Posted on: Post Date – 12:30 AM, Tue – 11/15/22
It’s time we returned to the National Voluntary Guidelines, which provide a framework for companies to grow in an inclusive and sustainable way.
by T Muralidharan
In the early days, businesses like Tata Group set the standard for social awareness when running their businesses. Business journalist Prince Mathews Thomas put this in his 2019 article in a leading magazine titled “Tata Steel’s 99-year-old union hasn’t gone on strike since 1928”. Great achievement thanks to the trust between the union and management – “its 1956 agreement with management, known as the ‘Magna Carta’ of the working class, brought better benefits and enabled workers to structure.” This is a prime example of management’s foresight and a model response by unions to keep politics out and work closely with management.
On the other hand, as a philanthropist and institution builder, GD Birla has established schools, colleges, hospitals, temples and planetariums all over India. Aligarh Muslim University and Banaras Hindu University are among the educational institutions he supports. His philosophy is to separate business and philanthropy. These are socially conscious stories of business leaders in the era before the term corporate social responsibility (CSR) was coined.
National Voluntary Guidelines
The National Voluntary Guidelines for Corporate Social, Environmental and Economic Responsibility, published by the Ministry of Corporate Affairs in July 2011, are essentially a set of nine principles that provide Indian businesses with a way to instill responsible business conduct. The guidelines provide a framework for companies to grow in an inclusive and sustainable manner. These principles cover governance, safety, labor and employee treatment, human rights, the environment, consumer interests, and more. But are these principles now being put into practice in the business world?
Enter the Corporate Social Responsibility Rules 2013
The CSR Rules issued under the Companies Act 2013 formalize Corporate Social Responsibility (CSR). The intent is real. The Act stipulates that businesses above a certain turnover and/or profit scale must spend 2% of their after-tax profits on corporate social responsibility. The guidelines set out how, when and where the money must be spent. This brings certain benefits. CSR spending becomes the responsibility of the board of directors, with increased oversight of spending. CSR spending has seen a massive growth of 74% in just four years – from Rs 143.44 crore in 2016-17 to Rs 248.65 crore in 2020-21.
But there are four unintended consequences:
• Increased compliance burden on the board and CSR becoming a compliance issue rather than a social responsibility issue
• Some companies see this as an imposition and have learned the art of ‘managing’ CSR rules
• Some people see this as a donation opportunity and decide to spend the money on someone they care about (the originator’s hometown) or a project for which they are forced to donate to CSR
• Some people turned this into a branding opportunity, entered CSR competitions and won awards to show how much they care, not really
These actions violate the purpose and spirit of corporate social responsibility. The way CSR is developing now is to keep the letter and not the spirit. Now is the time for business enterprises to look beyond corporate social responsibility. It’s time we returned to the 2011 National Voluntary Guidelines. Now is the time for us to return to social awareness in every decision our business makes. If a business makes money in an unethical or unfair way, or earns usury and spends 2% of its profits on corporate social responsibility, it’s just a guilt tax.
Social awareness
Social awareness is the idea that businesses should strike a balance between profitability and social impact. As a way of doing business, philanthropy and capitalism must come together in a truly innovative way. An unintended consequence of CSR rules is the separation of business and philanthropy. This means you can run your business any way you like, as long as you donate 2% of your profits to charity. This artificial separation of business conduct from corporate social responsibility is counterproductive.
The following are some examples of unfair and unethical business practices:
• Paying employees unusually low wages, disproportionate to the contribution of the workforce, which is not organized and acts as a mercenary. Some companies pay wages even lower than our minimum wage. The minimum wage is now the minimum wage. According to a study published in 2014 by Professor Bino Paul et al at TISS: “The average real wages (salaries net of inflation) of factory workers remained the same or decreased (net of inflation) over the 12-year period to 2011 “. This is because the supply of labor exceeds the demand due to demographic factors, and unions lose their bargaining power. This happened despite increased labor productivity.
• Exploitative pricing during Covid due to supply chain disruptions. This was rampant in the early days of Covid, even in medicine and vaccines. Regulators in a number of countries, including Spain, Romania, Italy, Kenya and South Africa, have filed lawsuits against the looting firm.
• Despite low market interest rates, high interest rates charged by credit card companies are common in the US as borrowers have no choice but to use credit cards to make ends meet
• Competitors create cartels to keep prices high. The Competition Commission of India has imposed fines of nearly Rs 4,400 crore in the past five years. This illustrates the prevalence of anti-competitive behavior.
Arguments that business practices are legal are not enough. Even if something is legal, it should always be fair – i.e., not gain at the expense of others.Finally, it should not be at the expense of society or the environment
Examples of Socially Conscious Behavior
• Diversity Recruitment – Disabled
• Recycle water, even if you have enough
• Employ the community surrounding the plant/business
• Biodegradable packaging
• Responsible manufacturing, true zero emissions
• Recycle used products such as container glass, old clothes, unused medicines without regulatory pressure
• Ethical labor practices: Pay employees fair wages and benefits based on their contributions, even if they cannot negotiate
• Provide affordable products to the poor that will be subsidized by expensive products purchased by the rich
For example, IKEA switched to a lighting range made entirely of energy-efficient LEDs, as well as the IKEA home product buyback program. We encourage customers to switch to LED bulbs and sell back unwanted furniture and household items that might otherwise end up in landfills!
Another example is the LV Prasad Eye Institute in Hyderabad. About 50% of services are provided free of charge to the poor. It has divided its customers and supporters into: General, Supporters and Visionaries. By becoming a supporter or a visionary, you can contribute to a service that is provided free of charge to non-paying general patients.
Benefits include: millennials prefer to work for such companies; clients in western markets prefer products from these companies; some investment funds look for companies that meet ESG (environmental, social and governance) standards to invest in
But the ultimate benefit is that the business will balance its obligations to all stakeholders, rather than focusing only on its shareholders. The ultimate purpose of any business is to be relevant and beneficial to the society in which it operates, and this can only be achieved if every decision in business practice is socially conscious and avoids employment practices.
(The author was the former chairman of FICCI Telangana)
