COVID-19, a term which was a mere medical acronym prior to December 2019, has now so fundamentally altered the lives of people, economies and everything else around the globe that the world is now being visualized as “Before Corona” and “After Corona”. No event since World War II can be said to have achieved this unwelcome distinction. Given the unprecedented and widespread nature of COVID-19, it may be utopian to expect the governments, by itself, to overcome this pandemic without active economic and social support from the most significant limb of any economy i.e., its businesses.
One may argue that burdening businesses with such obligations, particularly companies and its owners (i.e., its shareholders), is onerous, especially given most have themselves been adversely affected by COVID-19. It is true that many companies have invested in long/short-term assets with borrowed money expecting value enhancement and business as usual, and have either already suffered or are likely to suffer huge losses. However, the impact is not uniform and disproportionately affects some more than others, with companies holding strong balance-sheet i.e., low debt and high cash component, likely to fare better. As it stands today, most big companies continue to have the requisite capitalization and the so-called ‘dry powder’ to tide over this storm. In fact, the last few weeks have been witness to several businesses extending support, be it medical equipment supply, livelihood support, food supply or a general show of social entrepreneurship. In this article, I take the discourse on the existing framework of corporate social responsibility (“CSR”) further and discuss whether COVID-19 will finally see the mutation of the CSR landscape in India.
CSR world over has come a long way from Friedman’s notion of it being limited to ‘making profit for its shareholders’. The sea change in the approach to CSR is primarily attributable to a mix of systemic changes in businesses’ eco-system and the legislative measures introduced in relation thereto. Contemporary CSR addresses not just the shareholders of the company but all stakeholders including employees, customers etc. wherein their well-being is integrated with core business strategy. Accordingly, there has been an increasing emphasis on companies in India to recognize CSR as a strategic activity intrinsically linked to business and not a mere philanthropic effort. The aim has been to change the approach from ‘what to do with the profits earned?’ to ‘how to conduct business in a social and environmentally sustainable manner?’.
However, despite all the clamour surrounding such a shift, CSR in India failed to capture momentum in terms of systematic impact creation or overall economic value delivery and has continued to remain occasionally done social good. In fact, most corporates view CSR spending that meets the minimal monetary threshold mandated by law as the benchmark of success. COVID-19, however, appears to be shifting this dynamic quite significantly. Companies appear to have recognized that the government is not fully equipped to singlehandedly deal with this crisis despite its best efforts to insert stimulus into the economy, flatten the infection’s curve, protect vulnerable populations and aiding medical development. One reflection of this is the increased and varied flow of monetary contributions to COVID-19 relief work including donations to the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund’, providing access to preventive healthcare, providing meals to economically weaker sections, coordinating with state/municipal authorities for catering to the immediate local needs, liaising with medical facilities to procure supplies, and tending to needs of its own employees.
However, not all CSR contributions have been limited to direct monetary support. Some companies have also attempted integrating such responses in their business operations itself. For example, a group of FMCG companies recently adopted about one lakh grocery stores and undertook the responsibility to ensure implementation of various safety norms in these stores, few technology companies initiated incubation of medical technology initiatives and, brewing/liquor companies and automobile companies commenced production of hand sanitizers and medical equipment respectively. Other non-monetary measures by some companies include the provision of free cab-hailing services to medical personnel, subsidization of the product offering by e-learning companies, and facilitation of online crowdfunding.
Such positive efforts, both monetary and non-monetary, began with a few companies, but have seemingly translated into an industry-wide practise across sectors. Companies now appear to be reorienting their focus towards actual delivery of value and impact, and have, by volition or peer pause, reassessed their modus operendi, particularly in relation to profitability, and are more aligned towards balancing ‘impact creation’ with ‘profitability’. CSR, which has till now been mostly a mix of charity, facilitation of armchair discussions, employee engagement et al, appears to be shifting focus to the actual delivery of value. This has provided a much-needed thrust, with companies actively working towards the good of workers, customers and the society in general.
Unlike the ‘before corona’ CSR efforts, focused mostly on optical visibility and label, companies seem to have acquired a new sense of urgency in wanting to identify CSR priorities and deliver value by the deployment of important resources. These efforts, having commenced already, not only act as a precedent but also lay down a heightened social threshold as the metric to compare the performance of companies. Therefore, it may be argued that going forward, this change in the modus operendi of companies will act as a precedent and lead to an increase in calls for participation of companies, by both internal and external stakeholders, especially for problems which the government fails to address or is incapable of addressing.
