Cause
Because: Gurgaon: Tuesday, 17 November 2015.
Last month,
Cause Because through a right to information (RTI) query to the ministry of
corporate affairs had learnt that the government did not have any specific
mechanism to evaluate the impact of corporate social responsibility (CSR)
programmes of companies (read about it here). The query had also revealed that
the government was not in the middle of developing any mechanism and, instead,
expected companies to file self-audited reports.
Interestingly,
the recommendation from the high-level committee headed by former secretary
Anil Baijal to suggest measures for improved monitoring of implementation of
CSR policies says that the government may not even create any such mechanism
and leave it to companies to evaluate their impact through independent agencies
if required. The committee observes that the government should have no role in
engaging experts for monitoring the quality and effectiveness ofCSRexpenditure
of companies. The report says that a company’s board of directors is
accountable for the quality and efficacy of CSR expenditure. It may appoint an
external agency to evaluate the same if it so desires. Of course, the
government can engage experts to evaluate the quality and efficacy of CSR spending
at the macro level for reviewing its policy, not for regulating CSR spending of
companies.
Employee
value in CSR
On the
much-talked-about subject of monetising ‘employee services’ and including them
in CSR spends, the committee has recommended that such services be included in
CSR expenditure as this will encourage employees to engage in CSR activities.
If the government really wants to encourage employee involvement, as desired by
the committee, it should allow inclusion of the cost of employee services in
CSR spending.
However, most
industry experts and development-sector organisations disagree with this
recommendation and say that inclusion of the monetised value may create some
problems if the spends are not defined and capped to a limit.
‘Monetising
employee services and adding them in CSR expenditure will not make much sense
until there is a cap on such an expense. For instance, if CEOs are engaging in
CSR activities and monetisation of their service is being done on their
work-hour cost to the company, one can imagine how much time cost that will
be,’ Neerja Singh, group executive vice president, regional head, Responsible
Banking, Yes Bank, had told CauseBecause in a recent conversation.
Singh agreed
that such a rule may be exploited by companies and that they may overstate cost
of employee services.
The same
subject was discussed by CSR leaders at the event Unearthing the True Value of
CSR through Skills-Based Volunteering, held on 30 October in New Delhi. In
addition to corporate leaders, the event had representation from Indian
Institute of Corporate Affairs and the ministry of rural development. The
larger consensus here was that non-inclusion of cost of employee services may
dampen the enthusiasm of companies for involving employees in CSR projects. The
non-inclusion may also result in loss of opportunity to leverage innovation,
management, and many such professional skills available with the corporate
workforce. The event was co-hosted byVSOandIBMwith CauseBecause as their
outreach partners.
‘We are
creating volunteer initiatives that have a lasting impact on the ground with
the communities we serve as well as balance business and employee interest in
changing people’s lives. While engaging with such initiatives, corporate
volunteers acquire new skills and find the experience both personally and
professionally rewarding,’ Shaleen Rakesh, executive director at VSO India,
told CauseBecause.
Debangshu
Ganguly, country head, strategic partnerships, Caritas India, said, ‘We have
several programmes wherein much value is added by corporate volunteers, who
bring their special skills and help us in effective implementation of projects.
Being a charitable organisation, we cannot afford to have executives from top
business schools. This need is met through volunteers from business houses.
Hence, I believe that volunteering or employees’ work hours, of course with a
cap, should be included in a company’s CSR spends.’
According to
the Baijal Committee’s report, this concern may be addressed by introducing
some kind of an audit that will provide assurance that proper records of
employees’ involvement in CSR activities are maintained and that the
management's computation of the employee cost is in accordance with accepted
cost-accounting principles.
Penalty
clause
In the
context of penalty for non-compliance, the CauseBecause RTI had cleared doubts
about a specific clause for penalty and also established that non-compliance
with Section 135 would mean non-compliance with the Act itself, and defaulting
companies would be penalised as per the provision in Section 134 of the
Companies Act 2013.
§
The Baijal Committee is of the view that leniency may be
shown in the initial two/three years to enable companies to graduate to a
culture of compliance. The extant law considers non-disclosure as
non-compliance. Failure of a company to spend two per cent of its average net
profit of the previous three years on CSR is not considered to be
non-compliance, but not revealing the reason for the same will mean
non-compliance.
§
Also, the Baijal Committee may have wrongly interpreted
the law in perceiving that failure to spend the full amount in a particular
year is noncompliance, and has gone on to make a strange recommendation. It
suggests that the law be amended to mandate that after five years the unspent
CSR funds should be transferred to one of the funds (viz. Prime Minister’s
Relief Fund) specified in Schedule VII. This recommendation may not go down
well within the industry.
Confusion
forward
Understandably,
Indian companies need time to adapt to the evolving CSR lexicon in the country.
They also need consistent information exchange, knowledge platforms, and
focussed discussions, in addition to independent organisations that facilitate
opportunities to interact with potential implementation partners that comply
with disclosure requirements. Companies will also need an extensive database of
credible organisations. Advising on this aspect, Baijal committee says that the
government may not maintain a data bank of CSR implementing agencies NGOs,
trusts, Section 8 companies, etc. It may recommend names of a few organisations
after their due diligence, but it should not be mandated for the companies to
implement projects with only listed organisations (with IICA or any
government-affiliated body). As of now, the companies have freedom to forge
partnerships with any organisation that has been operational for at least three
years and has not been blacklisted.
On this
aspect, the corporate world seems to have different opinions. One section says
that since the government has mandated CSR, they should also suggest partners
to implement the same. On the other hand are the companies that are already
implementing projects in partnerships with various organisations and may have
to withdraw some of those projects solely because their partners may not be
listed by the government or the government-affiliated agency.
Moreover,
there is the fear that the government system of listing and recommending
partners may fail when more and more companies that fall within the ambit of
the law start scouting for partners. In conversations with CauseBecause, many
corporate houses have expressed concern over the possibility of corruption in
the government system whereby NGOs with political affiliations may be
recommended and the ones at the grassroots are left out.
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