India target of uneven economic development. While many companies

India
one of the largest economies of the world and an important global business hub
is in the midst of myriad problems. With large portion of the population under
absolute poverty, undernourished children, widening gaps between the haves and
have nots, is causing disparity among the economic classes of India.

To
achieve sustainable development and grow as one of the power hub, the role of
the government and corporate sector is more pronounced than before. The role of
the corporate sector is more imperative as it has been the target of uneven
economic development.  While many
companies have responded proactively to this need of the hour and have had initiatives
in place for more than decade now, the benefits of which have are reaped not
only the companies but also the stakeholders.

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The
CSR clause within the company’s act 2013 have brought more than 6000 companies
Indian Companies to take up CSR initiatives to comply with the new provisions.  Companies with minimum net profit of 5 crores
now fall within the ambit of CSR fold. The act encourages companies to spend at
atleast 2% of their average net profits in the previous three years.

This
discussion paper looks at the CSR practices of the select units in Satara and
Kohalpur districts in western Maharashtra registered under the companies act of
1956. The case also throws light on the challenges faced by new companies that
now come under the new provision of the Companies Act of 2013.

Key
words: Companies Act 2013, CSR  Best
Practices, Satara, Kolhapur

 

 

 

Corporate
social responsibilities have become an agenda after the amendment in the company’s
act 2013. Companies with minimum net profit of 5 crores fall within the ambit
of CSR fold. The act encourages companies to spend at atleast 2% of their
average net profits in the previous three years. Any company with a net worth of Rs 500 crore or a turnover
of Rs 1,000 crore or net profit of Rs 5 crore, will need to spend at least 2%
of its average net profit for the immediately preceding three financial years
on corporate social responsibility activities. The act suggests the following

1.     
The CSR activities undertaken
should not be in the normal course of business

2.     
The
activities should among the prescribed list of activities by the act mentioned
in Schedule VII of the 2013 Act.

3.     
The company
for the purpose of CSR formulation and monitoring constitute a committee.

4.     
A company can
undertake its CSR activities through a registered trust or society, a company
established by its holding, subsidiary or associate company or otherwise,
provided that the company has specified the activities to be undertaken, the
modalities for utilization of funds as well as the reporting and monitoring
mechanism.

5.     
Companies can also collaborate with each other for jointly
undertaking CSR activities, provided
that each of the companies are able
individually report on such projects. 

6.     
The report of
the Board of Directors attached to the financial statements of the Company
would also need to include an annual report

7.     
Where a
company has a website, the CSR policy of the company would need to be disclosed on such
website.

The activities that can be undertaken by a
company to fulfil its CSR obligations include eradicating hunger, poverty and
malnutrition, promoting preventive healthcare, promoting education and
promoting gender equality, setting up homes for women, orphans and the senior
citizens, measures for reducing inequalities faced by socially and economically
backward groups, ensuring environmental sustainability and ecological balance,
animal welfare, protection of national heritage and art and culture, measures
for the benefit of armed forces veterans, war widows and their dependents,
training to promote rural, nationally recognized, Paralympic or Olympic sports,
contribution to the prime minister’s national relief fund or any other fund set
up by the Central Government  for socio economic development and relief
and welfare of  SC, ST, OBCs, minorities and women, contributions or funds
provided to technology incubators located within academic institutions approved
by the Central Government and rural development projects. (Bahl, 2014)

CSR and India

CSR
is not new to India, the concept of CSR dates back to the ancient time when
kings believed in the welfare of their people as their most important
responsibility. Traditionally CSR been seen as a philanthropic activity, an
activity that was performed but not reflected in documentation of specific
initiatives undertaken. Anything that goes without documentation may not be
considered as serious business activity and so is the case with SME.

Corporate
sustainability, an approach to create a long-term stakeholder value, is derived
from the concept of sustainable development. 
As defined Brundtland Commission as “development that meets the needs of
the present without compromising the ability of future generations to meet
their own needs” is the very essence of CSR. 
Corporate sustainability essentially denotes the role that companies
should play in meeting the agenda of sustainable development and entails a
balanced approach to economic progress, social progress and environmental
stewardship.

CSR
by Indian SME tends to focus on what is to be done with profits after they are
earned. On the other hand, sustainability is about factoring the social and
environmental impacts of conducting business, in the strategies to earn profits
are made. This approach of CSR and Sustainability by SME should be an important
component of business.

CSR
and sustainability are converging, the various definitions of CSR put forth by
global organisations is evident to the fact. 
CSR clause within the Companies Act, 2013 also talks about stakeholders
and integrating it with the social, environmental and economic objectives. The
clause also lays down the area

 

SME
in India are actively involved in CSR activities, they recognised their
responsibilities towards the employees, communities and the society. However,
their initiatives are confined to the liberal CSR model. Under the liberal
model corporate social; responsibilities are confined to its economic bottom
line.  SME, because of their limited
scope, 80% of the respondents believe that it is sufficient to obey law and
generate wealth which through taxation can be directed to the social needs of
the country.  Welfare and wellbeing of
the employees is an integral part of the business which cannot be challenged if
the competitive advantage is to be sustained.