One fundamental argument against this hypothesis is that the change in CSR efforts is only a temporary measure and a factor of prevailing pandemic situation, which the companies have full liberty to discontinue once the pandemic has passed. Whilst the argument is not completely misplaced, but given the already increased social threshold set by the companies and the modern business dynamics which rely heavily on ‘optics’ and ‘public relations’, rolling back from these socially responsible enterprises appears highly implausible.
As stated above, the CSR efforts undertaken during COVID-19 have already increased and are expected to further increase the social thresholds on which the performance of companies would be compared, and therefore any backslide or a significant decrease in the effort would have to be cogently explained. Failure to provide a convincing rationale would invite heavy criticism from all stakeholders, which in contemporary business practices is not suave from either ‘optics’ or ‘public relations’ perspective. Merely stating that the changes initiated were brought in by way of peer pressure, government orders or simply upon succumbing to calls for participation, would not be sufficient and except in case of company-specific individual limitation, the companies are unlikely to have a publically acceptable rationale for not doing social good. Therefore, it might just be correct to say that CSR efforts by companies amid COVID-19 cannot be classified as a mere standalone depiction of philanthropy, but are more indicative of a transitional phase paving way for CSR’s transformation from a set of expenditure ‘mandated by law’ to being a deliberate social effort ‘facilitated by law’.
On a related note, COVID-19 might also have impacted an average stakeholder’s perception of the company. In the ‘before corona’ period, these stakeholders albeit interested in CSR, might not have placed heavy reliance on a company’s CSR performance but will be compelled to consider it post COVID-19. The reason for CSR attaining such primacy includes its constant interlinkage with the branding of the company, and the peer pausing of tunnelled focus on profitability caused by COVID-19, thereby leaving no viable business alternative for companies other than contribution in the form of CSR expenditure. However, mere participation is not likely to be sufficient in the long-term, and CSR will have to be constructively rationalized in a manner that it integrates with the business model of the company and shows on-ground effect.
Of the various global and internal challenges faced by our economy, COVID-19 presents an unprecedented and urgent task which demands the display of collective efforts for a long time to come, be it between companies inter se or between companies and the government. Notwithstanding the change that it is expected to bring to the entire CSR landscape, companies need to recognize their invaluable prowess of know-how and deep networks combined with resources capable of devising most innovative ways to maximize impact and accordingly partake in the CSR efforts to ease the situation. Although the CSR legal framework is fairly adequate and capable of facilitating meaningful CSR contributions in relation to COVID-19, special thanks to recent clarifications issued by the central government, but certain legal reinforcements as set out below may be considered by the central government to ensure immediate infusion of additional CSR contribution, its more cohesive utilization and addressing criticism relating to on-ground implementation:
(a) making COVID-19 related state-level government funds eligible to receive CSR expenditure;
(b) permitting set-off of fund spent in CSR contribution towards COVID-19, in excess of the minimum threshold of two per cent, against the CSR obligations from next financial years; and
(c) directing companies to either deposit all unspent CSR allocation, as of financial year ending March 2020, in permissible state/central funds under Schedule VII of the Companies Act, 2013 or deploy it in relation to COVID-19.
In terms of CSR efforts, most companies have already begun assessing difficulties, devising solutions, and revising strategies and plans. However, it may be expedient for companies to recognize that a response which was once ‘normal’ might no longer be so and there is a need to adapt. One such avenue to maximize the impact of CSR expenditure can perhaps be found in the oft used business term ‘synergy’. We have long heard of ‘synergy’ in the context of business operations, and COVID-19 might require companies to adopt it in the deployment of CSR efforts too. While individual CSR efforts from companies are always appreciated, and efficient result or a product which is greater than the sum of effort put in by each company necessarily require companies to come together. If each company continues to individually deploy CSR funds, duplication would be an obvious byproduct, along with neglect of certain areas altogether. Synergy could, therefore, help companies make efforts towards sector-specific targeting, and ensure broad-based support from the corporate sector. However, such synergy between companies need not be looked at from a limited viewpoint of delivering the efficient social result, but is equally crucial even for companies’ self-interest as failure to initiate coordinated efforts would supplement the crippling of economy, and by design the companies who are part of the economy.
Corporates could also come together to set up common funds which can then be systematically deployed for the purpose of COVID-19, in partnership with various not-for-profit organizations. This would come of immense help in decreasing the accompanying inefficiencies associated with decentralized spending while retaining the efficiency that comes with managing funds by a private institution. Lastly, as COVID-19 is a very dynamic problem, companies should attempt taking active measures in association with the non-profit organizations rather than just making a donation to the government funds, since a centralized model of a fund is unlikely to deliver value as significant for its apparent lack of quick decision making and timely re-look.