In the age of turbulent and tumultuous environment of fast changing competitive world, the corporate sector is poised to become the main engine of growth for the economy. It is acknowledged worldwide that international trade is an essential vehicle for human prosperity and social economic growth. It sets up values and principles of growth engines amongst the nations. 1991 liberalization reforms increased the role of private players in the Indian economy and the contribution to GDP increased appreciably. The disproportionate role of industry in terms of resource allocation and employment in our economy calls for collaborative development strategy, where the public welfare is shared between the state and eligible private sectors.
To regulate trade, Social Compliance has emerged as the most important management challenge for the business community. An unprecedented pressure from the consumers and other stakeholders has forced the corporate world to enforce, social compliance in their production units. Exporters and now even the domestic players have no choice but to ensure adherence to social norms as practiced world over. Likewise corporate social responsibility has become an integral part of the corporate world.
Businesses, by its very definition, need to be profitable. But the manner in which they use natural resources and extent to which they are sensitive to the needs and aspirations of the common man is also critical to their own long-term survival and growth. Sustainability of business includes not merely economic sustainability in the narrow sense of the term but social and environmental sustainability as well. It is therefore necessary that businesses must not act under the light of perceived ethical deficit. Businesses must function as part of the society because they are, in fact, a part and parcel of that society.
In that context, every business has an obligation to the society that extends its narrow obligation to its owner or shareholder. Companies that are currently successful and do not have innovation ingrained in the fabric of their business need to be careful. No enterprise, however, diversified or big, can rest on its past achievements. It becomes imperative on enterprise to continuously challenge itself to find new and better ways of doing the old things or in fact create new ways of doing new things. The new environment may, therefore, call for new product designs, new production techniques, composition and packaging which take cognizance of the dynamic business environment.
Overall aim of social compliance is to empower business partners particularly in the case of producers, who will be monitored to develop their supply chain in a way that respects human and labour rights as well as to provide business units in the supply chain with the tools needed to improve working conditions of workforce in a sustainable manner. Even though the aspirations will remain unchanged, code of conduct which are translated into verifiable social standards, may change in line with the changes in society. Needless to say, full observance is a process that takes considerable time, resources and effort. Therefore shortcomings, failures and unpredictable occurrences will always remain a possibility.
Social compliance initiatives strive to regulate trade and ensure implementation of international conventions such as universal declaration of Human Rights, the children’s rights and business principals, UN Guiding principles for Business and human rights, UN global and International Labour Organization (ILO) conventions, and Recommendations relevant to improve working conditions in the supply chain. It is a multifaceted disciplinary tool which requires effective monitoring machinery with effective enforcement tools It also encompasses clear understanding of native and international labour laws, health and safety regulations, environmental regulations, industrial relations supply, chains security, production technology, local cultural customs, economic and political systems and global business trends. Obeying domestic laws is the first obligation of business enterprises. Countries where domestic laws are in conflict with international norms, or set a different tone, a common meeting ground must be arrived at and ways sought to provide the highest protection to the workers and environment.
Corporate social responsiveness consists of the capacity of a business to respond to social pressures. This suggests the ability of a business organisation to survive through to its business environment. The compliance code of conduct therefore is a set of principles and values that reflects the beliefs of its participants and the expectations they have towards their business partners. Business enterprises that endorse the compliances are committed to the principles set out by the organisation, within their sphere of influence and their responsibility to respect human rights. Compliance and its partner participants pursue a constructive and open dialogue among business partners and stakeholders in order to reinforce the principles of socially responsible business. The value of cooperation is equally important in the relationship with the business partners in the supply chain, particularly those that need support in order to improve. The development of internal management systems plays a critical role in bringing Social Compliance principles to the heart of business enterprises culture. Compliance participants and their business partners strive to further detail to root causes of any adverse impact in human rights, particularly when sourcing from high-risk regions or sectors. So as to embed this responsibility, business enterprises should act with due diligence and develop the necessary management systems, policies and processes to a reasonable extent as well as effectively prevent and address any adverse human rights impacts that may be detected in the supply chain. Even where judicial systems are effective and well-resourced, grievance mechanisms may offer particular advantages such as speed of access and remediation, reduced costs and transactional reach. While operating in countries where trade union activity is unlawful or where free and democratic trade union activity is not allowed, business partners shall respect this principle by allowing workers to freely elect their own representatives with whom the company can enter into dialogue about workplace issues.
