CSR can’t be forced upon companies

Corporate Social Responsibility

The latest amendments to the Companies Act, 1956, approved by Parliament, stipulate a three-year jail term for officials in companies that fail to spend Corporate Social Responsibility (CSR) funds in any given year. The burden of the changes mooted by Finance and Corporate Affairs Minister Nirmala Sitharaman was to ensure ease of doing business. But the provisions relating to CSR will have just the opposite effect, making the lives of corporate leaders miserable. The government has no business making it mandatory for companies to spend 2% of their profits on social sector projects. Companies must be able to discharge their responsibility towards society voluntarily. If companies are unable or unwilling to live by the spirit and tenets of CSR, the government cannot force them to do so, much less jail their promoters and officials. That’s not how democracy and free markets work. Can this provision stand judicial scrutiny?

Section 135 of the Companies Act, which provides for this penal provision should be withdrawn forthwith. Corporate social responsibility cannot be forced down the throat of companies, their promoters or officials as yet another form of mandatory tax payment. Private companies must be able to file a voluntary return on CSR spending without being forced to put their money into signature projects of the prime minister. Even public sector companies should enjoy flexibility to take up or reject a project. For listed companies, in particular, shareholders should have the final say, and not the government by diktat.

It’s not as if all corporates have been running socially useful projects as per the intent of the rule that required them to spend 2% of their profits on CSR, introduced by the UPA regime. Big and small companies hold extravagant peep shows and concerts in the name of CSR. Other companies run thinly disguised soft-marketing campaigns. Yet, there are also examples of corporates and high net-worth individuals doing excellent work, sometimes stepping in and making a success of what the government, with all its might and resources, has often failed at. Charities and foundations run hundreds of schools, colleges, universities and hospitals funded by corporates and business families. The Akshaya Patra is among the finest examples of companies and fortunate individuals coming together to run the all-important mid-day meal scheme. Socially-responsible companies have responded handsomely during natural calamities like floods, famine, drought and tsunami. Several towering business personalities have bequeathed their shares in blue-chip companies for excellent causes. The government must encourage CSR and corporate philanthropy through tax deductions as is done globally, not by force or threat of jail term.

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