Corporate Social Responsibility in India - Transition from Moral Imperative to Mandatory Expenditure

Mandatory spending on Corporate Social Responsibility is the new reality for Corporate India. The enforcement of this provision from April1, 2014, has shifted focus from the debate on whether CSR is a moral imperative or not to how companies can put the mandatory CSR expenditure to effective use.

The provision of the Companies Act 2013, mandates that any company with a net worth of at least Rs 500 crore or a turnover of Rs 1,000 crore or a net profit of at least Rs 5 crore would have to spend at least 2 per cent of its average net profit of the immediately preceding three years. According to the norms, the CSR activities will have to be within India wherein companies can choose from a range of activities such as promoting preventive health care and sanitation, setting up homes and hostels for women and orphans and livelihood enhancement projects. If a company is unable to spend the amount, an explanation will be required in the director’s report.

.

As a result of this provision, many corporate enterprises are stepping up their CSR efforts. However the fact is that many companies still lack the processes to channelize the allocation of these funds. For instance, in its report on CSR activities of Coal India, the parliamentary panel on coal and steel mentions that  “Of the allotment of Rs 553.33 crore in 2011-12, Coal India and its subsidiaries could spend only Rs 82 crore (14.8 per cent). Coal India sources said the failure to meet the target was more on account of procedural delays rather than lack of funds and initiative on its part.

Corporate entities will now have to reorient their CSR spending under the provisions of the Companies Act 2013.and set up processes and mechanisms to ensure that CSR funds are directed to productive uses and prevent unethical and inappropriate funneling of CSR funds for private purposes.

Additionally companies will need to expend management time and resources to set up processes for:

• Creating transparency and accountability in the utilization of CSR funds.
• Identifying CSR initiatives that are synergistic with company strategy.
• Conducting due diligence for effective utilization of funds in creating value for society. For example when the funds are earmarked for towards projects for creating some new facility (say a medical center) it makes sense to check if there are pre existing facilities in the area that can be augmented effectively instead of creating new facilities.
• Gathering knowledge of similar/ duplicate initiatives that other companies might be launching concurrently.
• Collaborating with other organizations that can effectively utilize CSR funds for socially relevant purposes.

Industry bodies can help in the coordination of CSR activities by sharing information about CSR initiatives shepherded by different NGOs or companies. This could also lead to setting up of social enterprises with expertise to undertake CSR initiatives for companies or funds fund to pool CSR resources for a fee and make sure the corpus is spent intelligently.

 Undoubtedly, CSR gaining traction in the corporate sector is a step forwards towards corporate participation to bring about inclusive growth and sustainable development to aid India’s transition from a developing to a developed nation.

References:

Mandatory 2% CSR spend set to kick in from April 1. 

A pool for do- gooders

Moving Towards a Responsible India

India has, for long, been an emerging economy. While most of the developed economies including the US, consider India as a strong prospect, the large and widening performance-potential gap in India leaves a lot to be desired.

A question that frequently pops up in a number of forums is ‘What can bring about the transition of India from a emerging to a developed nation?’

The importance of an environment that supports development, enforces law and order, promotes entrepreneurship and steers the country towards higher productivity cannot be stressed enough in this context. Most people would agree upon the need to do away with red tape, corruption and have policies in place to prop up the economic development and growth. Yet, in addition to the changes in the business environment, certain behavioral, cultural and value related changes are also needed in our society, to aid India’s transition to a developed nation. Unfortunately many of these softer aspects have been severely under rated by our society in the recent past.

As the saying goes ‘No nation can rise above the quality of its thoughts'.

Progressive thinking is needed, if we have to evolve as a developed nation. To build a nation that makes the world sit up and notice, we need imaginative, inventive, responsible and determined people. We need motivated and responsible citizens who can bring about the changes in an inclusive and sustainable manner.

Systematic efforts to help people develop a broad outlook and inculcate a sense of responsibility towards the society can help to bring about India’s transformation to a developed nation in the truest sense. The basic DNA of our society must be molded to shape up a world class mindset.

We are yet to realize Rabindra Nath Tagore’s dream of the nation: ‘Where the mind is without fear and the head is held high’.

At this point, I would like to highlight 3 key issues that widely prevail in our society, impact our lives, impede development and that are likely to concern almost all thoughtful Indian citizens.

