Mandating CSR: Indian Government Demands Full Disclosure From Companies
As the US markets continue to debate whether we are still in a recession, on the road to recovery, or headed for a double recession, the Indian government is busy imposing regulations to boost corporate philanthropy and social responsibility. In an economy that continues to post steady growth despite upheavals across Europe and the U.S., India Inc. is increasingly facing scrutiny for their role—or their notable absence—in the social and environmental growth of the country.
In early March, corporations were surprised with an announcement from the government's Corporate Affairs Minister Salman Khurshid: Corporate Social Responsibility could become written law if companies did not step up their social responsibility footprint. He said, "You can't hope that everything will work without a basic legislative line drawn. But where that line should be drawn must come by way of consensus from industry."
This jab at corporate India came days after Khurshid recommended setting up a CSR stock exchange, where companies could buy and sell credits for "doing good," and hopefully boost accounting. Initially, the business community lauded the proposal. But this cheer quickly died down.
Now the issue is back on the table: the ministry has asked all companies "to provide details of their investments made as part of their CSR initiative during the last fiscal year."
The aim: Mandatory social obligation for the private sector. The ministry, according to a report in The Economic Times, hopes that the submitted data forms basis for a review of its CSR policy in coming months. Mandatory disclosures are never welcome and India Inc. isn't happy. Since December's initial announcement, few companies have ramped up their social initiatives. And some, according to a ministry official, have even misused the liberty of being able to decide where and how to allocate money.
R Bandyopadhyay, a secretary in the ministry of corporate affairs, even alluded to the possibility of imposing rules on companies dictating how they spend on CSR. Calling out the private sector, he recently said that "in case companies fail to take voluntary initiatives, the government in consultation with the Planning Commission will consider making CSR spending a 'mandatory exercise'."
Let's be clear. While Indian companies have cheered action from the government on giving back to their communities and promoting social growth along with economic, they aren't exactly welcoming government control of their finances. In March, when the initial proposal had been set forth, I was skeptical of this attempt to put India Inc. on a pedestal by making an example out of them and binding them to report their corporate philanthropy initiatives. I wrote:
"…Putting the private sector and its corporate governance on a pedestal might not serve the community well. And declaring it the beacon of good and a possible 'laboratory for good political governance in India,' takes the effort too far…this declaration of mandatory reporting in an economy that remains dependent on small business and mom-and-pop shops, might just end up sounding hollow, provincial and fail to prove the point."
And while the idea of reporting on CSR initiatives and housing all the reports on one online portal has the dual promise of benchmarking progress by providing transparent and comparative data, as well as spurring competitive participation, making the exercise mandatory simply pushes reluctant conglomerates into a numbers game.