Forcing philanthropy is not a good idea

Forcing philanthropy is not a good idea

The government should definitely force companies to be good, but should it force them to do good?

Some news reports—and, full disclosure here, at least one of them appeared on the ticker of a news channel and we all know that these have slightly less credibility than, say, Suresh Kalmadi—suggest that India’s ministry of corporate affairs, or MCA, is looking to make CSR mandatory for companies of a certain magnitude.

This magnitude is to be defined in terms of revenue, net profit, and net worth.

CSR, for the uninitiated, is corporate social responsibility and it is a term that even companies battling tribals who want to protect holy ground or activists trying to save turtles tote out to easily impressed hacks.

"Let’s talk about why the company’s top three executives have been handed special performance bonuses in a year when profits actually fell?"

"Oh, we can explain that and we will, but do you know about the CSR programme we are running in Delhi’s slums and which is headed by our CEO’s photogenic wife?"

I may be stretching things a bit; some companies are very serious about their CSR and do a lot of good work; but imagine a situation where CSR is mandatory for every firm that makes over $1 million in profits?

Is this a good idea?

No, because at least some companies are certain to start gaming the system, much like they do when they creatively classify, for tax purposes, some product they sell or consume. For instance, sponsoring a tennis tournament at the elite school attended by the son of the company’s CFO could well, with a bit of helpful spin, appear as a CSR initiative in the books.

Nor should the government collect the money from companies and create a fund—much like the Universal Service Obligation Fund it maintains, from the profits of telcos, to provide connectivity in rural areas. The government collects tax and is supposed to do good with this money. Collecting more money from companies would be akin to extortion, even if the fund created for this purpose is managed by someone whose integrity is unquestionable.

Still, India is unlikely to see something akin to Thursday’s announcement in the US where 40 billionaires—prompted by Bill Gates and Warren Buffett—agreed to give away most of their wealth to charity. While some of this unwillingness on the part of Indian entrepreneurs and companies to give is easily explained by the sheer unwillingness to give or share, some of it is also because they do not know how to give and who to give to. Indian companies and their promoters may consider themselves to be the equals of their peers in the US—and this may be true in some areas—but when it comes to a structured approach to philanthropy and charity, most of them are found wanting. Maybe the next consultant or adviser they hire should be someone who can structure their philanthropic activities for them.

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