1.     Safety of women and children:

Sexual assault - casual or otherwise - is a burning social problem in India that has been brought into focus following a number of brutal rapes that became notorious worldwide. The show Satyamev Jayate’s first episode fight against rape #FightingRape [[i] ] brought out the uncomfortable realities about the issue of rape in the country. Notwithstanding the widespread media coverage of the issue, the number of rapes and sexual assaults are increasing by the day. The frequent incidents of sexual assaults against Indian women and against foreigner women travelers to India severely tarnish the image of the country.[[ii] ] and present a regressive picture of India to the world.

To reduce the occurrence of such crimes strict laws and better enforcement of the laws are needed; but as a society too, we must take this issue a lot more seriously. As the father of a victim said ‘women in India won't be safe until society changes its attitudes’.

A step towards changing the attitude is the need for creating awareness by training women, children and men to recognize the danger signals, take adequate precautions to safeguard themselves against violence and assault. Continuous reinforcement of the need to respect women, demonstrate responsible behavior, protect the safety of women and children and be sensitive to the survivors of sexual assault can be a step forward towards making the country a safe place for children and women.

2.     Traffic collisions and Road Traffic accidents

The frequency of traffic collisions in India is highest, globally. In India, nearly 80,000 people get killed and 340,000 are injured every year in about 300,000 accidents on the road network of 22, 00,000 km — there is an accident every minute and death every eight minutes.[[iii]] The impact of Road Traffic accidents has been found to be most striking on the young, between the ages of 15 and 29 years.

This undeniably this calls for accident-prevention programs, extra supervision by traffic police, well lit roads, zebra crossings, but there is also a need to change the belief that accidents are, ‘accidental’ and not ‘preventable’ .[[iv] ]

The most common reference to injurious events, ‘accidents,’ evokes a feeling of chance, misfortune, and helplessness. We need a shift in focus from inevitability of the accidents to preventability of accidents and injury control. [[v]]

3.     Lack of cultural sensitivity

 The unfortunate death of the 19-year-old Nido Taniam in Delhi last month triggered massive public protests and sparked a debate on discrimination against Indians from the North East. It also brought out the cultural biases and elements of racism that are deeply ingrained in our psyche and occasionally manifest in form of horrific actions.

This draws attention for the need of conscious effort to promote cultural tolerance among each and every citizen in the country. It's time we examined our own attitudes towards people from different parts of the country, other ethnicities or races.

All the above mentioned issues stress the need for an inclusive and scalable approach to deal with these challenges and create awareness about:

• Safety of women and children
• Safety on roads – preventing road  injuries
• Cultural sensitivity

Taking cues from the success of the ‘Teach India’ movement, an initiative can be started with an objective to develop more responsible citizens of the country.

Like ‘Teach India’, ‘Responsible India’ initiative can be a CSR initiative undertaken by a Corporate / Media group, with activities coordinated by a NGO.

Responsible India

Housing societies, education institutes, corporates can register on website and nominate volunteers who would get trained and deliver the programs in their respective housing society premises or educational institutes. The programs will be delivered by volunteers in housing societies and educational institutes. Each session will be of 1 hr each and can be delivered on a Saturday. Three sessions can be delivered on 3 say Saturdays in a month.

The development of coursework can be entrusted to an organization (eg Dale Carnegie) which will develop the three modules , train volunteers who opt to deliver these programs. Initially 100 college/ university teachers / other volunteers can be trained to deliver these 3 programs .

The modules can be shared with educational institutions or corporates that are interested in conducting the program in their premises and opt for further training volunteer teachers or employees to deliver these programs.

The ResponsibleIndia NGOs would coordinate the activities through their website with housing societies, education institutes, corporates to organize and track trainings, ensure participation and take feedback.

This is a simple scalable model that can be started in one city and replicated in different cities across India. Perhaps it is too simple an idea but if executed well can bring in positive results.  Depending on the success of trainings, more modules can be added at a later stage.

Social media can be used to engage people, increase participation, get feedback and track instances of practical application of the knowledge

These are some of my initial thoughts. Do you think the three areas identified areas are good to start with? What challenges do you see in this model?

Invite your comments on the same.

Including here Comments on this post received on Twitter

---

Reference:
[i] http://bit.ly/samarthanpromo

[ii] https://www.gov.uk/foreign-travel-advice/india/safety-and-security

[iii] Ministry of Home Affairs. Accidental deaths and suicides in India 2010 [Internet]. Ministry of Home Affairs Government of India. 2011. [Last cited on 2012 Jan 25]. Available from: http://www.ncrb.nic.in/ADSI2010/ADSI2010-full-report.pdf .