With global regulatory norms getting more stringent, risk-based industries are triggering the demand for additional compliance professionals. It is no longer about remaining compliant. It is more about doing the right things and that’s what the International corporate giants are looking at now. There is need for work culture change and hence global players are focusing on strengthening their compliance structure in order to do sustainable business. They are focusing on building teams in monitoring, surveillance and risk- based supervisory role and are increasing their headcount by 20% to 30%. Therefore, it is imperative to ensure finance, legal, compliance; audit and HR functions are staffed optimally with greater degree of specialization within each function. As India emerges as regional economic hub, we foresee a healthy demand for professionals in regulatory reporting, internal audit along with compliance rules. There is a thrust to build audit strength within emerging companies. And given the fact that significant audit talent is available within the country to help in global and regional locations “ACHHE DIN “for compliance regulatory industry are just around the corner.
The other side of the coin in Compliance Is Corporate Social Responsibility. Over a long period, the moralists have been crying hoarse for private sector to chip in towards their social responsibilities. Therefore, the mandated corporate social responsibility (CSR) funding under the provision of the companies act of 2013 is a welfare step by the government. This legislation makes India as the first country in the world to codify the social obligation of the private sector, thereby giving rise to unique development model that could serve as a template for emerging countries with similar complexities. With over $2 billion at stake the CSR guidelines if implemented in letter and spirit, could have a tremendous impact on our socioeconomic landscape. There was a time when the practice of adding an additional cost to the final bill the Dharam Khata, was prevalent in our country. It contributed to the operations of educational and healthcare institutions and community-oriented projects in pre- independence era. Going back further, there are examples of rulers and nobles endowing villages and tax revenue to ashrams religious and educational institutions to help them fund their activities. There are similar concepts across different religions, and western notions of charity and philanthropy are more about doing good for humanity while CSR in India is about following the law.
Introduction of section 135 of the companies Act 2013 specifies that companies with net worth of 500 Crore or more or a turnover of Rs 1000 Crore or more/net profit of Rs 5 Crore or more will have to constitute a CSR committee with 3 or more directors and allocate at least 2% of their three-year annual profit towards CSR activities. More than 8 lakhs companies would fall under the Companies Acts ambit thus generating the chain reaction in social development field. It has also a unique directive to the companies to invest part of CSR funds towards business operations. This advisory unfortunately is being largely ignored as Companies simply contribute, their CSR budget to NGO’s religious institutions and other welfare activities. Thus, there is no accountability of how the CSR is empaneled by the companies as exact location of the same is not mandated hence diluting the intent of this legislation. It is imperative that companies realize that they have a social obligation to first benefit the immediate vicinity that contributes to their revenues. Therefore, treating it just a diktat from the executive will not serve its intended purpose that in reality was to act as catalysts of social change.
The inability of the companies to comply is in part because the act has left a lot to be desired. There is still considerable confusion on what qualifies as CSR spend and what doesn’t. It is because companies have seldom placed CSR high on their business agenda. Most have subscribed to the Milton Friedman dictum ” The business of business is business ”. Funds have been allocated for social projects but seldom out of social conviction. It has been done to please political and bureaucratic leaders, or to secure public support for specific project investments. But responsible corporates have discarded Friedman dictum – ” The businers of business is business ” from their public vocabulary but have not however excised it from their ethos.
