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The new companies act, if implemented properly, has the potential to be a game changer for India as it will help overcome issues like poverty, malnutrition, healthcare & environment

The new companies act and its historical Section 135, enumerating the mandatory social spending requirement, provide corporate entities a unique opportunity to set right the development skew by actively collaborating with the goverment and society in building a sustainable ecosystem for national regeneration. If implemented in a true spirit, the act has the potential to be a game changer for our country. This will not only boost the bottomline, but can also help address some of India’s most challenging problems, including poverty, malnutrition, healthcare and environment.

Corporates must look at this as an opportunity to make significant contribution towards building nation. The problem of the country is that the islands of prosperity are few and pockets of excellence are not scalable. The country today needs solutions that are replicable, scalable and low on cost. Issues like employment to youths, imparting quality education in schools (particularly government aided ones), affordable healthcare, rural and semi-urban infrastructure development are glaring at us. Needless to say, all the stakeholders should play a more pro-active role for the nation’s inclusive development. In this perspective, this act is a landmark as it identifies the areas that need to be taken care of for building a stronger society. It is therefore a forward looking step that no longer makes corporate social responsibility (CSR) a whimsical charity — but firmly nudges corporates to demonstrate their commitment by adoption of appropriate processes and strategies. One is tempted to theorise that now with Section 135, CSR is well on its way to being integrated into the conduct of business by corporate houses whereby economic, environmental and social objectives would be inextricably linked to the company’s operations and growth. But this may be overstating the position because as they say “the road to hell is paved with good intentions”, so is the implementation of the new companies law & Section 135.

Corporate intention

There is no dispute that opportunities are tremendous, but challenges too are immense. There can be no gain saying that proper implementation of the guidelines would depend on the will and resoluteness of corporates to embed CSR into their business and how employees are motivated and involved in the activities. Perhaps the first step could be to create internal awareness on ethical business practices and sustainable development principles and the positive economic impact thereof. On the way of turning intention into a deed, an important decision for corporates would be whether their CSR engagement should be direct or conducted at arm’s length. While some organisations would prefer to continue to lower their chosen paths, others may be daunted by complex choices this throws up. Should one ally with NGOs? Draw up a corporate CSR policy? Ramp up CSR bandwidth or start a foundation? Or simply donate to a charitable cause and be done? Business houses would do well to keep in mind that there are no right answers.

Completely independent of any external compulsions like the new companies act, several of India’s foremost corporate houses have displayed an extraordinary depth of commitment to fulfilling social obligations. Commendable contributions have been made by corporate foundations and need no retelling. However, what is interesting to see is that how, with the new company law, can the changes be brought in the functioning of these foundations. Would the new company law impel corporate foundations to create linkages with their businesses and employees? Will companies develop their stakeholder engagement skills through formal training for employees?

It has been proven that sensitising and training staff across departments, helps to create broad internal buy-in, empowers employees to be proactive and helps to demystify the engagement process. After all, employees are also stakeholders and could be drivers of successful CSR strategy execution.

Role of stakeholders

Apart from employees, implementation of a meaningful CSR programme needs to map other stakeholder groups, which will depend and vary as per the location, scale and nature of operations. Companies will need to work with stakeholders like local communities, investors, regulatory bodies, governments and their consumers to understand their views and concerns on various environmental, social, corporate governance and economic issues and incorporate and address those views and concerns in the company’s CSR policies and processes.

Tangible effects

It is not enough to have good types of programme, but whether the chosen programme has accomplished focussing scarce resources effectively, whether there are demonstrable social and environmental improvements and what are the returns on the CSR investments both for the business and its stakeholders. As is commonly said, you cannot manage what you cannot measure; measuring the impact of the companies CSR activities will gradually become important. In the long run measurement, tracking and reporting of CSR is an important aspect of sustainability programmes for companies. Measurement provides a way to gauge progress towards goals, tracking helps monitor progress and reporting allows communicating it to staff or other stakeholders.

So, whether your organisation is a technology giant, building townships or manufacturing automobiles, implementing meaningful and measured social responsibility initiatives that stem from a well-thought-out strategy with clearly linked benefits will put Indian companies ahead of the game. In short, Section 135 of the companies act strengthens your business case for adopting CSR.

(The writer is CEO of DLF Foundation)

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