In earlier days, enterprises like the Tata group set the standard for social consciousness while running their business. In his 2019 article in a leading magazine, titled ‘Tata Steel’s 99-year-old trade union hasn’t seen a strike since 1928’, business journalist Prince Mathews Thomas ascribed this enormous feat to trust between the union and the management – “Its 1956 agreement with the management is known as the ‘magna carta’ of the working class, bringing better benefits, and enabling workers’ representation across the organisational structure.” This is a classic example of management’s foresight and the exemplary response of the union to keep politics out and work closely with the management.
On the other hand, GD Birla, as a philanthropist and institution-builder, set up schools, colleges, hospitals, temples and planetariums across India. Aligarh Muslim University and Banaras Hindu University are among the educational institutions that he supported. His philosophy was to separate business and philanthropy. These are stories of social consciousness of business leaders of that era before the word Corporate Social Responsibility (CSR) was coined.
National Voluntary Guidelines
The National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, released by the Ministry of Corporate Affairs in July 2011, is essentially a set of nine principles that offer Indian businesses an approach to inculcate responsible business conduct. The guidelines provide a framework for companies to grow in an inclusive and sustainable manner. The principles cover governance, safety, treatment of labour and employees, human rights, environment, consumer interest etc. But are these in practice now in the business world?
Enter CSR rules 2013
The CSR rules issued under the Companies Act, 2013, formalised Corporate Social Responsibility (CSR). The intentions were genuine. The Act laid out that enterprises beyond a specified size of turnover and/or profits must spend 2% of the post-tax profit on CSR. The guidelines laid out how, when and where this money must be spent. This led to certain benefits. The CSR spends became the board’s responsibility and increased the oversight on the spend. The amount spent on CSR went up dramatically by 74% in just four years — from Rs 14,344 crore in 2016-17 to Rs 24,865 crore in 2020-21.
But there were four unintended consequences:
• Compliance burden increased on the board and CSR became a compliance issue rather than a social responsibility issue
• Some companies saw this as an imposition and learnt the art of ‘managing’ the CSR rules
• Some saw this as a donation opportunity and decided to spend on people they cared about (hometown of the promoter) or on projects where they were pressurised to give CSR money
• Some turned this into a branding opportunity and took part and won awards in CSR competitions to show how caring they were, without really caring
These behaviours beat the very purpose and spirit of CSR. The way CSR is now evolving is to keep the letter but not its spirit. It is time business enterprises went beyond CSR. It is time we went back to the National Voluntary Guidelines of 2011. It is time we went back to social consciousness in every decision the business makes. If a business makes money unethically or unfairly or makes usurious profits and spends 2% of its profit on CSR, it is just a guilt tax.
Social Consciousness
Social consciousness is the idea that businesses should balance profit-making with social impact. Philanthropy and capitalism must be genuinely combined innovatively as a way of doing business. The unintended consequence of the CSR rules is the separation of business and philanthropy. This means that you can do business any which way you want, as long as you give a 2% part of your profits as philanthropy. This artificial separation of business conduct and CSR is very counter-productive.
A few examples of unfair and unethical business behaviours are:
• Pay employees abnormally low wages, disproportionate to the contribution of labour because labour is not organised and act as mercenaries. Some companies pay even less than our minimum wages. Minimum wages have now become subsistence wages. According to a study published in 2014 by Prof Bino Paul et al of TISS: “Average real wages (wage net of inflation) of the factory workers remained constant or declined, net of inflation, over a 12-year period ending in 2011”. This is because the supply of labour was more than the demand due to demographic factors and unions lost their power to negotiate. This happened despite the increase in labour productivity.
• Exploitative pricing during Covid due to supply chain disruption. This was rampant during the initial stages of Covid even in medicines and vaccines. Regulatory agencies in many countries, including Spain, Romania, Italy, Kenya and South Africa, initiated proceedings against marauding companies.
• Credit card companies charging very high interest rates despite low interest rates in the market is very common in the US because borrowers have no option but to use credit card to make ends meet
• Competitors set up cartels to keep the prices high. The Competition Commission of India imposed penalties of nearly Rs 4,400 crore in the last 5 years. This speaks of the prevalence of the anti-competitive practice.
The argument that a business practice is legal is not enough. Even if something is legal, it should always be fair – ie, not make profits at the cost of someone else. Lastly, it should not be at the expense of society or the environment
Examples of socially conscious behaviours
• Diversity hiring — persons with disabilities
• Recycling of water, even when you have adequate water
• Adoption of communities around factory/business
• Biodegradable packaging
• Responsible manufacturing, with genuine zero emissions
• Recycling of used products, like container glass, used clothes, unused medicines without regulatory pressure
• Ethical labour practices: paying fair wages and benefits to employees based on their contribution even when they are not in a position to negotiate
• Offering affordable products for the poor which will be subsidised by expensive products bought by rich customers
For example, IKEA’s switch to a lighting range, comprised entirely of energy-efficient LEDs, and its IKEA Family Sell-Back programme. Customers are encouraged to switch to LED bulbs and sell back unwanted furniture and home goods that may otherwise end up in landfills!
Another example is the LV Prasad Eye Institute, Hyderabad. Approximately 50% of services are rendered free of cost to the poor. It has categorised its customers and supporters into: General, Supporter and Sight Saver. By becoming a Supporter or Sight Saver, one contributes to services provided free to non-paying general patients.
The benefits include: millennials prefer to work in such companies; customers in western markets prefer products of such companies; and some investment funds look for ESG (Environment, Social and Governance)-compliant companies to invest in
But the ultimate benefit is that the enterprise will have balanced its obligations to all stakeholders instead of focusing only on its shareholders. The ultimate purpose of any enterprise is to be relevant and beneficial to the society in which it operates and this can be met only if the business practices are socially conscious in every decision and avoid mercenary behaviours.