A CRITICAL ANALYSIS ON CORPORATE SOCIAL RESPONSIBILITY AND ITS IMPACT ON THE SOCIETY
Authored By - Ms. R. Aarthi Rathna,
School of Excellence in Law,
The TN Dr. Ambedkar Law University.
Learning about corporate social responsibility is the major goal of this research study. When businesses integrate social and environmental issues into daily operations, this notion has become more important. Additionally, they interact with the stakeholders on a voluntary basis. Every organization is bound to put into process the strategy, which is concerned with Corporate Social Responsibility. It creates a report every year that summarizes all the corporate activities. Community development is a different idea that has been taken into consideration. One of the crucial areas that must be addressed if individual and societal growth and development are to occur effectively is community development. It is vital to pinpoint the areas that require improvement and to start taking action to make those adjustments. The growth of communities has benefited significantly from corporate social responsibility. The principles of CSR, theories of CSR, the definition and importance of community development, and the roles of CSR in community development are the primary topics that have been considered in this research study.
Keywords: Community Development, Organization, Principles, Theories, CSR, Individuals
Corporate Social Responsibility (CSR) is a notion that has gained traction in corporate reporting. It is a concept in which It is the voluntary incorporation of social and environmental problems into business operations and relationships with stakeholders by firms. The broad concept of social responsibility is concerned with the link between global businesses, national governments, and individual individuals, as well as, more specifically, the relationship between the corporation and the local population in which it resides or works. An increasing number of scholars and authors have recognized that the actions of the organization have an impact on the external environmental circumstances and have proposed that one of the functions of accounting should report on the organization's influence in this regard. Every huge firm should be audited. Every huge firm should be viewed of as a social entrepreneur that is an organization whose existence and choices may be validated if they serve society's and the public's interests.
HISTORY OF CSR:
Cultural standards of corporate social responsibility (CSR), which refers to how businesses are run to have a generally good influence on the communities, cultures, societies, and environments in which they operate, have changed over time in India.
To understand the evolution of CSR in India since independence, four stages may be distinguished.
A significant amount of this stage occurred before independence. During this time, there were incredibly few Indian enterprises, and the strict regulations also discouraged individuals from founding new businesses because doing so was so challenging. Some of the most significant corporate houses of the period included TATA, BIRLA, MUFFATLAL, and SINGHANIA. At the time, CSR was nothing more than altruism and charity for businesses. Even while they make financial contributions to society, they are only used for the welfare and education of their employees. The elite firms' contributions during that time were mostly affected by their caste affiliations and political goals. A significant amount of this stage occurred before independence. At this period, Indian enterprises were few, and inflexible policies discouraged individuals from establishing new businesses since it was too difficult to do so. Some of the major corporate houses at the period were TATA, BIRLA, MUFFATLAL, and SINGHANIA. CSR was nothing more than charity and philanthropy for businesses at the time. Even if they donate money for the improvement of society, it is confined to the welfare and education of their employees. The contributions made by the aristocratic firms at the time were primarily motivated by their caste groupings and political agendas.
The Gandhian ideology of wealth had an impact on the national struggle and the post-independence period. It allowed affluent people to serve as trustees of trusts that looked after the general welfare of the people. Numerous businesses, particularly the TATA group, were affected by his ideas and adopted his methods of giving back to society. The trusteeship model was effective in abolishing untouchability, encouraging women's empowerment, and rural development, but it was attacked by socialists and others as favouring land lords, feudal rulers, and capitalists.
This stage is known as the Indian corporate ascent. Currently, India has attained the status of mixed economy. Around this time, the first public sector undertakings (PSUs) were established. The government has implemented several programs to encourage individuals to start new businesses. Labor and environmental legislation had already been implemented. Corporate donations to social activities were quite minimal at this point since they were more focused on wealth maximization. During this time, CSR failed to capture the attention of businesses because they were preoccupied with transparency and competitiveness.
