Anudip FoundationCorporate Social ResponsibilityCSRNon Profit Organizationsocial welfare
Author: Monisha Banerjee, Chief Executive Officer, Anudip Foundation for Social Welfare
Recently, the government announced rather harsh penal clauses to corporates who did not spend the required 2% of net profits which included setting up a separate funds including imprisonment. The backlash was expected and the Finance Ministry promised a review. The recommendations if implemented will prove a breather to organizations for sure, but will not undo the implications of a cash penalty and more importantly being called out for non-compliance.
Business entities exist to make profits and having to spend 2% on development activities does cause a lot of internal debate on how this is to be used. Corporate Social Responsibility in most countries is the commitment of a business to contribute to sustainable economic growth and is conceived as an instrument for integrating social, environmental and human development concerns in the entire value chain of business. While expending 2% of its profits on philanthropy requires organization maturity and a deep-rooted culture for philanthropy, the government must also keep in mind the interests of the corporates as they are being mandated into being do-gooders. Philanthropy can and must be aligned to core business benefits for the organization if this is to sustain. There will be a lot more investment in development if companies are allowed to pick projects that feed back into the business including its people.
Some of the clauses in Section 135 of the CSR Act talk of implementing projects in the neighborhood, not benefitting its employees and their families and allocating just 5% of the corpus towards administrative expenses.
a) The Neighborhood Clause: Makes sense for manufacturing entities and organizations usually work with communities around their factories which include families of employees. However for service based organizations, rarely is there a ‘physical’ presence. The Headquarters are based out of metros and investments therefore happen in these geographies. Given that a bulk of HQs are based out of the western and southern parts of the country, these regions see a large tilt in investment whereas areas that really need development fall behind. Often times, the number of similar projects are innumerable and impact is low since the target audience may get saturated. In my experience as sitting on the other side as an implementing agency, I have seen several NGOS compete to impact the same people from the same geography.
b) Exclusion of activities undertaken in pursuance of its normal course of business: An organization must hire talent, must create a pipeline for the future, must undertake research on products, must market and drive outreach. For instance, a company may need skilled entry-level or mid-level resources. Why can’t an organization expend money to create these resources? It would certainly help bridge the skill deficit and provide for meaningful livelihoods to many. If a company includes environment as an area of concern, why can the company not use a campaign to market perhaps some products that lower environmental damage? Campaigns on water usage can co-exist with products that enable the same. In essence these formats for CSR projects already exist, except that these are done under a façade. These aspects of the program remain ambiguous. Defining these clearly will automatically enable businesses to invest in such activities. I must state though, that there are several entities that continue to drive projects that are not connected with their business in any way, but these are rare and are driven by the inherent philosophy of development. It is however, not fair to assume that all businesses will have the same mindset.
c) Administrative expenses: The cap of 5% of corpus spends on administrative expenses is inadequate. While the panel now recommends that this be increased to 10%, the restriction often results in organizations not being able to dedicate sole staff to this function. CSR then becomes an additional responsibility that an employee shoulders and this sometimes does not get the necessary focus.
d) Partnerships: Corporates largely implement projects through their own foundations or through NGO partnerships. Monitoring and due diligence of projects must be made mandatory to ensure that the money spent is well utilized. Also perhaps some guidelines on project expenses if provided by the MCA may add consistency. Corporates need to understand that as with any business projects, NGOS too have overheads, technology, a talent pool and resources who make a difference to the project. Classifying all entities as one and saying that all of the project (or 95%) of it must go towards direct expenses, means that projects can go to only very small early stage NGOs. Corporate guidelines can be given for the committees and Boards to assess their projects better. NGO partner sustainability is as much a responsibility of the Corporate in its inclusiveness mandate as is social inclusion.
e) Co-funding and Corpus Funds: Companies are careful about not putting all their eggs into a single basket or project and rightly so. However short-term fund allocation and piecemeal funding, rarely causes systemic and sustainable development. Guidelines on co-sponsoring projects and constituting small fund pools amongst like-minded corporates (not necessarily direct business competitors) can help put the right amount of funds into projects that need long term funding. Currently, many companies are averse to the idea of co-funding from their branding perspective. Others may not know where to look for a like-minded co-sponsor. A portal or platform to capture various projects running and the scope would help corporates connect and invest on larger projects and ensure scale to smaller ones.
The new suggestions on making CSR spends exempt from taxes will surely add buoyancy to the issue and provide the right incentives to Corporate India. At the end, the laws and guidelines must look beyond corporate interests and must define pathways for true sustainable development. The winner at the end must be all- the beneficiary, the benefactor and the enabler.