Should Corporate Social Responsibility be made mandatory? Discuss the ethical dimension behind mandating charity. (250 W)

Mentors Comments:
1. Introduce the issue and mention government’s plan of penalizing corporates for not doing their part of CSR
2. Mention the provisions of Companies Act that mandate CSR
3. Discuss the relevance of CSR
4. Discuss for and against the idea of mandating it – through punishments
5. Give a personal opinion

Corporate Social Responsibility (CSR) can be referred to as the corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare. India became the first country to make CSR spending mandatory through a law, i.e. Section 135 of the Companies Act, 2013, required to spend a minimum of 2% of their net profit over the preceding three years . The recent amendments among others has made mandatory for companies to keep unspent money into a special account and will be penalized for slip-ups in spending this quota.

What are the benefits of CSR:
 Corporate Social Responsibility links Corporate Sector to Social Sector
 Promote Relationship:  It enhances the “social quotient” of the company hence help in getting appeal for its product from people. Ex Lifeboy soap success story
 It imparts an ethical, responsible character to company’s profile, helps it to justify its product, growth and create a distinct aura of company in public sphere. E.g.: Nanhi Kali project of Godrej group.
 Competitive advantage: Businesses that show how they are more socially responsible than their competitors tend to stand out. The Classmate notebooks which contributed Rs. 1 towards social welfare gained appeal over other brands.
 Presence and involvement of company in CSR activity will provide a soft corner to it in government’s approval, preferences. Its active involvement to implement government flagship program like Swaccha Bharat Mission enhances company’s credibility in
government’s eyes.
 Promotes Socio-Economic Development: If the company is engaged in CSR programs it attracts foreign investment and helps the country to get valuable foreign exchange. This in turn leads to socio-economic developmental activities.
 Corporate executives are often unable to decide on the best social use of CSR funds because they are not equipped to do so. 

Issues with making CSR mandatory:
 There’s no reason why a for-profit private enterprise should be expected to be good at executing social projects.
 Subjecting the CSR obligations of the companies by the government to a yearly quota and a short 3-year deadline is counter-productive.
 The government, as it seeks to hold companies accountable to a high bar on CSR, its own track record in utilizing its countless cess is nothing exceptional.
 India Inc can render a far greater service than these social responsibilities to society, by being compliant with tax laws, not cutting corners on labour or environmental laws, paying its MSME dues on time and treating its lenders and shareholders fairly.
 There is no justification for more back-door levies as the government already takes a lot from India Inc by way of the highest corporate tax rate in the world.
 They have now become obligations that will add to the already stifling compliance burdens that companies face.

The ethical dimension behind mandating charity are as follows-
o Empowers the communities: ensuring accountability from the corporates for their consumption of resources shared by the communities.
o Can help achieve sustainable development goals: CSR aligns private enterprises to the goal of sustainable global development by providing them with a more comprehensive set of working objectives than just profit alone.
o Moral Responsibility: Corporate sector is dependent on wider society for its business. Business managers have a moral responsibility to protect the interests of society and look after the welfare of their different stakeholders apart from providing goods and services.
o Attracts better human resources: CSR is seen to be a great way to attract good talent and to retain them. Social initiatives are a good way to satisfy the emotional and social needs of employees by helping them contribute towards the good of society.
o Engages Corporates in the Development process: Involving corporate sector is an effective way to provide services, especially in India where massive development work is required to reach acceptable living standards.

Way forward:
 The Centre needs to introspect whether it has imposed too many arbitrary conditions, as to the large unspent amounts reported by companies.
 Revisiting some of the unnecessary rules of the Act may help in better compliance.
 Companies taking up genuine projects should be given time to thrash out the most cost-efficient mode of delivering social impact.
 The global wave towards Environmental, social and governance (ESG) investing is mounting pressure for companies to be more socially responsible; the government must do its best to encourage this trend in India.

CSR initiative is a progressive policy. There is need to learn from this experiment and put in some useful fixes to make it even more effective and impactful. The right role and the right balance between corporate profits, government taxes, and individual charity will promote social welfare.

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3 years ago

Pls review

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