As compared to the previous CSR stages, this one is the most crucial. Only during this period did globalization and economic liberalization take place. The Indian government's economic and financial reforms have made it easier for new businesses to launch in India's corporate culture, and they have also encouraged existing businesses to expand internationally. The global market share of Indian businesses has grown. Many businesses, like Infosys and the Ambani Group, have emerged as new centers of corporate power. Companies like the Reliance Foundation and the Infosys Foundation have formed a few charity trusts. Several businesses began their CSR initiatives by partnering with NGOs. Businesses have focused more on impoverished education as well as societal ills such as malnutrition and women's empowerment.
When compared to prior times of independence, the way businesses see society has radically altered. Companies nowadays strive for a strong brand image. Apart from profit, they are compelled to optimize their total influence on society and stakeholders.
Sustainability is concerned with the impact of actions performed in the present on future alternatives. Resources such as coal, iron, and oil are limited and will not be available in the future. As resources are reduced, the cost of the remaining resources tends to rise, increasing the organizations’ operational expenses. Indicators of sustainability include the pace at which resources can be replenished and preparing for a resource-limited future. Companies can strive for reduced unsustainability by improving the efficiency with which resources are used. Human resources must be well-versed in the methodologies and procedures necessary to maximize resource use and promote resource sustainability.
Accountability is a notion that acknowledges that an organization's activities have an impact on the external environment and accepts responsibility for the consequences of those actions. It necessitates quantifying the consequences of both internal and external activities, as well as reporting to all parties affected by those actions. It also necessitates the establishment of acceptable environmental performance measurements and the reporting of organizational activities. The relevance of the selected measurements to decision-making processes and the ways in which they aid resource allocation must be used to assess benefits. Disclosure must be based on a number of criteria, including the comprehension of all parties involved, the importance of the information supplied to the users, dependability in terms of measurement accuracy, portrayal of impact and objectivity, and comparison.
CSR is a broad topic that may be approached in a variety of ways. It is critical to guarantee that laws, measurements, processes, rules, tasks, and activities are consistent with the organization's aims and objectives, and that transparency is the primary characteristic. External consumers of such material require transparency since they are ignorant of the background facts and knowledge available to internal users. Transparency is also considered as part of the process of recognizing the organization's accountability for the external affairs of its activities and delegating authority to external stakeholders.
TYPES OF CORPORATE SOCIAL RESPONSIBILITY:
This refers to a company's efforts to reduce its negative impact on the environment and promote sustainability.
2. Philanthropic Responsibility:
Philanthropic responsibility in CSR refers to a company's commitment to giving back to society through charitable donations and community involvement.
3. Economic Responsibility:
Economic CSR is the type of CSR that involves a company's efforts to promote economic development and growth.
4. Ethical or Moral Responsibilities:
In terms of CSR, "ethical responsibility" refers to a company's commitment to acting morally and responsibly. A business may, for instance, make sure that its vendors and contractors use ethical labour practises or encourage inclusion and diversity at work.
OVERVIEW OF SECTION 135 OF THE COMPANIES ACT 2013:
The Companies (CSR) Rules framed in 2014 provides the following overview of the CSR. Accordingly, CSR means and encompasses but it is not limited to:
· The projects or services that are related to the areas or objects of operations listed in the said Act's Schedule VII or
· The projects or services for identifying with the activities that are performed by the board of directors of a company or organization that is consistent with the suggestions of the board of directors pertaining to CSR, as it is depicted in the CSR policy or the company or organization, which is subject to the condition that such approach covers the assignments, regions or subjects set out in Schedule VII of the Act.
The evolution of the thought processes in India for the mandatory CSR evolved since 2009. The negative arguments of the Section 135 by some critics had been based on the understanding of the concept itself to the critics of the failure of India as a nation of welfare state.
There are three arguments on the Section 135 on the basis of historical understanding of the social commitment by businesses according to the traditional and value based ethical behaviour as per the culture of India. The first argument is that Section 135 positions a new direction to CSR that is from the company's adopting CSR as an inbuilt value to positioning of CSR as compulsive behaviour in favour of the corporate altruism. The compulsive CSR adoption is potentially destructive the voluntariness adopted by businesses and their commitment to the society. The second argument is that the Board of Directors decides on the CSR policies and CSR activities as per the provisions of the Section 135. The real needs of the society which requires the support of CSR by the organisations need not given attention in spite of the Board being aware of the social needs. The third argument is that there are already laws and rules in practice which mandates the companies to ensure fulfilling the social responsibilities. These three arguments need to be given significance while the analysis of the Section 135.
