Corporate Social Responsibility and the Corporate Board: Assessing the Indian Experiment

Abstract

Corporate social responsibility (CSR) has received significant attention from businesses, civil society and governments around the world. Globally the CSR movement has begun the transformation from a set of voluntary good citizenship practices toward a sustainability concept under which companies integrate the potential social and environmental impact of their business activities in the core of their decision-making.

Perhaps nowhere is the focus on CSR more pronounced than in India. In line with global trends, there has been a robust debate in India over CSR practices. Over the past decade, Indian corporate law has moved from a shareholder centric model to a more stakeholder oriented model, culminating in the passage of the Companies Act, 2013. A central feature of the 2013 Act is the requirement for companies to develop a CSR policy, and to aim to spend at least two percent of their profits on CSR activities. Moreover, the legal regime in India now requires robust disclosure on corporate CSR activities.

Under India’s new legal regime, corporate governance and particularly corporate boards are the vehicle for incorporating CSR activities in Indian firms. Under the Companies Act, the focal point of any company’s approach to and implementation of CSR is the board of directors. CSR in India is a board function that cannot be separated from a company’s corporate governance. The board of director’s CSR committee must frame the company’s CSR policy and determine the amount that the company must spend on CSR activities. Upon approval by the board, the CSR policy must be disclosed in the board’s annual report. Moreover, oversight for CSR activities is the responsibility of the board, which must ensure that the mandatory amount for CSR is spent on the activities outlined in the policy.

This paper analyses India’s corporate governance oriented CSR approach. The paper explores the recent evolution of the CSR concept in India, and why the board of directors was designated as the proper focal point for the implementation of CSR. The paper then analyzes some of the challenges to CSR as set forth in the Companies Act. The current framework for CSR under the Act, in a significant departure from both India’s initial approaches to CSR and from global trends, treats CSR as corporate philanthropy. Moreover, the mechanism of corporate governance used to further CSR may mean that shortcomings in India’s corporate governance model may also infect the move toward mandatory CSR. The paper concludes with some suggestions to improve the role of the board in implementing the CSR mandate.

Keywords: India, Corporate Social Responsibility, CSR, Sustainability, Corporate Governance

JEL Classification: K22