Corporate Social Responsibility: Issues & Development

May, 04, 2019

[op-ed snap] Boardroom rot

CONTEXT

Recent incidents of corporate misconduct raise questions about governance standards in India’s premium companies.

Background

  • Many of India’s listed firms have a ready template on how they conform to the highest standards of corporate governance.
  • That is increasingly becoming unconvincing as the corporate misconduct in some of the country’s top companies show and reflected lately in a series of ongoing stories on ICICI Bank on a “culture” of doing a deal “at any cost”, mistakes “made knowingly” and “suppressing” facts during the tenure of Chanda Kochhar as the bank’s managing director and CEO.

1.The past few months and 2018 were marked by governance failures or shortcomings in some of India’s top listed private banks, leading to the exit of CEOs in Axis Bank and ICICI, of course, and in firms such as Ranbaxy and IL&FS, besides the National Stock Exchange.

2. Professional Managers at the front of misconduct – Unlike earlier such episodes, a common thread, and a worrying one at that, in this new wave of misconduct is that almost all of them feature professional managers, and boards that allowed themselves to be overrun by powerful managements.

3. Opposed to earlier scams –

  • That’s in sharp contrast to the scenario over a decade and a half ago, when a string of corporate scams, including the accounting fudge at the erstwhile software services firm, Satyam, led to a shift in favour of professionally managed companies with attractive salaries and monetary incentives and a more diversified shareholding base.
  • This model, it was argued then, could better align all interests which could lead to maximisation of shareholder value.
  • Sadly, it is that belief which is now open to question as also the larger issue of ethical conduct and integrity underlying corporate governance in the country, both public and corporate.

Comparison with other countries

It is true that India is not an outlier when it comes to corporate scandals, looking around at what keeps unfolding in the US, Japan and some other countries.

1.Regulatory oversight is seen as deterrents – But unlike in India, huge fines or penalties, class-action suits, shareholder activism and regulatory oversight are often seen as deterrents in those countries.

2. Proactiveness on part of regulators – What’s encouraging, however, is the growing recourse by India’s regulators to claw back bonuses or stock options of executives found guilty of wrongdoing and easing them out.

Way forward

1. Tighter supervision and regulation –

  • That should be accompanied by tighter supervision and regulation and far greater oversight by boards of companies and drawing clear lines on their accountability.
  • The fact that just a handful of companies command a governance premium is a poor reflection of standards.

2. Improving Governance – India needs a huge leg-up on the governance front, not just for companies to raise capital, soak savings and boost the real economy, but also to dispel the unease about growing inequality and ensure that capitalism doesn’t get a bad name.

Oct, 25, 2018

[pib] Main Nahin Hum Portal and App

Note4students

Mains Paper 2: Governance | Mechanisms, laws, institutions & Bodies constituted for the protection & betterment of these vulnerable sections.

From UPSC perspective, the following things are important:

Prelims level: Main Nahin Hum Portal, Self4Society Portal

Mains level: Various ICT initiatives promoting CSR activities in India


News

Main Nahin Hum Portal and App

  1. PM Modi has launched the “Main Nahin Hum” Portal and App for IT Professionals.
  2. It works on the theme “Self4Society”.
  3. The portal will enable IT professionals and organizations to bring together their efforts towards social causes, and service to society, on one platform.
  4. The portal is expected to help catalyse greater collaboration towards the service of the weaker sections of society, especially by leveraging the benefits of technology.
  5. It is also expected to generate wider participation of interested people who are motivated to work for the benefit of society.
Oct, 01, 2018

Govt forms committee on Corporate Social Responsibility

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: CSR Provisions in India

Mains level: Reviewing the success of CSR activities in India and making proper modifications.


News

Context

  1. The government has constituted a High Level Committee on Corporate Social Responsibility-2018 (HLC-2018) under the Chairmanship of Injeti Srinivas, Secretary, Ministry of Corporate Affairs (MCA).
  2. It is aimed to review the existing framework, guide and formulate the roadmap for a coherent policy on CSR.

Reviewing the CSR Framework

  1. According to MCA, the Committee will review the existing CSR framework as per Act, rules and circulars issued from time to time and recommend guidelines for better enforcement of CSR provisions.
  2. It will also analyse outcomes of CSR activities/programmes/projects and suggest measures for effective monitoring and evaluation of CSR by companies.
  3. Suggestions are also expected on innovative solutions, use of technology, platform to connect stakeholders, and social audit.