The RBI latest report of currency and finance recommended policy options to mitigate climate risks and achieve India’s goal of net zero emissions by 2070. One suggestion is mandatory geographic diversification of Corporate Social Responsibility Spending. While this is a sound recommendation, it’s implementation will require a shift in the ecosystem for a more equitable distribution of CSR funding. Section 135 also states that Companies give preference to areas where they operate in deploying CSR funds. This has resulted in more funding for social issues but also concentrated spending in the Industrialized states. It is imperative to execute CSR efforts strategically ‘with the right balance of capital investments and operational expenses. As for regional disparity, it is pointed out that just ten states including Industrial ones such as Maharashtra, Gujrat, Karnataka and Andhra Pradesh grabbed over 44% of CSR funds while the eight NE States received a mere 0.91%. This is concerning and a matter of concern as the smaller regions are the most socioeconomically and culturally diverse in the country and have a high incidence of poverty and under development. It is highly desirable to strike a balance between local area preference with national priorities to avoid any conception of CSR funds in specific regions. As per the official data of MCA Ministry of Corporate Affairs, the Education Sector (including education livelihood enhancement projects, Special education vocational skills) received 37% of total CSR spending. The health care (including health care, poverty eradicating hunger malnutrition, Sanitation and Swatch Bharat) come next with a 30% share. Rural development projects accounted for 9.6% of the total CSR expenditure. This preference arises from a desire to help communities that live and work near their business operations, and within regions where they are familiar with the challenges. Overcoming such a strong local preference will likely require regulatory changes. Accessing remote locations identifying the needs of local communities, and trusted implementation partners are challenges.
Successful pan – India projects will benefit from collaborations between larger companies and smaller social impact journeys. A lot of large companies have hence, been investing in education and carrying out some collaborative work in the areas of skilling access to quality education as part of their CSR programs. CSR in education has primarily been in the form of scholarships, donations by way of sponsoring labs, Chairs and programs in educational institutions. Building schools has been a traditional way of fulfilling CSR. Corporates have also come out to form partial or full ownership to build universities. They are also exploring newer areas of imparting education to the underprivileged by using modern technologies like online web-training and setting up kiosks.
A cement company has taken up technology aided education initiatives like smart classes and interactive kiosks in rural schools aiding thousands of rural children. A leading oil and gas major has played a crucial role in training youngsters in welding automobiles and mobile repairs. Another major automobile manufacturer has worked on giving villagers greater access to quality education, while a telecom company seeks to empower rural students by providing them access to tests and courses through various mobile platforms. Mandatory CSR is also likely to increase demand for professionals in this field by as much as 50% in the coming years with at least 50000 more job opportunities in CSR sector.
Finance Minister NirmalaSitaraman had announced in her Budget Speech for 2024 25 a new initiative known as The PM’s Internship Scheme. The Ministry of corporate affairs (MCA) which is spearheading this initiative, is in talks with the top Corporate Social Responsibility spenders such as Reliance Industries, Tata Consultancy Services, HDFC Bank, ONGC, Infosys’s and NTPC to roll out this scheme within a month. THE PRIME Minister’s internship scheme that aims to provide internship to one crore youth in top 500 companies over 5 years opened its portal for companies to register the internship opportunities for the pilot phase from October 24. A total of 111 companies have come on board, with a total of 1,077 internship positions already listed by three companies – Mahindra and Mahindra, Alembic Pharma and Max Life insurance. On an average, each company would be expected to accommodate 6000 interns a year for five years, where government will bear most of the cost. Participating Companies would pay for the training Cost and 10% of the monthly allowance (amounting to Rs. 6000 for each Candidate) from their CSR fund. The higher the CSR spending, the larger could be the intake of interns for companies. Unemployed youth aged 21 to 24 with no income Tax payee in the family and without education in elite institutions like IITs and IIMs would be among those eligible for the scheme which is focused on youth from mainly poor and lower middle-class households.
Conclusion
Corporations that wish to be true national partners in realising environmental and social compliance goals will have to establish trusted partnerships with a more diverse set of non-profit and local governments. We must remember that succeeding in a changing world is beyond just surviving. The current economic environment is a volatile and violent one. Creativity and innovation is the new name of the game. The disproportionate role of Industry in term of resource allocation and the employment over our economy calls for collaborative development strategy where the responsibility of public welfare is shared between state and eligible private sectors. Thereby, the mandated corporate social responsibility (CSR) funding under the provision of companies Act of 2013 was a much-welcomed initiative towards the objective. Only the discerning organisations can manage the changes inherent in the new social environment.