APPLICABLITY OF CORPORATE SOCIAL RESPONSIBILITY:
The following companies are to be applied with the provisions of the Act.
· Every company
· The company's holding company
· The company's subsidiary companies
· Foreign Companies.
The companies of above nature on qualifying the following conditions become obligated to the CSR provisions of the Act. The Section 135 (1) provides the companies fulfilling the following conditions should have a CSR committee set up to pursue the CSR activities as specified.
· The companies having a Net Value of Rs. 500 crores of rupees or more or
· The companies whose turnover touches or exceeds Rs. 1000 crores of rupees or
· The companies whose Net Profit is Rs 5 crores or more rupees.
Companies fulfilling any one of these conditions in the immediately preceding financial year shall have the power to constitute a CSR committee of the Board. CSR will cease to be mandatory if any of the above thresholds cannot be fulfilled by the company or organization in the three consecutive years.
THE NEED OF SOCIAL RESPONSIBILITY:
1. Improved Public Image: In order to attract more clients, hire better personnel, and increase profits, any business must improve its public image. Accepting social responsibility objectives helps one's reputation.
2. The Conversion of Resistances into Resources: Many resistances can be converted into resources, and the functional capacity of resources may be multiplied many times, if the inventiveness of business is used to social issues.
3. Long-Term Business Interest: A better society would result in a better environment where a corporation could maximize profits over the long run. A company that cares about the needs of the community would choose to operate in a better community for its own self-interest. It would employ social welfare programmes to accomplish this.
4. Refusing government intervention: Regulation and control cost businesses money and energy and limit their ability to make decisions with flexibility. When businesspeople neglect their social obligations, the government is more likely to step in and regulate or restrict their behavior. Understanding your power's limits and knowing how to utilize them appropriately will help your company avoid making mistakes.
IMPORTANCE OF CSR:
The Positive brand perception, cost effectiveness, brand awareness and recognition, staff retention and engagement, and volunteer initiatives are all important for an effective csr. Cost-effectiveness helps the firm save money, while a favourable brand image broadens the consumer base and draws in new clients. Employee retention and engagement assist to generate a greater purpose than their monthly paycheck, while brand awareness and recognition aid to strengthen the company's reputation and increase its chances of acquiring the proper consumers. Volunteering initiatives may encourage traits like empathy and loyalty, which improves employee collaboration and bonding. Workers in CSR-focused businesses are more content, less stressed, and have stronger bonds with one another. It assures respect for human rights, protects the local and global environment, tries to safeguard consumers, and helps prevent bribery and corruption. It encourages businesses and their partners to uphold labour norms.
EFFECT OF NON-COMPLIANCE OF CSR:
The effects of CSR in default are as follows;
1. CSR has Amended "Comply or explain" has been replaced with "Comply or suffer" and "Comply or pay."
2. Previous CSR requirements used the "comply or explain" principle. If a firm didn't comply, it just had to explain why in its board report.
3. Due to substantial compliance gaps, the Companies (Amendment) Act 2019 included the COMPLY OR PAY FINE, BUT IT WAS NOT NOTIFIED method and Penalties for Non-Compliance of Section 135(5) & (6) that includes jail.
4. However, it has since been revised by the Companies (Amendment) Act, 2020, which abolished the prosecution provision in light of decriminalization and ease of doing business.
5. As both the 2019 and 2020 Companies (Amendment) Act provisions linked to the criminal penalties of CSR came into force on the same day, i.e., January 22, 2021, the corresponding provision of the Companies (Amendment) Act, 2019, never went into effect.
6.The penalties for failure to comply or default with respect to CSR ,where if a company violates the terms of subsections (5) or (6), section 135 of the 2013 Companies Act states that the company will be subject to a penalty of twice the amount that must be transferred by the company to the Fund specified in Schedule VII or the unspent corporate social responsibility account, depending on the situation, or one crore rupees, whichever is less, and every officer of the company who is in violation.