CSR Framework in India

  1. The provisions of section 135 of Companies Act, 2013 pertaining to CSR w.e.f 2014 with a view to promoting responsible and sustainable business through inclusive growth.
  2. As per the said section, the companies having Net worth of INR 500 crore or more; or Turnover of INR 1000 crore or more; or Net Profit  of  INR  5  crore  or  more  during  any  financial  year  shall  be  required  to  constitute  a Corporate Social Responsibility Committee of the Board
  3. The four years of implementation have enabled compilation of data on the number of companies complying with CSR provisions, funds allocated and spent across various sectors, geographical spread of CSR spending, etc.
  4. The existing provisions of in Companies Act, 2013 with respect to CSR fully empower the Board of a Company to decide on their CSR Policy, approve projects and oversee implementation.
Sep, 05, 2018

Decriminalizing corporate law to improve governance

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: The newscard discusses measures to decriminalize certain small offences under Company Law, 2013.


News

Recommendations to amend Companies Act

  1. An expert panel led by corporate affairs secretary Injeti Srinivas recommended a host of measures to make penal provisions in the Companies Act, 2013, to ease the cases of minor offences.
  2. This was aimed to improve governance, especially in ensuring the objectivity of independent directors.
  3. The move is expected to reduce the number of cases reaching company law tribunals.

Committee proposals

  1. The panel noted that trivial cases pending for long in courts impose a serious cost to the economy.
  2. In essence, the panel suggested removing the element of criminality from minor offences and reclassifying them into mere blameworthy acts that carry civil liability.
  3. Such penalty will be levied using an online system so that there was no interface between company executives and regulatory officials.

How will this help?

  1. This is expected to reduce the number of cases reaching the National Company Law Tribunal (NCLT).
  2. The NCLT benches and courts can instead focus on speedy adjudication of more serious offences.
  3. The panel did not seek to dilute penal provisions for serious offences, such as non-compliance of orders of statutory authorities or frauds, which will continue to be governed by existing legal provisions.

The in-house penalty system

  1. The offences proposed to be dealt within the regulatory ecosystem of the corporate affairs ministry include:
  • Prohibition of issue of shares at a discount,
  • Accepting directorships in companies by executives beyond the specified number,
  • Making certain disallowed payments to directors for loss of office,
  • Breech of overall managerial remuneration limit and non-appointment of key managerial person in case of companies
  1. The offences that will not be covered under the proposed in-house penalty system include:
  • Not keeping records of shareholders and significant beneficial owners.
  • Non-disclosure of interest by significant beneficial owners.
  • Not keeping books of accounts at the registered office.
  • Violation of rules on share buyback.
  • Not repaying public deposits
  • Violations relating to loans given to directors or companies related to them, involve public interest and have a bearing on the company’s continuation as a going concern.

New compliance requirement

  1. The panel suggested restoring an earlier provision of the Act which mandated companies to report the receipt of capital from shareholders and file a form to verify the registered office before starting operations or borrowing.
  2. This requirement, the panel felt, will serve as an early warning system for tackling the problem of shell companies and, therefore, should be brought back.

Capping the pay of independent directors

  1. The objectivity of independent directors and their ability to rise above situations of conflicting interest have been a corporate governance priority for the government.
  2. Excessive payment by businesses could compromise their functioning in protecting the interests of minority shareholders.
  3. The panel suggested that the total pay a director gets from a company, including subsidiaries and associates, other than sitting fees and reimbursement of expenses, should be capped at 20% of his or her annual income.
  4. The idea is to prevent independent directors to develop a financial dependence on a company, which will come in their way of functioning
Feb, 13, 2018

CBI can probe FCRA violations over ₹5 cr.

Note4students

Mains Paper 2: Polity | Statutory, regulatory & various quasi-judicial bodies.