[iv] Profile of non-fatal injuries due to road traffic accidents from a industrial town in India
Pankaj Bayan, J. S. Bhawalkar, [...], and Amitav Banerjee
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3665126/
[v] Peek-Asa C, Heiden EO. Injury Control: The Public Health Approach. In: Wallace RB, editor. Maxy – Rosenau – Last Public Health and Preventive Medicine. 15th ed. New York: McGraw Hill; 2008. pp. 1319–28.

From Owning Profits to Owning Network: Shift in paradigm for Digital businesses

Over the last few days, there has been a lot of buzz around social media businesses fetching insanely high valuations including  Facebook's acquisition of WhatsApp for $19 billion. On one hand, the conservative traditional investors are perplexed with the high valuations of social media companies, on the other hand some traders with investments in social media are laughing their way to the bank.

The fact is that ‘Social Media’ businesses differ from ‘Traditional’ Businesses both in terms of 'Value' they create and in terms of the methods used for 'Valuing' these companies.

While products and services of traditional businesses serve tangible needs of the market, digital social businesses mostly create new needs either by enhancing user experience, or by  seducing users with an unique experience or an emotional appeal.

Traditional businesses generally have a fixed organization structure, start from a local market and later expand to global markets. In contrast, digital/social businesses are global from day one and thrive on collaborative structures based on interaction with online communities; if such companies manage to capture imagination, growth can be instantaneous. Candy Crush, the mobile phone game has been downloaded more than 500 million times since its launch in 2012 and is worth $5 billion now in 2014.

So whilst traditional businesses focus on break-even and profits, for digital businesses expanding and owing the Network becomes the first and foremost priority. The ‘value is in the network’: own the network first, and find a way to profit from those connections later.

For traditional companies valuations are obtained by appropriating all the potential earnings of the company in future to the present date. The future earnings are found based on the growth estimates of the revenue & costs.

For digital companies the valuation is guided by the user base and is based more on the intangible assets. Hence the digital businesses continuously strive to improve user engagement and grow the user base. Though it is possible to attain a  spectacular growth in user base  within a very short period, say with a particular app, it might be difficult to maintain that level or replicate a similar level of engagement with another app.

Twitter saw the share price plummet more than 20% after quarterly results in Feb 2014, showed that the social network was not adding users as fast as it once did. Zynga, the maker of Farmville, has seen its share price halve since its late 2011 initial public offering (IPO), while Finland's Rovio has struggled to replicate the success of its 2010 hit Angry Birds.

Secondly valuation of intangible assets in digital businesses requires understanding the full global potential of the assets and valuing them accordingly.

Facebook is currently being valued at $170 billion, at about $130/user, given their existing user base of 1.25 billion. The high price of $19 billion that Facebook paid for acquisition of WhatsApp a co with no (proprietary) intellectual property, almost unlimited competition can perhaps be explained in terms of the strategic value that FaceBook sees in owning a IM service with 450 million users and killing the potential competition.

Had WhatsApp listed on a stock exchange, it possibly might have fetched a lower price.

As it may be difficult for digital businesses to continuously dish out products one after the other, so it is very likely that after having accumulated a user base, the founders of some of the smaller digital businesses opt for selling their product to a bigger player who sees strategic value in the product and can leverage the digital platforms to provide value added services to their customers.

It could also happen that in a year or two from now that social media companies see a deceleration in the exponential growth in user engagement and valuations of these companies come down to more realistic levels commensurate with their earnings and return on investment. In such a scenario, the investors who are late entrants and buy at peek valuations may suffer if the market stops seeing the same potential or prices the companies differently than how the initial price is arrived at.

However a fact that seems almost certain is that with time most of the traditional businesses will work on their digital strategies and start using digital channels to tap the ecosystem & engage online communities. This in turn will benefit the digital businesses that can extend their platforms to individuals as well as to the corporate sector and enter into a symbiotic relationship with the traditional businesses.

.

References :

http://aswathdamodaran.blogspot.in/2014/02/facebook-buys-whatsapp-for-19-billion.html

http://www.dailymail.co.uk/sciencetech/article-2562383/Thatll-buy-lot-sweets-Candy-Crush-maker-King-valued-5bn-plans-stock-market-debut.html

http://www.theepochtimes.com/n3/531996-living-in-a-world-without-financial-rules/