In the recent case at hand for violating section 135(5) of the Companies Act, the Registrar of Companies fined the company and its defaulting directors/officers a total of Rs. 15, 40,341.60. Companies Act of 2013 combined with Companies (Corporate Social Responsibility Policy) Rules of 2014, Rule 10. Each of the directors, MD, CFO, and CS was fined Rs. 55,012,20. Whereas the corporation was subject to a fine of Rs. 11, 00,244.00. The firm and the directors were required to pay the fine via the website www.mca.gov.in (Misc. head) in Delhi, payable to the "Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and to also notify the officer of Registrar.
INTER RELATIONSHIP BETWEEN COMMUNITY DEVELOPMENT AND CSR:
1. Sharing the Bad Effects of Industrialization -
Industrialization has had a dramatic impact on many nations throughout the world, not only India (Negatives of the Industrial Revolution, 2019). A lot of marketplace shifts have occurred since the introduction of industrialization. More ethical business practices should be implemented in these platforms. Pollution, increasing greenhouse gas emissions, and global warming are all negative consequences of industrialization. Among the reasons, industrialization adds to a reduction in health conditions. Other negative implications include a rise in crime, stress, and other societal issues. These issues are viewed as hurdles not just to individual and community development, but also to industrialization. As a result, it is critical to develop policies that will alleviate these issues and promote well-being.
2. More Collaboration between Companies and Community –
By CSR, the existence of corporations in the social system is felt beyond the view of corporations as only a location where individuals can find job possibilities. Individuals in many sorts of organizations are involved in the creation of commodities and services. When organizations are looking to increase efficiency and profitability, it is critical to undertake a customer demand study. As a result, measures and techniques are developed based on customer requests and pioneering methodologies. As a result, it may be claimed that there is a need to strengthen links between companies and communities.
3. Role in Technology Transfer –
Strong collaboration among organization members contributes significantly to technological transfer. Individuals at global corporations, educational institutions, and other organizations are likely to employ technology in the execution of duties and activities. Trainers are necessary to transmit knowledge and competences to persons in the use of various types of technology in the fulfilment of tasks and functions in training and development programmes. Clerical job, administrative work, technical work, production and manufacturing, research, and so on are examples. Paying close attention and engaging in extensive practice are two strategies to improve one's grasp of how to use various sorts of technologies.
4. Helping to Attract Talents –
Companies with a reputation for CSR may enhance their appeal to potential recruits by making their commitment part of their value offer. Positive attitudes are associated with better performance, as organizations are required to reward and recognize great customer service, act in a rapid manner, and lead by senior management.
5. CSR Contributes to Environmental Protection –
Several of the world’s top corporations have made a conspicuous commitment to the CSR. Initiatives and actions are put in place with the primary goal of reducing the issues and impediments that contribute to the destruction and exploitation of natural resources. It is critical to maintain a clean and green environment. It is critical to put in place policies that will contribute to environmental preservation. Everyone, particularly those from rural and tribal groups, must be aware of the measures that must be taken to preserve the environment clean and green. The preservation of the environment would make an important contribution to the well-being of individuals and communities.
6. Interdependence of Corporation and Community –
The corporations must establish interdependence with the community in order to effectively implement tasks and activities that promote community well-being. To do this, it is required to undertake an analysis of the community's needs and requirements, as well as to carry out their responsibilities and activities in a well-organized way. This connection is critical for addressing societal issues such as poverty, illiteracy, homelessness, and unemployment.
7. The Reduction of Poverty via CSR Programs-
Poverty is a major impediment to living circumstances that are sustainable in India, particularly in rural areas and urban slums. To reduce the conditions of poverty, it is needed to adopt programmes and schemes for boosting health and well-being, food and nutrition, skills development, work possibilities, and employment opportunities. Individuals from deprived, marginalized, and socioeconomically backward sections of society have benefited from these programmes and schemes.
