Corporate spending on development has been on the increase since the 2013 landmark legislation
The 2013 Companies Act marked a watershed moment for India. Viewed from a global perspective, it included what was arguably the first-of-its-kind compliance, bringing in regulation and legal guidance around CSR for private and public companies. It mandated 2% of a company's net-profit when averaged over the last 3 years, as expenditure to be directed towards activities which have a social impact. And even with its applicability and other riders, it was laudable in its intent of invoking a greater role for corporations in the social development of the nation.
The Ministry of Corporate Affairs reports CSR spends in India at Rs 8,803 Cr and Rs 9,822 Crs in FYs 2014-15 and FYs 2015-16 respectively. This is expected to rise by around 7% to breach the Rs 10,000 Cr mark in FY 2016-17. There are estimates that this spending could reach Rs 20,000 Cr once the regulation has attained peak compliance.
Almost in parallel, organizations have begun to recognize ‘contributing to the society’ as an intrinsic determinant of employee engagement and culture
Culture studies indicate a growing acknowledgment of giving back to society as a key driver of employee engagement and, by direct inference, productivity. Following the 2013 Companies Act regulation, Dale Carnegie Training and NHRDN surveyed over 1200 executives, individual contributors, managers and chief officers across India. This 2014 study suggested that Corporate Ethics, Contributions to the Community and CSR initiatives were seen to be amongst the strongest motivating factors, leading to the most positive scores around organizational pride. 48% agreed that the organizations they worked for had strong ethics, and another 48% were proud of the contributions made by their company to the community at large.
There is merit in stepping back and taking this in. Organizational pride is not an easy cultural trait to inculcate, for even the best of organizations, with the richest of legacies. It is indicative of personal advocacy on an employee's part, for the organization. And viewed in the context of CSR, it implies a strong expectation on the part of employees for their organizations to operate in a manner which is socially and environmentally responsible.
In other words, CSR is beginning to be viewed as having tremendous potential, not just for social development at large, but for building and sustaining the reputation and equity which organizations enjoy as well. So how does it all measure up?
Where does CSR fit in India’s development landscape?
Context, they say, is everything. While CSR spends are substantial in absolute terms and have also been seeing a steady growth, it may be useful to understand them from the perspective of other expenditures made for social impact.
PRS India’s budget analysis points out that the budgeted expenditure for the Public Works, Irrigation and Tribal Development in FY 2015-16 in one of India’s smallest states, Himachal Pradesh, was Rs 9,234 Cr. Compare this to the total FY 2015-16 CSR spend in India of Rs 9,822 Cr. The Reliance Foundation, the CSR arm of Reliance Industries Limited, has been the single largest CSR spender at anywhere between Rs 600 to Rs 700 Cr a year. Compare this to Rs 630 Cr as the budgeted expense which the Tribal Welfare Department of Andhra Pradesh has to support educational institutes in the tribal regions of the state covering just about 5% of its population.
In other words, CSR spending in India is relatively small when compared to government spending on development initiatives. However, the bottom line is that even this spend is sufficient to propel social change, if channeled appropriately.
Meaningful CSR has a pivotal role to play on the social development value chain
Any fresh, new social change requires iteration and piloting before it can be scaled up. This is potentially where CSR spending (particularly, by large corporates) can play a crucial role, supporting social innovation and lateral thinking in its initial stages; bringing the skills and competencies of private enterprise to bear, in building out solutions; and subsequently managing the pilot projects as use-cases. While public policy and regulations can enable a framework for social development, responsible CSR can test and absorb the risks of new social initiatives. Corporate enterprise can leverage its resources to establish social models and proofs-of-concept, which may later be adopted by the government for large-scale implementation.
The social development value chain is long and challenging, with the identification of the right development model being one of the biggest concerns. Different stakeholders must necessarily play their own, unique roles. Thus far governments, philanthropies, trusts and foundations have traditionally played major roles. Non-government organizations, and Civil Society Organizations have supported them, ensuring checks and balances. Corporates now have a choice to either supplement the work of these well-established institutions or create a decidedly unique position which provides a springboard for the whole value chain.
Hence, the CSR opportunity is one of disruption in the social sector, instead of merely trying to supplement or complement the efforts of the existing institutions. In turn, though, such a scenario may evolve only if CSR commands focus at the very top of corporate agenda.
How corporates can make their CSR more strategic
It is important to understand that ultimately, CSR will be driven as much by the responsibility to give to society as much as the need of the organization to establish or augment its brand or image.
For organizations with smaller CSR budgets, the focus may be on limited scale. However, these play their own part. First, of sensitizing employees to social challenges and opportunities to ‘give back’. And more importantly, allowing these organizations to support crucial and more local initiatives. And those organizations with large CSR budgets truly have a stand-out opportunity to drive social innovation.
To unlock the CSR potential, organizations must put in place crucial enablers
The right organization structure is key for driving any initiative, more so a cultural shift. A CSR Centre-of-Excellence (COE) team at the level of the organization’s corporate core, or CSR business partner-like roles embedded in larger organizational teams or units help focus effort. Having CSR responsibilities built into leadership roles drives accountability. And finally, clear governance norms around spends, quality and time ensure a consistent and coordinated approach.
Creating mind space for employees, allowing them to partake in CSR is necessary for building the intended culture, grounds-up. Some of the vehicles which organizations use to do so include volunteering time which is recognized as utilization; KRAs which officially encourage CSR; and rewards which factor in time and quality of contributions.
The person leading the organization’s CSR agenda plays an important role as well. His or her standing and reputation within the organization sends out a strong message to the rest of the organization. CSR is most effective when it is at the intersection of an organization’s strengths and strategic intent on one side and the needs of the society on the other. Professionals managing CSR need to both have a deep understanding of the business of the firm as well as social impact programs and projects. Altogether frequently overlooked, this is a phenomenally powerful determinant of the culture of giving
Communicating a shared CSR agenda not just within the organization but externally to other stakeholders, especially the communities it is part of; laying down policies and guidelines; taking on strategic partnerships with the Social Development ecosystem; evaluating how CSR funds should be allocated; having a mix of plain funding as well as tracking, managing and periodically evaluating how those funds are utilized; and celebrating social milestones, as opposed to corporate milestones – there are several ways which organizations better known for giving back to society, distinguish themselves.
In other words, it is about stepping back, revisiting the CSR ‘How-Might-We’ and approaching it from a human-centered perspective. This is what organizations must do, to effect a culture of giving which (in turn) not only builds social equity for them, and also allows for greater social innovation.
With social development so deeply connected with the economy, philanthropic spending by organizations will become increasingly critical for the social development of our nation. However, to truly leverage this potential, and drive real social innovation and change, organizations will need to rethink and re-equip themselves.