However,
with triple bottom line concept is fast picking up. Companies have realised
that with growing economies profits, business also have certain societal roles
to play. Inclusion of people and planet along with profits is the new mantra
for sustainable business model. A model of business sustainability which is
imperative for SME also.

Discussion
with SME in western Maharashtra India, highlighted that the provision of the
act and the triple bottom concept was in conflict of interest of the SME, while
the act provides a list of CSR initiatives that they are required to follow,
management of the SME want to integrate CSR activities and business processes
contributing to the environment, safety and welfare of the people in their
vicinity.

 

SME and CSR

SME,
In accordance with the provision of Micro, Small & Medium Enterprises
Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME)
are classified in two Classes:

1.     
Manufacturing Enterprises-he enterprises engaged in the manufacture or production of goods
pertaining to any industry specified in the first schedule to the industries
(Development and regulation) Act, 1951) or employing plant and machinery in the
process of value addition to the final product having a distinct name or
character or use. The Manufacturing Enterprise are defined in terms of
investment in Plant & Machinery.

2.     
Service Enterprises:-The enterprises engaged in providing or rendering of services and
are defined in terms of investment in equipment. (GOVT. OF INDIA DEVELOPMENT
COMMISSIONER (MSME) MINISTRY OF MICRO, SMALL & MEDIUM ENTERPRISES , 2017)

 

Data Discussion

 

Out of the total companies approached
for survey, in western Maharashtra, 64% companies have net profit of Rs 5 crore
or more. And 36% with a net profit with 500 crores above. This implies that
these companies will now according to the new provision will come under the
ambit of Act.

The new provision in the
act requires the companies that fall in the CSR ambit to maintain documents
related to the CSR policy, initiative undertaken. The researcher made an
attempt to find if the companies maintained such documents before it was made
compulsory.  It was found that 60% of the
companies do maintain documents while 40% of the respondents do not maintain
any documents and do have a CSR policy in place. However, these 40% companies
did undertake CSR activities in a random manner, donations to NGO or
contribution to the PM relief fund were the chosen option. With introduction of
the new provision, companies have now started working on their CSR policy.

Less than 62% of the
companies, publish their data and initiatives on the webpage of the companies.
The respondents believed that the need to do so was not important, however with
the change in the provision the need was felt and companies have begun to work
on the same.

Some CSR Initiatives undertaken by
the Companies

The initiatives undertaken by
companies in thie region are

1.     
Providing Nutritious Food to Aganwadis

2.     
Mid meal program in schools

3.     
Contribution to housing schemes for
poor section of the society

4.     
Conducting medical camps such free
health checkup etc

5.     
Organization of blood donation camps
etc.

Most all companies prefer to invest
in health checks and education, recognizing the importance of education and
health care.

 

Challenges

Discussions with companies also
highlighted that they faced many challenges.

 

1
Lack of Community Participation in CSR Activities:

 

SME with their limited coverage fail to
build a connect with the communities who are the beneficiaries of a CSR
program, SME show less interest in implementing the initiative without talking
the local community into consideration. This gap fails to develop relations and
instil confidence in the local communities which has affected their
participation and contribution.

 

 

 

 

2
Need to Build Local Capacities

Constituting a CSR community for formulation and
implementation of policy is welcoming step, it was found that this was not
enough, there is need to build capacities 
with trained and knowledgeable personnel which can identify and
implement policies successful, the act also provides window to resolve this
issue. Company can come together and take up activities in joint efforts.

 

3.     
Issues
of Transparency

Most of the SME in western India do
have a policy for CSR in place but have never disclosed the initiatives and its
success rate.  SME are of the opinion,
that maintaining document and disclosing the initiative in the annual report
and on the website, is the need of the hour, but companies will have to create
a separate department of full time employees or will have create a trust.

 

The challenges from the point of view
of the SME, may hold ground for initial few years but are more of the owners
and management attitude and perception towards CSR and their role towards the
society. Voluntary execution of the initiatives is at the wish of the company,
but the implementation of the act is to ensure development of society, role of
the corporate sector large and small is imperative specially at the grassroot
level.

 

Conclusion

The provision of the act is welcoming step to
include companies in CSR activities. The widening scope of the act will ensure
large quantum of activities undertaken. The research also identified certain
gaps, there is no linkage between the company business and society. Companies
carry out CSR activities but there is no proper streamline between the
activities and provision of the act.

The success of Corporate social strategy lies in
the clear understanding of important social need and organization’s proficiency
to effectively address the need and to create value by
effective implementation of well planned strategy.

The author suggests a conceptual model that
focuses on dual objectives, meet the requirements of the new provision and
sustainable development. The author proposes three drivers to a CSR strategy to
create tangible value.

a)      Core business expertices

b)      Employee engagement

c)      Ecosystem that includes all the stakeholders