8. Encouraging Social Equality –
Social equity is critical for the community's and nation's successful growth and development. It necessitates addressing the structural causes of disparities in conformity with the values of universality, indivisibility, equality, non-discrimination, participation, and responsibility enshrined in the Universal Declaration of Human Rights. Fostering social justice and addressing social exclusion and prejudice are critical factors that must be emphasized both inside the organization and in the external environment. Incentives must be offered to policymakers for them to develop policies and processes that promote social fairness and the well-being of individuals and communities. Furthermore, disadvantaged groups must be prioritized through the establishment of objectives and the disaggregation of data based on criteria such as caste, race, gender, age, income, occupation, geography, and socioeconomic background.
CSR CONTRIBUTION TO GROWTH OF COMMUNITIES- CRITICAL ANALYSIS
The corporate businesses have evolved into corporate citizens in our contemporary era of life. They are also considered like fake legal individuals. All of India's top corporations participate in corporate social responsibility (CSR) initiatives in fields including education, health, the creation of livelihoods, skill development, and the empowering of the most vulnerable members of society. The Tata Group, Infosys, Bharti Enterprises, ITC Welcome group, and Indian Oil Company, among others, have made notable contributions. From responsive actions to sustainable projects, businesses have amply demonstrated their capacity to significantly impact society and raise standard of living. It is challenging for one individual to effect change in India's existing social climate because of the size of the problem.
Corporations have the experience, strategic thinking, manpower, and financial resources to support widespread social change. Successful collaboration between corporations, non-governmental organizations, and the government will accelerate India's social development. To achieve sustainable development, Indian corporations are developing goals and policies. Companies that participate in CSR initiatives not only achieve their purpose of social concern, but they also obtain numerous additional benefits like as public image, environmental care, and as by products.
Numerous businesses have adopted villages in their surrounding areas and are working to improve the infrastructure in those areas. Companies are engaging in CSR initiatives not just for themselves, but also to encourage their employees to band together and give their fair share to developing a better community.
POSITIVE OUTCOMES OF THE STUDY:
Following the social responsibility strategy by firms can have a number of advantages, such as:
1. Company Benefits:
i. Better financial performance with lower operating costs leading to higher quality and productivity;
ii. Improved brand image and reputation;
iii. More sales and increased customer loyalty with higher employee retention rates and development of a diverse workforce;
iv. Reduction in government regulations leading to greater access to capital and lower liability;
v. Very advantageous for the general public and communities in particular;
vi. assisting in housing the homeless as well.
2. Benefits to the Community and General Public:
i. Donations to charities, employee volunteer initiatives, and product quality and safety.
ii. Corporate participation in social activities related to the environment, education, employment, and homelessness.
3. Environmental Benefits:
i. Improved use of sustainable resources; increased material reprocessing; effective product durability and functionality;
ii. Integration of environmental management tools into corporate planning, such as life-cycle assessment and costing, environmental management standards, and eco labelling.
CHALLENGES AND ISSUES FACED BY CSR IN IMPLEMENTATION:
The issues and challenges faced by corporate social responsibility (CSR) in India. These include a lack of transparency, demands for more disclosure, competitive labor markets, lack of community participation in CSR activities, lack of capacity building of local nongovernmental organizations, lack of consensus amongst local agencies regarding CSR projects, lack of branding activities, and lack of well-established NGOs in remote and rural areas. Additionally, government and non-governmental organizations agencies generally possess a narrow outlook towards CSR initiatives. The issues in implementation are issues of transparency, lack of community participation, need to build local capacities, lack of well-organized non-government organizations, visibility factor, lack of consensus on implementing CSR issues, and lack of clear CSR guidelines.
Corporate Social Responsibility (CSR) is an essential idea in commercial enterprises that publish an annual report summarizing their operations. CSR's three guiding principles are sustainability, accountability, and openness. It is critical to understand how it helps to supporting successful community growth and development, such as changes, well-being, social issue reduction, and gender balance. CSR responsibilities in CD have been found in the areas of sharing the negative repercussions of industrialization, strengthening links between firms and communities, assisting in the acquisition of skills, and playing a role in technology transfer. CSR contributes to environmental protection, CSR is for human rights corporate sustainability, interdependence between corporation and community, a CSR programme aids in poverty alleviation, and the tasks and functions of the corporation must be carried out in such a way that individuals and society benefit.
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