‘JUST pull up your socks and go’ is the advice Dr. Bhaskar Chatterjee, former Director General and CEO, Indian Institute of Corporate Affairs, and chief architect of the mandatory CSR provisions in the new Companies Act, gives to corporates in this interview with Raksha Shetty. Chatterjee says the new Government, while leaving the ‘comply or explain’ nature of the rules untouched, wants to encourage companies by giving them time and space, besides keeping CSR audits voluntary in nature.
You led the team that drafted the CSR provisions – and have called it a ‘game-changer’. What did you mean by that, and now that implementation of the rules has begun, what has been the response of stakeholders involved?
The world over, the concept of CSR has undergone many interpretations. In India, our idea of CSR has been mainly ‘cheque book CSR’. But now with this new Act, we are looking at the strategic form of CSR, where corporate entities are spending a part of their profits doing projects for marginalized and under-privileged. So it’s really the approach that corporates have now towards their social responsibility that is a gamechanger. The change that we’ve see since we drafted the rules to the present, is that now everyone sees it as a reality, and whatever initial apprehensions they might have had, they are gradually putting it behind them, and coming to terms with it. It still relates to what they have been doing in the past, but now their focus is more on showcasing these initiatives, working out ways in which they can put it across better. I think they are seeing it more as an opportunity this time, and are positive about it.
What are some of the challenges you foresee or are already encountering in implementation?
"Companies are naturally going slow since what they announce as a project goes out there in the public domain"
At the policy level, this being the very first year, corporates are taking their time to prepare the policy. We’ve said in the Act that every one of the companies must first prepare a policy, and this cannot be a general policy that sits there just for the fun of it. It must include programmes and projects that the company proposes to undertake and these are projects that have to be named. So companies are naturally going slow since what they announce as a project goes out there in the public domain. Moreover, for every programme named, their CSR three-member committee becomes liable to ensure it’s going to be carried out, so it’s a process, and they are taking a little time to decide which projects to align themselves with, and that’s fine. We’d rather that corporates come on board because they want to, not because someone is forcing them to – we are only here to create an enabling environment and allow them to learn how they can come on board whenever they do.
Several corporates, especially mid-level ones, have been critical of the fact that this is being made mandatory, in a sense, forcing their hand to formalize a structure they may not have adequate resources for. What is your advice to them?
"It’s more a mindset problem, but why should I blame anyone? When we have to undergo change, it’s a human approach to be hesitant in doing that. But I see a lot of positivity now"
These 16000 companies for whom CSR is mandatory under the Act - none of them are mid-level. There are 11 lakh registered companies in India. Out of this only 1.3 or 1.4 percent have been asked to do CSR. That’s one odd percent of the entire gamut. They are the crème de la crème - these are the fat cats. So my advice to them is just pull your socks and go. It’s more a mindset problem, but why should I blame anyone? When we have to undergo change, it’s a human approach to be hesitant in doing that. I see a lot of positivity now, there’s the idea setting in that this has a larger purpose, it’s for the benefit of the nation, so now that’s the approach that is taking over.
How has the change in government since the rules were drafted affected the way in which these rules are being approached?
The change in government hasn’t affected it at all.. in fact, the stance of the government has remained completely unchanged. The idea of this government is to encourage companies, to give them the space and time to show what they can do. Also, the principle of ‘comply or explain’ (where companies have to explain why they did not reach 2 percent of spending on their website and in their annual reports) has been left completely untouched by this government. So the new government’s approach has been in the same spirit of the drafting of this policy.
At a policy-level, there are clarifications and notifications being issued in a piecemeal fashion. Why is that happening?
However much you may make an Act, and enunciate it, in the end, it covers a wide array of companies - from cement companies, to those that manufacture LED bulbs. The range of companies that come in the ambit of this Act is enormous. Therefore, each company has a different perspective and how they should approach the rules, and have written repeatedly to clarify this or that point in the Act. We have only brought out two things: the rules, and a series of clarifications. I would say now, mostly, every single thing has been tied up. We will certainly continue to offer our help and clarifications, if companies need some help. So I wouldn’t call it piecemeal – I would call it need-based. Where there are genuine concerns, it’s up to the Ministry to hand-hold and clarify wherever there is need for it.
There is no formal mechanism for auditing CSR. Are there any plans setting up such a mechanism, or a CSR index, as some experts have suggested?
"We would like that CSR money should be spent effectively and with demonstrable results at the field level"
The Minister has referred this matter to the Institute of Chartered Accountants (ICAI) who very shortly will come up with a ‘guidance note’ for auditing companies for CSR. The guidance note will be vetted by the ministry, and then issued. There is a very concerted effort to provide a uniform approach to how CSR will be audited. So this is a reference aid specifically for auditors of this activity. But yes, this will be a form of self-regulation and is purely voluntary in nature - the idea is definitely not to look over people’s shoulders, which would go against the spirit of the Act.
