ISB Updates

Mandatory CSR in India

The Thomas Schmidheiny Centre for Family Enterprise (TSCFE) at ISB released a white paper, ‘Family Businesses: Heeding the Call of Corporate Conscience, 2015–2017’, on December 13, 2018.
The paper is authored by Syed Eraj Hassan, Dr Nupur Pavan Bang and Professor Kavil Ramachandran of TSCFE, ISB and Professor Raveendra Chittoor of University of Victoria, Canada.
The study includes analysis of Corporate Social Responsibility (CSR) spends of companies for a period of three years, FY 2015–2017, using data from the Government National CSR Data Portal. The final sample for the study consisted of 1,210 firms and 16,470 project-level observations.
Apart from the quantum of spends, the researchers looked at the nature of spends covering the areas of development and the implementation modes chosen by the companies to spend their CSR monies-family firms and non-family firms.
Basis the analysis, a more significant proportion of family firms, when compared to non-family firms, meet their mandated CSR obligations, though overall non-compliance remains a matter of concern. Overall, family firms outperform non-family firms.

Family members of the promoters run many company-owned foundations. This often results in family promoters making decisions that are not in the best interests of the other shareholders. It raises the question of whether the family benefits at the cost of other stakeholders of the company. As a result, families will have to professionalise their efforts and contend with implementing greater transparency and monitoring mechanisms to lend greater credibility to their social initiatives.

State-owned enterprises have been largely driving the CSR spends in India in keeping with their social-welfare mandate. Despite forming only 4.7% of the study’s sample in terms of numbers, they contributed to 31.7% of the total CSR spending of the sample as compared to 46.4% of family business group firms contributing to 42.7% of the total spend. However, it is imperative that the Government of India (GOI) does not exhibit a double-standard with respect to CSR at the expense of other retail shareholders. The GOI had clarified in a circular that CSR was not intended to fund gaps in government schemes. However, recent press reports show this may not be the case.

Widely-held firms are myopic towards CSR. Other Business Group Firm and Standalone Non-Family Firms have been restrained in their spending indicating that continuity in long-term vision and institutional values may be an issue in such firms. Professional managers may not have the required will to drive social welfare activities proactively. The short-term horizons of non-promoter shareholders in these companies could be pushing the priorities towards economic returns at the expense of long-term social investments.

The study made several such revelations; some of which were discussed at a roundtable on ‘Mandatory CSR in India’, which was held on the occasion to address the emerging scenario of CSR activities in India. You can refer to the paper here.