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IIM and Corporate Social Irresponsibility
On a recent visit to villages of Kutch district in Gujarat I saw a sterling example of corporate funded public good.
In a village, surrounded by its gigantic energy-generating windmills, Suzlon has funded the construction of a well that has ensured drinking water security for the villagers. In an arid zone with no reliable source of piped water this is a boon.
Other villages in the same district have a different story to tell. Over the last decade there has been an expansion of industries on the coastal area of Kutch.
Destruction of mangroves is causing ingress of salinity and destroying ground water resources of many inland areas. Air and soil pollution is making cattle ill and causing crippling losses to some pastoral communities.
These contrasting images illustrate a dark paradox that underlies the prevailing excitement about corporate social responsibility (CSR).
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IIM and Corporate Social Irresponsibility
This is partly why there is now an elective course, titled 'Investigating Corporate Social Irresponsibility', at the Indian Institute of Management, Ahmedabad.
This course introduces students to a wide array of documentation on the links between excess consumption and environmental degradation, the ill effects of industrial agriculture, disputes over genetically modified food, displacement caused by industrial enterprises and much more.
At the heart of this course is an examination of the relationship between democracy and corporations.
For some, who perceive a happy glow around the acronym 'CSR', such a course at the country's premier business school may seem uncalled for.
Why dwell on the downside just when more and more companies are gearing up to enhance their CSR initiatives? That is precisely why it is critically important to ask just what it means for a company to be socially responsible.
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IIM and Corporate Social Irresponsibility
There is now a widespread acceptance of the view that since companies acquire their license to operate from society at large, being productive and making profits is not enough.
Companies must be more intensively accountable for the social and environmental consequences of their business. The expanding presence of the Global Compact (www.unglobalcompact.org), and the United Nations Principles of Responsible Investing (www.unpri.org) it facilitated, is just one sign of this shift.
However, in India, CSR has largely been equated with philanthropy. There are pressures on companies that have amassed fortunes, as consequence of liberalisation and globalisation, to spend some of that money on the social sector.
This explains the proposal to require companies, by law, to spend 2 per cent of their net profits on CSR. Public sector companies have already been compelled to do this. But is that really corporate social responsibility?
Such a levy would be a form of corporate charity. It could more accurately be called corporate social cess. Making companies more socially responsible is not essentially about making them share their profits.
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IIM and Corporate Social Irresponsibility
It is about constantly examining and improving the social, environmental and even financial context in which the profits are made in the first place.
Let us take the Vedanta example. Vedanta's mining operations in Orissa have run afoul of both social and environmental regulations and have put it at the center of an international human rights campaign.
In 2007, the Norwegian government sold its $13-million stake in Vedanta, saying: "There is little reason to believe that the company's unacceptable practice will change in the future."
In 2010, the Church of England sold its 3.8 million-pound stake in Vedanta because of concerns over the company's poor human rights record.
In August 2010, a committee of experts -- appointed by the Union ministry of environment and forests -- found Vedanta to be in violation of various social and environmental regulations. This led to the revocation of forest clearance earlier given to Vedanta.
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IIM and Corporate Social Irresponsibility
Vedanta is now in the process of disbursing a total of Rs 50 crore (Rs 500 million) as grants to various development projects across India, as part of its CSR efforts.
Boston Consultancy Group's social impact practice is facilitating the evaluation of project proposals from NGOs applying for these grants.
If CSR is defined solely as a monetary payback, sharing of profits through support of good social causes, then Vedanta will be congratulated for allocating this sum.
But if a company's social responsibility is judged primarily on the basis of how it functions on the ground, such grants to NGOs look like a hollow public relations exercise.
For instance, there is at present a big question about the health impacts of cellphone usage and radiation from cellphone transmitter towers. There is already enough evidence to show that prolonged usage is harmful and many transmission towers can be better managed to lower radiation risk.
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IIM and Corporate Social Irresponsibility
A socially responsible cellphone company will be one that proactively informs its customers about safe-usage norms. A company that aims to suppress knowledge about adverse impacts will be irresponsible -- regardless of how much money it gives to development projects or community welfare schemes.
That drinking water well in a village of Kutch, constructed with CSR funds, is appreciated and admired by local people. But this benefit is overshadowed by a sense of danger that many people feel when they challenge a large company.
They have seen many assertive activists being falsely accused by companies and tangled up in court cases. So NGOs in the area are struggling to figure out which kind of CSR projects they should partner with and which ones they should reject.
This is why the course at IIM-A, investigating Corporate Social Irresponsibility, is both necessary and well-timed.
Students are signing up, even though it is an elective, because clearly there is interest in learning about a new framework for evaluating how companies can be socially responsible.