In India, CSR is approached with a rigor that is not found anywhere else in the world. Here we see how companies around the world can learn from India’s approach to CSR – to ensure that every dollar spent has the best societal impact, while enhancing your brand value.
Conventional business models use profits to increase equity, pay dividends, or reinvest in the business. So, wouldn’t it be terrifying for corporations if the government suddenly stepped in and ordered a small portion of their profits to be diverted to social betterment projects?
Well, apparently not!
India, the fastest growing economy in the world, is also home to one of the weirdest corporate laws on the planet. It is the only country in the world that requires companies to have a corporate social responsibility policy.
Corporate social responsibility is a practice in which companies voluntarily participate internationally to self-regulate and contribute to social and environmental improvement projects. However, the term takes on a whole new meaning in India.
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In India, Section 135 of the Companies Act 2013
makes it mandatory for businesses that have a net worth of more than Rs. 500 crore (~US$71 million), turnover above Rs. 1,000 crore (~US$142 million), or net profit greater than Rs. 5 crore (~US$714,000) in the last financial year to use at least 2% of their average net profit for any activity provided in a list established by the government.
Among other things, the list allows companies to allocate their CSR funds to issues that include the eradication of poverty and hunger, the promotion of education, the empowerment of women and environmental sustainability.
zHow are Indian CSR policies different?
In India, CSR is treated with a different rigor that is not found anywhere in the world. The law stipulates that three directors must form a CSR committee, which is responsible for creating and enforcing each company’s corporate social responsibility policy. When 3 admins need to create and enforce a policy, you know the job won’t get done lazily!
The law requires that the CSR policy be fairly elaborate and that the money spent be audited. In addition, the committee will be accountable for every dollar spent; and the policy as well as the CSR actions undertaken must be detailed by the company in its annual report and on its website.
The CSR committee also has much more power than the board of directors to ensure that 2% of the profits have actually been paid out by the company. The Board of Directors is also required to follow any CSR suggestions that may be made by the CSR Committee.
What do Indian companies think of this?
This may be quite difficult for foreign companies to understand, but Indian companies as well as foreign companies setting up shop in India are actually quite sympathetic to government policy.
Indeed, unlike paying taxes, CSR allows the company to control every dollar it spends on one of the authorized activities. Moreover, with 3 administrators on board and such extraordinary powers, companies are generally careful to make the most of their money, far from the state spending on social policies, which usually involves a lot of waste.
However, engaging in CSR activities does not only imply an outflow of cash. It’s also a great branding opportunity for businesses and a great way to engage in local marketing while doing good for the community.
And nowhere is this truer than in India! With companies including Coca Cola
and Son of Tata trying to outdo each other every year, CSR is a battleground where companies can do more good in the community with a fixed budget.
And, it has been repeatedly found that these activities create quite a deep patriotic feeling among Indian consumers. Tata, one of the largest philanthropic business houses in India, is also one of the most revered and trusted companies in the country. While we car manufacturers such as Ford
and General Engines were unable to penetrate the Indian consumer market, Tata Motors was able to dominate it within a year after switching from commercial vehicles to consumer vehicles.
How companies can use CSR internationally
As proven in India, engaging in a dedicated approach to CSR presents one of the best ways for a business to grow sustainably. Applying Indian CSR principles is however not such a difficult task. In fact, most US brands investing in India already have the necessary expertise.
For example, Coca-Cola 2015″Support my schoolwas one of the largest CSR campaigns ever undertaken in India. The viral campaign earned Coca-Cola media exposure that even coordinated marketing campaigns will struggle to replicate.
To effectively apply CSR, here are three unique principles that companies must adhere to:
Get the highest leadership on board – Make sure the whole company understands that this is a serious policy.
Create OKRs to enforce your policy – Your CSR policy must have clear objectives, accompanied by actionable key results that will help you achieve your objectives. Although it is a management principle invented by Andrew Groveformer CEO of Intel, there are traces of the principle in CSR legislation in India. Remember that while goals are important, goals followed by concrete policies work much better.
Fix the responsibility – There must be accountability if CSR objectives are not met. It should be on par with other business metrics like missing sales targets, etc. Try to ensure that the responsibility rests with the highest management. Usually you can’t fix the liability of the board of directors; but the CEO or an officer should be in charge of the entire application process.
Some companies are already engaging in voluntary work of social utility. For example, the law firm specializing in technology and intellectual property
PatentPC, who I had the opportunity to work with, provides an AI-powered open-source learning platform that also helps inventors file for patents. And more and more international companies are realizing that it is important for companies to take a stand and engage in activism to strengthen their brand.
As you can see, using Indian CSR principles is about changing your company’s current management approach and setting priorities. To ensure the sustainability of your CSR activities, you can even track the ROI of your investment. It will help you modify, experiment and even modify your CSR activities, ensuring that every dollar you spend has the greatest impact in terms of improving societal goals while improving your brand value.