of CSR in terms of actual benefit and the positive impact on beneficiaries. I found that mandatory CSR, as regulated by the Indian government, has generated – at best – mixed benefit for the intended beneficiaries of CSR activity. This is due to various factors including power imbalances and variations in leadership support for spirited CSR involvement. The Indian CSR law focuses on what is done with profits after they are made[v] and is externally focused, primarily encouraging corporates to engage in external social welfare activities rather than focusing on what they actually do inside their four walls or within their supply chains. My findings support Porter’s (2013) conjecture that mandatory CSR may not improve social and environmental impact, as businesses may just start allocating money for such activities instead of looking for optimal ways for addressing social issues[vi].
All of this information taken together in the current context raises interesting questions. In the current scenario of dire need, are Indian corporates making an effort to help society? Yes. Will this be good for the short, medium and long-term wellbeing of society? Perhaps yes. More generally, should the government also be interested in supporting companies to be better governed from within, more ethical in their actions and interactions, supporting sustainable and responsible supply chains and generating a stable living environment within and outside their boundaries..? Yes. Then what is the acceptable level of Government involvement that might be necessary in terms of CSR (or Corporate Sustainability more broadly)? If considered worldwide, will it differ within developed and developing country contexts..? In what ways? Different governments may take differing views on this.
I will be keeping an eye on the Indian CSR and Covid-19 situation and the actual benefits and consequences that accrue through corporate involvement.
[ii] https://www.fortuneindia.com/macro/india-inc-chips-in-to-fight-coronavirus-pandemic/104306
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