ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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A Misplaced Faith?

Ordering Corporate Responsibility

The provision of the Companies Bill 2013, which stipulates minimum spending by certain companies on corporate social responsibility activities, has been widely criticised. While mandating minimum CSR spending is not undesirable per se, the problem with the provision is that it does not seek to change corporate behaviour and make business operations responsible. Instead, it encourages philanthropy and seeks corporate intervention in public policy and social welfare, which is problematic.

The Companies Bill 2013, passed in the Rajya Sabha early August, has generated much debate around corporate social responsibility (CSR) and the government’s role in it. Clause 135 of the Bill mandates that every company with a net worth of more than Rs 500 crore, or a turnover of over Rs 1,000 crore, or net profit of more than Rs 5 crore, must ensure that it spends at least 2% of its average net profits it has made in the three preceding years on CSR every financial year. Although, a positive obligation is cast upon the company’s board to ensure such expenditure, companies are free to formulate and implement their own policies and can explain their reasons for non-fulfilment of the requirement.

This article attempts to understand the provision and its criticisms. It argues that while the legislative intervention regarding CSR is not undesirable per se, the problem with the bill is that it does not seek to change corporate behaviour and make business operations more ethically, socially and environmentally responsible. It is not the idea of CSR being mandatory, but rather the idea of CSR itself that is problematic.

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