Compulsory Corporate Social Responsibility: An empirical assessment of managerial perspective in Indian State Owned Enterprises.

Abstract

In 2013, India became the first country to introduce a statutory requirement on businesses to engage in compulsory corporate social responsibility (CSR), providing a unique setting for researching challenges and impact of largescale compulsory CSR implementation. Any Indian corporation which had an annual turnover of more than 10 billion rupees was mandated to spend ‘at least two percent of the average net profits […] made during the three immediately preceding financial years.’ (Section 135, Companies Act 2013). Around 6,000 companies are thought to be affected by the new regime (Indian Institute of Corporate Affairs, 2012). This research examines the managerial perspective on changes to the design, experience and practice of CSR initiatives within SOEs in India. Before 2013, these SOEs engaged with local charities in a loose, unstructured and ad-hoc manner to conduct its CSR. Most of the focus was on providing donations to local educational institutions and regional social welfare organisations. However, with the advent of 2013 regulations SOEs had to completely alter their CSR regime to make it more structured, impact focussed, policy driven and functional. We have interviewed approximately 50 executives and directors from the top 40 Indian SOEs by revenue over a two years period (2015-16) to understand how the companies are adapting to the new regulations and what changes if any have been made. We find that while mandatory provisions do increase compliance burden, it does also provide a specific amount of money which needs to be spent and a structured and accountable way to do so. Our calculations show that under the new regulations Indian SOEs have to spend around 30 billion Indian Rupees per annum. This creates a tremendous opportunity for the businesses to invest in socially relevant enterprises and to internalise externalities.