BackCSR rules need flexibility, incentives and foresight: Richard Rekhy
As corporate social responsibility rules enter their third financial year, KPMG India's Richard Rekhy recommends a course correction
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New Delhi:Not entirely convinced by the impact of the two-year-old Corporate Social Responsibility (CSR) Rules, Richard Rekhy, chief executive officer at KPMG consultancy in India, believes the only way the measure will succeed is if companies are allowed to spend on what they believe is in the best interest of their stakeholders and if the expense they incur on CSR is made tax deductible. His advice to firms: do not build assets that cannot be maintained. Edited excerpts from the interview:
Why should companies undertake not-for-profit activities or give money for social change?
Every single definition of the world we live in is changing. Take tax shelters, for instance. What was acceptable till a few years ago is being questioned today. We are moving away from legislation to morality. And it is this morality question which is foremost on everyone’s mind.
It includes even the way that the corporate world is looking at itself. Earlier, every company existed only to enhance shareholder value, which means maximum profits for shareholders. That situation has evolved today and now firms are talking about stakeholder value.
There is clear empirical evidence that those companies that have contributed and concentrated on stakeholder value have benefited in the long run.
Companies will suffer in the long term if they do not take care of stakeholders who may become their future—employees, shareholders or even parts of the business supply chain.
It is true that while the whole world has become prosperous, the gap between the haves and have-nots has also widened simultaneously and to a disproportionate extent. You cannot continuously have that gap widening. We need to exist for the larger good.
Do you think mandatory corporate social responsibility is the answer?
It is my personal view that one should not be mandating anything. While CSR has been mandated, and is good for the country, why is it not allowed as a taxable deduction? If every other expenditure is allowed as tax deductible and increasing stakeholder engagement is being asked for, why not provide tax breaks for companies to undertake this community engagement, which is outside the purview of their business mandate anyway?
They call it voluntary, but it is mandatory for all practical purposes. If you don’t spend on CSR, then you have to say why you did not do it. No board is going to allow it to be reported that it has not been done.
Anyway, the point is we have already moved down that path, we have mandated it and people have to put in 2%. So, now, why not give the freedom to firms to do what they want? For instance, doing good for its employees seems like a perfectly good option to me, but why is that not considered a part of CSR? What is wrong with a corporate wanting to fund the education of the children of its employees under a certain economic bracket? Or with helping the SME (small and medium enterprise) sector?
India’s story is the SME sector—they contribute the maximum to the GDP (gross domestic product) and they are the largest job creators in the market. And they are being neglected at the moment. It could hence be part of CSR to support such enterprises.
According to me, corporates should be allowed to do what they believe is in the best interest of their stakeholders. Limiting it to 7-8 categories that have been identified is not necessary.
What are the main challenges that have emerged over the past two years of this legislation being in force?
There is a large amount of money going in as every corporate puts aside 2% of profits. And the NGO (non-governmental organization) sector is not yet ready for so much money. They lack the systems, the processes, the ability to execute, etc. This will result in wastage and the whole exercise will become just about ticking the boxes.
Any advice for companies that are new to CSR?
Please do not build assets that cannot be maintained. For instance, we have built all these toilets, but who is going to maintain them? One must work towards a sustainable model. An example might be users paying a small amount of money towards maintenance. It is a small token that everybody pays and the place remains clean and serene. Normally, value depreciates when something comes for free.
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