So then, how do you ensure CSR activities go beyond ticking boxes, and ensure real impact for beneficiaries?
"All the corporates together will put in one-fifth of the budget of just one ministry of the Government. So it may seem like a big amount, but it’s still a small piece of the jigsaw"
This is what was happening before... it was all tokenism. Companies saying, let’s do something, in an arbitrary fashion. Now we’ve asked companies to approach every CSR activity in a structured manner with a specified CSR programme or project. So there have to be milestones for monitoring a project, a robust monitoring mechanism must be in place, baseline surveys must be conducted to understand what the community needs, rather than companies providing something they think the community needs, impact evaluations must be done, i.e. encouraging companies to see what kind of impact their project leaves behind on the community or space where they are operating. We would like that CSR money should be spent effectively and with demonstrable results at the field level. So it’s can’t be a tick box exercise anymore.
How does IICA or the MCA intend to provide an adequate ecosystem that ensures effectiveness of efforts we are seeing in the social sector?
When you speak to CMDs of companies or corporate entities, we find they look at their balance sheet and this Act and suddenly they realise there is a budget they need to spend. They usually have two requirements. The first is, within their organization where to find qualified CSR professionals. IICA has just about to start the first IICA certified programme in CSR. This is a nine-month online course, with a certificate provided by MCA and IICA. This create professionalization in this sphere. Secondly, for this entire CSR process to unroll, there are three players: the government to create an enabling environment, corporates who are the doers, and the voluntary organization (NGOs) who are the link to the beneficiaries. For corporates who are looking for the right NGO to partner with, we are launching the IA (Implementation Agency) Hub in the third week of August. We invite NGOs to register with us and put those up on our website who we feel have a credible track record. Corporates are under no compulsion to choose NGOs from there, but we will classify them by the area in which you want to work. We will have a disclaimer, of course, but we will do the due diligence on those companies and that will provide corporates with a level of comfort.
What do you say to corporates who put the onus on the government to provide better linkages, infrastructure in the social sector for CSR activity to be more effective?
"India is the first country in the world to introduce such legislation and we have to be conscious that the world is looking at us"
Well, I would say that is all old hat. The fact is this is CSR. It’s for you to spend your money in any way you want. Let the government do what it wants to do. It’s your money. You decide what you want to do with it. If you want to set up a hospital, and provide better infrastructure, you can. If you want to just train nurses, you can. When our social indicators are so challenged, it provides you with enough opportunity. You are free to supplement or complement what government is already doing. You can also team up with other corporates - why should you go it alone? Feel free to do so. So I feel that argument is behind us now.
Consider this statistic. All of these 16,000 companies in one year would put approximately 18 to 20,000 crore rupees into the social sector. The rural development ministry puts in 80,000 crore rupees - that’s the budget of just one ministry. So the corporates together will put in one-fifth of the budget of just one ministry of the Government of India. So its may seem like a big amount, but when you compare it, it’s still a small piece of the jigsaw. That said, companies generally tend to spend money more effectively, and get better bang for the buck. They will use their HR skill, innovation skill, the ability to monitor and actually deliver projects on the ground. So we expect to see better delivery from corporate sector, and a lot of results from the CSR money.
How do you think will Section 135 evolve over time? What is your long-term vision for these provisions?
I think for about 3-5 years, Section 15 will stay as it is. When CSR has got enough traction, we’ll see whether any modifications may be required. As of now, they are in place, and they give corporates enough elbow room. India is the first country in the world to introduce such legislation and we have to be conscious that the world is looking at us. I believe most corporates will come on board and will do a very good job of their commitments and we’ll be proud as a nation what the synergy between the government, corporates and social sector can accomplish.
PSUs have been implementing CSR for years, but those efforts have often been relatively small compared to the resources at their disposal. Is there a specific push to help PSUs develop more effective, holistic CSR strategies?
The PSUs were asked to begin CSR in a formal structured format on April 1, 2010, by the Department of Public Sector Enterprises that issued the first such guidelines anywhere in the world for PSUs. The attitude was we must first allow PSUs to do CSR in a structured way before we ask private sector to anything similar. So the CSR clause was included in MOUs signed with PSUs and it has picked up a great deal of momentum. This new Act is applied equally to them – it is now a level playing field, and treatment is equal.
There’s been a plethora of CSR consultants and NGOs that are coming up as a result of this new provision. What is your advice to corporates on choosing the right fit?
Wherever there is demand, then there comes supply – a similar trend to how even a year or two ago, there was an MBA institute around every city block. So I’m not surprised CSR consultants are mushrooming. But when there is a proliferation, the user has to be cautious. Consultants must be chose with great discretion, based on his/her experience, and how authentic he/she is. I would not consider it a bad sign, it’s an indication of how popular the CSR field is becoming.