The enactment of the new Companies Bill in 2013 marked a significant shift towards fostering inclusive growth through Corporate Social Responsibility (CSR). With a strategic emphasis on inclusive development, the bill has effectively made CSR an obligatory commitment for corporations. However, despite its noble intentions, the implementation of CSR faces various challenges that warrant serious consideration. One primary challenge lies in defining and measuring the impact of CSR initiatives, ensuring they align with the broader goal of inclusive growth. Additionally, there are concerns regarding the enforcement of CSR mandates, particularly among smaller companies with limited resources. Moreover, issues related to transparency, accountability, and effective monitoring mechanisms pose further hurdles in the earnest execution of CSR obligations. Beyond CSR, the Companies Bill encompasses several other provisions with significant implications. These include enhanced corporate governance standards, stricter regulatory frameworks, and measures to promote transparency and accountability in corporate practices. Overall, while the bill reflects a commendable commitment to inclusive growth, its successful implementation hinges on addressing the multifaceted challenges associated with CSR and ensuring compliance with its broader provisions.
Tag: Inclusive growth and issues arising from it. Indian economy and issues related to planning, mobilization of resources, growth development and employment.
Decoding the Question:
- In Intro try to write about Companies Bill 2013 and CSR in brief.
- In Body,
- Discuss in brief provisions of the bill.
- Discusses expected challenges in its implementation.
- Discuss implications of the bill.
- Try to conclude, answer by underlining the importance of the bill and CSR.
Answer:
The new Companies Bill, 2012, would seek to usher in more transparency and governance in the corporate bodies besides creating the necessary environment for growth in the present global structure. The objective was also to help small one-person companies to access facilities and credit, besides ensuring one minimum woman director in certain prescribed classes of companies. The effort would also be to encourage these companies to give employment to all sections of society.
Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public.
Provisions of the Companies Act 2013:
- Independent Directors: Companies Act made mandatory that one-third members comprise independent directors and at least 1 women should be there as independent director.
- Executive’s salary: The new act says companies should disclose executive salaries as average employers’ salaries and this act also allows shareholders to file a class action lawsuit in case of violation of this section.
- CSR Committee: As per act companies need to set up a CSR board committee, which must consist of three directors and one of them should be independent director.
- CSR contribution: The Companies Act made mandatory that companies must spend an average 2% of net profit made in immediately preceding three financial years on CSR activities. Requirement of CSR will only apply to those companies which are incorporated in India, with net profit of 50 million or more.
- Definition of CSR: As per the act CSR activities are those acts which promote poverty reduction, environmental sustainability, education, vocational skill development, and gender equity. Etc.
- Positive step: India is a country where one third populations is illiterate, two third population lacks sanitation, at least 100 million population still lives on less than $2 dollars/ day, the enactment of company’s act should be hailed as positive step towards ensuring equality and justifying article 39 and 40 of the Indian constitution.
Challenges In Implementation Of New Act:
- Attitude of Corporates: Most crucial is an attitude of big corporates, as foremost companies having been compulsorily required to comply with the Act, CSR is being perceived as an expenditure and not much attention having been paid to include the same as a part of actionable business agenda practices.
- At Ground Level Companies should be involved in CSR implementation and the route of only disbursing donations to NGOs or Trusts and remaining a silent spectator should not be the case.
- Attitude of Companies: Companies still consider CSR contribution as a philanthropic gesture rather than considering CSR as a holistic view of the impact of business on the environment and society.
- No Focus on Outcome: As companies are looking at CSR just from a philanthropic point of view, they are not interested in looking at actual implementations of work and effectiveness of money and no focus on what outcome they are achieving through CSR activities in various areas.
- High Level Committee: The High-Level Committee [HLC] framed by the Ministry of Corporate Affairs in its report has mentioned that HLC has been suggested not to take actions against companies, at least for the initial two to three years for non-compliance of CSR provisions of the Companies Act, 2013.
- Women Independent Director: the provision related to appointment of women independent directors has not been implemented seriously and there are very negligent women present in companies’ board of directors.
Looking to the present social strata of the Country and a dire need for the balanced growth of the country, there needs a broader vision by moving ahead from the triple bottom line “People, Planet and Profit” to “Partnership, Progress and Prosperity”. CSR is needed for an hour so as to contribute to the social innovation and development in India. India is the first and only country across the globe having mandatory enforcement of provisions relating to CSR for certain corporate entities vide Companies Act, 2013.
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