Basic Concept of CSR

Mahatma Gandhi ji has rightly said- " Earn your crores but understand your wealth is not yours, it belongs to the society".

As we all knows company's main objective is  it to maximize the shareholder's wealth. This maximization works in the form of appreciation in a value of share. More the share value, more the wealth created for shareholder. Some people would say, more profits would results in appreciation in a share value. But that is not entirely true. The concept of CSR is beyond making profits.

Lets have an Example- Classmate notebooks. At the back, it is written "for every 4 classmate notebooks you buy, ITC contributes Rs. 1 to its rural development initiative". It makes us feel proud that our contribution is part of it which sparks us to buy ITC products.  Thus helps the company to increase its share value.

"A Good company delivers great product and services, but a great company does that and makes the world a better place".

In fact friends, CSR is not a new concept. All the respectful preachers who has done allot for the society has said the same thing. I would like to highlight 2-3 of that person.

Swami Vivekananda  said-

"Desh hme deta hai sab kuch, hum bhi toh kuch dena sikhe"

Blessed Teresa of Calcutta i.e Mother Teresa said -

"At the end of our lives, we will not be judged by how many diplomas we have received, how many great things we have done. We will be judged by  I was hungry and you gave me to eat. I was naked and you clothed me. I was homeless and you took me in".

The very basic concept of CSR lies in "We don't inherit the earth from our ancestors, but we borrow it from our children".

Thus CSR is the continuing commitment of the business to behave ethically and to contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. Now I would like to further clear this definition with a very interesting example of Chetan Bhagat.

Once Chetan Bhagat planned to visit Austria with his friend and their they visited a restaurant. In the restaurant he ordered about 10-12 dishes. A lady sitting beside them also doing some kind of party with her friends. But what she was doing,  she ordered other dish only after completing previous dish. She noticed Chetan Bhagat,  that he had even not completed a single dish and ordered about 10-12 dishes. She argued with Chetan Bhagat that why are you wasting food. Chetan Bhagat replied- " I have purchased with my money, so none of your business". Lady called NGO for the same, NGO fined about 2000 dollars on Chetan Bhagat and replied that "Money you have wasted is yours, but resources you have wasted is not yours; it belongs to the society".

Now let me move to the technical session of the topic-

The companies Act 2013 introduces and mandates the concept of corporate social responsibility vide sec 135. This provision in the companies Act 2013 will make India the only country which mandates the CSR in the world. This new mantra of CSR means that organisation should have moral, ethical and philanthropic responsibilities in addition to their responsibilities towards investors and compliance of law.

Is CSR applicable to all Companies?

CSR is applicable only for the companies having-

Net worth = 500 crore or more.

Turnover= 1000 crore or more.

Net profit= 5 crore or more.

irrespective of whether listed, unlisted, private or public company.

If CSR is applicable, then companies needs to form a CSR committee.

A CSR committee of the board consists 3 or more directors, out of which 1 director shall be an independent director. In case of an unlisted public or private company, shall have its CSR committee without independent director.In  case of private comany having only 2 directors on its board shall constitute a CSR committee with only such 2 directors.

Now, What is the role of a CSR committee?

1. CSR committee has to formulate CSR policy incorporating details of the project, duration of the project, amount to be spent on the project, location, etc and recommend the board of such policy.

2. Monitor the CSR policy of the company from time to time.

Role of the board-

1. Form a CSR committee.

2. Approve CSR policy which is formulated by CSR committee.

Now,question arises how much to spend?

Every financial year, atleast 2% of the average net profit of the company made during the immediately preceding 3 financial years and not exceeding 5% of total CSR expenditure can be spent by companies for building CSR capacity of their own personnel as well as those of their implementing agencies.

If the minimum CSR amount is not spent, the board is required to disclose the fact with reasons in its annual director's report to the shareholders.

Activities which are covered under Schedule VII are as follows-

- Eradicating hunger

- Promotion of Education

- Gender inequality and empowering women

- Reducing Child mortality and improving maternal health

- Combating human immunodeficiency virus, other diseases

- Ensuring Environmental Sustainability

- Employment enhancing vocational skills

- Social Business Projects

- Contribution to the Prime Ministers Relief Fund

- And such other matters as may be prescribed

Now, Activities which are not covered under CSR-

a. The CSR projects or programs or activities undertaken in India only shall amount to CSR expenditure.

b. Contribution to political party either directly or indirectly shall not be considered as CSR activity.

c. The projects or programs or activities that benefit only the employees and families shall not be considered as CSR activities.

d. If a company gives its own products for charity then it can not be counted as CSR activities.

Now, I would like to site some examples-

1. Shiksha which is P&G's CSR program " Padega India tabhi to Badega India" helped till date more then 2,80,000 underprivileged children through 140+ schools.

2. DMRC- Delhi metro rail corporation limited has built a children's home which accommodate 125 children at Tis hazari having 5 dormitories, 2 classrooms, a playground, a library and a mess which is managed by 'Salaam Balak Trust.'

3. Recently Facebook has announced a new feature which allow users to share their decision to be an organ donor on the website. More than 1,00,000 did sign up on the first day facebook announced the option.

4. Most interestingly Prime Minister Narender Modi, during his visit to varanasi on Dec 25, 2014 nominated the ICAI for the 'Swachh Bharat Abhiyaan.' It is a matter of pride for us that the first time any professional body has been nominated. I strongly believe that our CA fraternity comprising 2,35,000 members and 8,50,000 students can make a big difference in effective and efficient implementation of this initiatives.

With this I want to conclude-
"Goodness is the only investment that never fails".