Corporate social responsibility (CSR) is a concept that notoriously evades definition. Some have said that companies should act in socially responsible ways in their daily operations while charitable donations have historically been brought under this umbrella. The former understanding of CSR is often preferred because simply making charitable donations while doing business in an irresponsible manner causing harm to various stakeholders is clearly undesirable.
India’s company law has a CSR provision requiring companies to donate 2% of their profits from the preceding three years on activities designated by the government. (You can read a detailed analysis of the law in an article by Sandeep Gopalan and me here.) One criticism of such an understanding of CSR is that the meaning restricts itself to charitable donations without venturing into how companies conduct their day to day business.
The coronavirus has given us an unpleasant jolt with which to test if companies are happy to simply comply with the CSR provision and do nothing else to accommodate various stakeholders that are suffering in this crisis. Yet many big businesses in India (Bajaj Auto, Tata Sons, Vedanta Group) promised not to cut salaries of staff during the pandemic. Instead, some companies suggested that they were considering a pay cut for CEOs and other members of the promoter group (the controlling shareholder group in India, typically a family).
At the same time, it is also a question of survival for companies in some sectors, especially the airlines industry where employee salaries have indeed been cut. Even in times like this, companies have sought to ensure that the optics of such decisions are not entirely negative. For example, Apollo Types has already announced that employees would have to deal with a 25% cut in their salaries. The company’s senior management said they will be taking a voluntary 15% pay cut in a ‘show of solidarity’.
While we have seen some Indian companies making accommodations for employees in this time of need, charitable donations are not to be disregarded either. Jack Ma’s generosity in terms of sending out coronavirus kits to many countries in need has been praised by many, and they are right to do so. Many CEOs in India are stepping up too. Mahindra Group’s chairman has offered to convert Mahindra Resorts to temporary care facilities and also pledged to create a fund to help smaller companies. Xiomi India’s top managing director tweeted that the company would donate N95 masks to a few government hospitals in India. As discussed in my previous post, companies outside India have made accommodations for employees and small companies too. Charitable contributions is also not unique to Indian companies. Companies like Kraft-Heinz and Netflix have announced donations via relief funds. While there is a view that these companies used the pandemic as a marketing opportunity, ultimately these actions are very helpful for society and so I see nothing wrong in reputation enhancement in this way.
When viewed from the perspective of the epidemic, charitable contribution seems like a perfectly valid form of CSR. This is not only because the company is addressing an urgent need at the moment but also because the initiatives have come from individual companies rather than as a response to a forced government mandate of requiring a certain amount of expenditure on CSR activities. The Ministry of Corporate Affairs (MCA) issued an order stating that companies’ responses to the covid crisis could be classified as CSR. The companies Act only allows spending on designated categories to be classified as CSR. Since one of the designated categories is ‘combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases’, the order from the MCA was not too surprising. Obviously, India’s rigid definition of CSR means that innovative responses from companies that offered their resorts to be used as temporary care facilities will not be considered CSR.
The lesson to take beyond the pandemic is for the Indian government to resist the urge to intervene in how companies comply with the CSR provision in the law. Allowing companies to be creative and using their CSR activities to gain reputational capital is not a bad idea. In fact, this should be further encouraged by letting companies disclose their social activities along with the CSR disclosures (relating to the required spending) required by the law.
Akshaya Kamalnath is Lecturer in Corporate Law at Auckland University of Technology.