BackCSR expenditure should be a percentage of revenue, not profit
Social development and giving back to society is an obligation applicable to all, says Deloitte India chairman P.R. Ramesh
Premium
Every organization has an obligation to give back to society, says P.R. Ramesh, chairman of auditing, financial advisory and risk management firm Deloitte India. Hence, corporate social responsibility (CSR) expenditure should be a percentage of revenue and not just profit, he says.
“If CSR is about giving back to society, it cannot be about profit," Ramesh insists. Edited excerpts from an interview:
Why is it important for companies to do anything apart from making a profit?
Every organization has four responsibilities—economic, legal, ethical and philanthropic. Philanthropic responsibility deals with the idea of corporate citizenship. It is an obligation of every organization to give back to the community because businesses use resources of the community and they do not exist in isolation.
Besides, given the social development index rankings of India, a lot of action is needed from all sectors—be it government or private, individuals or institutions—in social development activities.
Can legislations like the CSR rules in the Companies Act of 2013 make a change?
It is important to point out that, as many believe, the legislation is only a trigger to set into motion the duties arising from the obligation to give back. This legislation is one of a kind globally and is a great beginning. This legislation has helped firms approach not-for-profit activities in a strategic manner, moving away from philanthropy to responsibility.
But that said, a question arising from the CSR rules is why are only profit-making companies being asked to do development work?
In my view, social development and giving back to society is an obligation applicable to all. CSR is about the need and guidelines for a corporate to act as a citizen of the community/country and society of its operations.
My personal opinion is that expenditure on CSR should be a percentage of the revenue and not the profit. If CSR is about giving back to the society, it cannot be about profit.
Over the past two years, the biggest challenge that has appeared is the lack of capacity and infrastructure in the country to absorb resources. There are not enough agencies to execute the funds being made available for social development.
It is not appropriate for corporates themselves to work in social activities. If each company were to undertake social work, it would need to build in-house capacities, human resources and infrastructure, which is a redundant exercise, in my view. Resources to create and manage the ecosystem required for such work are high and not every company can meet these.
Another big challenge that we are observing is the lack of an established system to measure the outcomes.
So far, everyone—the company, auditors, consultants and even the government—is only comparing the outlays. Responsibility is not about outlays, it is about outcomes.
Community involvement and partnership with companies is yet to evolve. Corporates need to recognize that firms cannot make a difference in any social initiative unless they partner with the community. For instance, it is an absolute must that those who have taken the call to join the Swachh Bharat Abhiyan partner with the community to ensure operation and maintenance after toilets have been constructed.
The law seems to have come into force before the ecosystem has evolved to absorb and support the requirements of this law.
How can the social/community development initiatives of companies be incentivized?
A corporate is responsible only when individuals within that corporate are responsible. Companies themselves can incentivize by promoting individual social responsibility. Incentivization can also happen if we have impact measurement metrics, which will automatically bring recognition and reward for companies.
However, incentives cannot be about tax benefits. How can CSR or philanthropy be about tax breaks? If it is, then it stops being philanthropy and becomes a commercial transaction.
Any advice for companies when they take up social development work?
Currently, the challenge is that companies are treating social development/community work as a separate department. They are not galvanizing the entire organization to think about society and the prevailing inequalities. What they need to do is make social responsibility part of the company’s DNA. They need to go beyond the one paragraph in annual reports.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
