BackFear of ‘name and shame’ will push firms to comply on CSR: IICA’s Chatterjee
Bhaskar Chatterjee says IICA is in the final stages of drafting a guidance note on CSR accounting and auditing
Premium(Abhijit Bhatlekar/Mint)
Close to 16,000 Indian companies are expected to spend $2.5 billion (about ₹ 15,000 crore) on corporate social responsibility (CSR) in the coming years, from the current $0.5 billion, according to a Boston Consultancy Group report published in February. This increase in money is not because companies have suddenly became more charitable, but because of the guidelines that were created by Bhaskar Chatterjee, director general and chief executive of the Indian Institute of Corporate Affairs (IICA), a Delhi-based government affiliated think tank for corporate regulation and reform. These guidelines went on to be implemented in the Companies Act of 2013.
Flooded with queries, from both companies that have never had a CSR policy in place and those that have been doing CSR a certain way up till now, Chatterjee is confident that eventually the companies will comply with 2% spending; otherwise they will be “named and shamed". He also said that the think tank is in the final stages of drafting a guidance note on CSR accounting and auditing, under which companies will need to account for CSR expense on their balance sheet. Edited Excerpts:
CSR has now become a project addressed by the board, and it has to be passed by a CSR committee. It is no longer based on the whims of a promoter and there is a professional attitude to it. It has come from a back room to a board room. And most of all, the information will be available in the public domain.
Does making CSR mandatory make it more effective?
It is not mandatory; you don’t have to do it. But you will need to provide an explanation of why you have not done it. You can give whatever explanation you want to, but it has to be in the public domain. Your board members, shareholders, customers are going to see what is the excuse you are giving for not making your 2% spend. It is more like a name and shame thing. Presuming that in the first year you have some kind of explanation, in the subsequent years the board is not going to allow you to go on explaining why you have not met your 2% spend, especially in the public domain. Companies will also be driven by a sense of competition.
What is the rate of compliance you expect in the first year?
It is difficult to answer. We should know by September. Many companies did feel that the legislation was late in coming as the rules also took some time for it to be out in the public domain. There are also requirements like forming a CSR committee and framing a policy, so a lot of preparatory work and analysis have happened in the current year, particularly for those who did not have a CSR strategy. So it gave them a lot of thinking time and coming-to-grips time. I will be pleasantly surprised if majority of companies show compliance. Even if they don’t, the attitude of the government is to create an enabling atmosphere rather than a threatening one.
How long do you think it would take for the law to see traction on the ground?
2015-16 is going to delivery time, and I suspect the traction will pick up then.
In 12-24 months, we will begin to see things happening differently on the ground, especially from the large number of companies that now come under the Act.
There are no penalties at present for not complying with the Act. Is it something you will consider in the future?
Comply or explain is a principle used by a lot of legislations in the world. We thought it would help build confidence among companies by having a non-confrontational approach. I hope we don’t have to put a penalty in place in the future either.
Companies have been clamouring for a tax incentive.
Why do you need an incentive to do good? Why must everything be a tax incentive? The success of CSR will come because you genuinely want to, not because you have a tax break.
Companies do their CSR in areas where they have a presence like a manufacturing facility. What about areas like the North-East?
CSR is about what you want to do. Initially, we don’t want to force companies to force a geographical spread. My idea is not to directionally move it in any direction, because it would mean more rules and laws. I would rather see how it evolves and in turn, a lot of the under-addressed areas will get addressed by corporates who are looking for the space to do it.
CSR guidelines for public sector undertakings (PSU) were laid in 2010. How has the progress been there?
We wanted PSUs to lead the way in CSR before it was laid out for private companies. I won’t say the performance was entirely satisfactory. But they are now over that initial phase, which the private companies are now going through. PSUs have that lead now. I hope the time private companies take would be shorter than what PSUs took.
How essential are audits for CSR?
CSR calls for a different set of accounting and auditing standards. So we (IICA), along with the ministry of corporate affairs and the Institute of Chartered Accountants of India, are in the final stages of developing a guidance note on CSR accounting. It has been submitted to the ministry, which will take a final call. Currently, in the profit and loss account or balance sheet of a company, one can never know where the CSR expense is located. This guidance note will ensure that CSR is a locatable expense in the balance sheet. Because, once it is locatable, it is auditable. The traditional auditors can’t audit CSR as they won’t be familiar with the social sector. So, we will assist auditors to look at CRS accounting in a new format
What will be some of the issues that need to be looked at while auditing CSR?
It should look at the kind of monitoring being done, did the NGO (non-governmental organization) submit the utilization certificate, were they authentic, did they add up to the 2% of spending, how often did they monitor, was an evaluation done, if so who did it? With this, the auditor can evaluate if the money was put to use properly and if the intended beneficiaries were reached.
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