Are corporates being socially responsible?

Relevant for General Studies, Essay & Sociology:- UPSC-CSE 2019-20 FOUNDATION & TEST BATCHES WILL START JUNE 2019

• The sense of corporate social responsibility among Indian corporates is reduced to a three-letter acronym, limited at best to meeting the letter of the CSR Act, culminating, again at best, at setting up a Foundation for this or that cause, to the extent of ensuring the 2 per cent spend. In the process, while corporate “social” responsibility is effectively turned to corporate “legal” responsibility, corporates have all but washed their hands of the need to behave as socially responsible corporates (SRCs).
• This is primarily because the CSR Act is reduced to the common minimum denominator of setting up a CSR Committee under the corporate governance requirements, which must ensure some required spends, topped with some required reporting of the actual spend.  All of these are easy asks and hardly beyond the capabilities of businesses which are past masters at such simple games of regulatory compliance.
• That is perhaps why we have more companies meeting the CSR requirement than those who can be said to be socially responsible corporates.
• Why else would an airline collect donations for the cause of child development and education in flights but consider it perfectly fine to jack up air fares five or six times when there is a cloud burst and mud-slide in Ladakh or Leh?
• Why else would a leading bank with a glorious CSR program going, have its CEO blatantly violating her own code of conduct and yet be supported by its Board, with a former Chairman chipping in for good measure, without even the semblance of a credible investigation?
• Why would the Board of the largest infrastructure finance company of the country, rated AAA only days earlier, be sent packing en masse and the entire top management accused of personal enrichment?
• Why would bank Boards and their Credit Committees allow the hard-earned savings of the depositors go down the flush by lax or politically motivated lending against dubious mortgages (involving mortgage of brands or imitation jewelry)?
• Why would an insurance company belonging to the most respected stable, manufacture and sell an “insurance-linked savings plan” called “Savings Assurance Plan” that has exactly zero insurance component, to Septuagenarians and Octogenarians through an incestuous network of Bank-Mutual Fund-Insurance network? And why would it not recall such a defective product raising the bar of corporate governance expected of a socially responsible corporate, even after being called to attention at the highest level, leaving it to the insurance regulator, IRDA, to outlaw the product?
• Why would an eminent Board promote a Director General of a prestigious Institute – accused of sexual harassment and held guilty by the internal complaints committee – to Executive Vice Chairman, instead of asking him to step down as they should have been within their legal and moral rights to do?
• One could go on and recount dozens of other instances of utter and gross and far more serious governance failures. But the point I am trying to make is that CSR Act, in its five years of existence, has failed to crank up the corporate governance standards in the country. CSR is not about what ‘good works’ a corporate does or does not take up with the communities. The social responsibility of a corporate is to deliver governance that is fair to the society as a whole; the society comprising every stakeholder of the corporate. It is about taking decisions which are equidistant from all stakeholders, without leaning too far towards any one stakeholder. Excessive leaning to any stakeholder group, even the shareholders, can only mimic the conditions of robbing Peter to pay Paul (our Airlines example earlier).
• It is not as if we cannot readily recall examples of socially responsible actions of corporates or CEOs. Here is evidence that socially responsible corporates and CEOs were very much around even when CSR as a phrase was unheard of.  In the mid-1940s’ economy, diesel engines were in extremely short supply in the country. Any trader who so much as held an import license for a diesel engine could command a hefty premium on its import price in the domestic market.
• Most of the local traders in the then Madras Presidency did not miss out on this golden opportunity to realize that premium and were able to realize Rs 4000 to 5000 on a diesel engine against its import price of Rs 1100. However, the Chairman of a leading automotive company in the Presidency continued to sell the engines at the standard mark-up of around 25 per cent, or at about Rs 1400, convinced that squeezing the society in a post-war economy was not a fair thing to do, even if it presented an opportunity for extraordinary profits for the promoters. The local business community thought him naive, if not downright daft, for forgoing the opportunity to maximize what we would call today his ‘shareholder value’ (SHV).
• Apparently, this doyen told the above story to his son, when he was setting up his own enterprise in the 1960s in Madras, and concluded saying, ‘Son, of all those profit-maximizing traders, do you recall even one today? But the name of our group continues to be a highly respected name. Our customers remain loyal to us. Keep that in mind when you run your business.’ or something to that effect.
• Well, over seven decades ago, there was a good man creating a socially responsible business rather than singing paeans to a notional corporate social responsibility with a 2% spend – a legacy that sustains in the Group. To him, responsible action meant doing the decent thing and he knew it was hardly a decent thing to put the squeeze on a war-torn economy. We could add to that: it’s hardly a decent thing for a CEO to violate his or her own code of conduct; hardly a decent thing for a board to blindly back their CEO…hardly a decent thing for a Board to promote a CEO accused and proven by the corporate internal mechanism to have sexually harassed a woman employee (a direct-reportee at that)…well you get the drift. CSR is about looking inwards, to see how to do business more responsibly, and the CSR Act fails to channel corporate actions in this direction.
• The CSR Act, therefore, needs a comprehensive review to improve the corporate governance standards in the country – meaning redefining CSR as SRC – creating socially responsible corporates. Else we shall merely be inserting form where the substance is the need of the hour. If the substance is what is important, the conduct of the corporates needs a lot of work and that’s what the CSR Act should be directed towards. The tragedy is that today, by merely spending 2% of profits, corporates are being labelled “socially responsible”, and even bringing home awards (of which there has been a proliferation in the last few years), while no one questions if they are genuinely responsible corporate citizens.