From UPSC perspective, the following things are important:

Prelims level: Foreign Contribution Regulation Act (FCRA), CSR

Mains level: Various investigating agencies in India and their work domain


News

Powers of CBI

  1. The CBI has submitted before Delhi High Court that cases of alleged Foreign Contribution Regulation Act (FCRA) violation involving more than ₹5 crore can be referred by the government to the agency for a probe
  2. There is a notification under the Act to this effect
  3. The case in which submission has been made refers to misuse of CSR money

Back2Basics

Corporate social responsibility (CSR)

  1. Corporate Social Responsibility (CSR) is referred as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare and to promote positive social and environmental change
  2. The CSR provision requires affected companies to spend at least 2 percent of their average net profits made in the preceding three years on CSR
  3. This was brought into effect by Companies Act, 2013
  4. Companies will be able to develop their own social investment strategies and decide where to invest and implement programs, but the government has recommended particular areas of need, including eradicating hunger and poverty, maternal and child health, HIV, TB, and malaria, promoting gender equality and environmental sustainability
  5. If a company does not conduct its own CSR, it can give the required amount to the government’s socio-economic welfare programs such as the Prime Minister’s National Relief Fund
Feb, 27, 2016

Reliance Industries tops CSR spending chart: Govt

  1. Background: The new Companies Act mandates every company with a net worth of Rs. 100 crore to set aside minimum 2% of their 3-year average annual net profit for CSR activities
  2. News: Reliance Industries is the top company in terms of CSR, having spent over Rs. 760 crore
  3. A total of 460 listed firms have so far disclosed spending Rs. 6,337.36 crore in 2014-15
  4. Sectors: Most of the funds were spent on education or vocational skills, eradicating hunger, poverty and healthcare, clean Ganga Fund, Swachh Bharat Kosh, promotion of sports, art and culture
Jan, 09, 2016

Tribal pockets around Mumbai report diversion of CSR funds

There are complaints of leakages and corruption at the village and taluka level, especially in tribal region on the city’s periphery.

  1. The panchayat officials siphoned off the money with the help of the engineers.
  2. There is very little monitoring of CSR funds in the village areas, and the system must be improved by various auditing mechanisms.
  3. Activists alleged that there is a absence of sustained funding from the govt for local works.
  4. They say that CSR activities are a much-needed relief to complete smaller projects in the area.
Dec, 21, 2015

BSE-listed companies spend $1 billion on CSR

  1. Nearly 1,200 companies listed on the BSE together spent Rs.6,400 crore towards corporate social responsibility activities in 2014-15.
  2. Almost 55% funds were channelised to education, skills, livelihoods, health and sanitation.
  3. It added that more than 90% of the 1,181 companies complied with CSR norm.
  4. Almost 52% companies spend less than 2% requirement, as most firms lost time in understanding this complex legislation or not finding the right projects or implementing agencies.
May, 03, 2015

NPCIL and its Corporate Social Responsibility

  1. NPCIL is a PSE under the Department of Atomic Energy.
  2. Responsible for design, construction, commissioning and operation of nuclear power reactors.
  3. At Tarapur, NPCIL provides emergency equipments for medical care.
  4. Survey of Ganga dolphins at Narora plant in association with the WWF.
  5. As a part of Environmental Stewardship Programme – NPCIL published 2 books – “Our Flying Guests” & “7 Edens and 70 Fairies” on the birds & butterflies of Indian NPPs.
Apr, 17, 2015

Budget cuts make govt turn to PSUs for funding conservation initiatives

  1. Central Idea – Developing partnerships and funding conservation initiatives under Corporate Social Responsibility.
  2. Schemes up for adoption – In total 14 endangered species put up for the CSR bid.
  3. Snow leopards for Rs 35 crore, gharials for Rs 80 crore, whale sharks for Rs 10 crore and black-necked cranes for Rs 5 crore.
  4. Great Indian bustards going for Rs 104.5 crore and Olive Ridley turtles for a meager Rs 4.60 crore.
Mar, 25, 2015

What qualifies as CSR and what does not?

  1. The 2013 companies law directs firms to spend at least 2% of their average 3-year net profit on CSR activities every year.
  2. But CSR activities should exclude activities undertaken in normal course of business.
  3. The government is not in favour of tax benefits for CSR expenditure because that is akin to subsidizing.
  4. Yet, contribution to the PM’s relief fund receives 100% tax rebate, and contribution to registered charities, foundations, etc., gets 50% rebate.
Feb, 02, 2015

Kamadhenu - a CSR initiative

  1. As part of a CSR initiative, Oil India has signed an agreement with IRMA to carry out a feasibility study to set up dairy production in Assam.
  2. Project is called Kamadhenu.
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