While corporate social responsibility (CSR) is always a voluntary activity, the Indian government has mandated that CSR is a must—among the first such government actions in the world. Specifically, a recent change in regulations has moved discussion about CSR from “backroom to boardroom.”
According to the Companies Act signed by the president of India on August 29, 2013, all firms that exceed a certain threshold of profitability, net worth, or sales are required to both perform and report CSR activities. There are two primary drivers behind the CSR mandate: 

(1) the need of the Indian government and society that firms help mitigate socioeconomic problems, 

(2) the normative expectations that it is a moral responsibility of firms to engage in CSR.

Some Indian conglomerates such as Tata, Wipro, Mahindra, and Godrej have historically spent significant resources on CSR activities. The firms owned by these groups maintain their positions on the lists of “best companies to work for.” Consumers admire these firms for offering high-quality products and making efforts to solve socioeconomic issues.

However, the mandate to spend 2% of net profits on CSR drew attacks even from these socially responsible firms. Mr. Ratan Tata, chairman of Tata group, contended: We have a phenomenon which is meant to be good but is going to be somewhat chaotic . . . we don’t as yet know what kind of monitoring there’ll be in terms of how well this money is used.2 The CSR mandate faced a similar criticism from Mr. Azim Premji, the founder of Wipro group. He raised the following concern:

My worry is the stipulation should not become a tax at a later stage. . . . Spending 2% on CSR is a lot, especially for companies that are trying to scale up in these difficult times. It must not be imposed.3 Despite facing opposition from the corporate sector, the Indian government remained determined to make the CSR proposal a reality. The law, however, needs to overcome institutional, organizational, and individual barriers to become a success story. Weak enforcement of institutions in addition to challenges in measuring the effectiveness of CSR activities needs to be carefully addressed.

The CSR budget may be potentially misused by managers, nongovernmental organizations (NGOs), and local politicians, thereby promoting corruption. Doing a one-time donation is different from planning and spending a significant sum of money on CSR. After all, firms would need support not only from management and staff, but also from external organizations such as NGOs, which are less efficient and effective in India. A manager of an Indian firm raised concern about the NGOs: Almost 180,000 registered NGOs are there. Some are good but most of them are maligned. . . . Some NGOs will come and say that they can do this and that and everything under the sun. Those who claim so will be good for nothing.4 Other significant barriers to embracing the law include a lack of expertise in doing CSR, finding ways to align CSR and business goals, and the willingness of top and midlevel management to do CSR. KPMG, a leading management consulting firm, reports that delays in operations, delays in obtaining regulatory clearances, scaling up of activities, incorrect estimation of project costs, and the long-term nature of projects are the major reasons why some of the big firms in India fail to meet the required CSR spending.5 The situation, however, is indeed improving with time as firms are getting better at managing CSR projects. The mandate, despite in its infancy, does reflect some promising changes in the Indian society. The average spending by firms on CSR activities is up around three times from US$0.7 billion during 2010–2014 to US$1.9 billion during 2014 –2018.6 With the transformation of the concept of CSR from volunteerism to obligation, the mandate may create deeper effects that make the management and staff in firms more considerate toward integrating business and society. According to Ruby Thapar, Dow India’s director of corporate affairs, “What is good for the planet and society is also good for business.”7 One managers of another firm mentioned:
Legislation has brought CSR to a level where it is genuinely discussed in the board. CSR has quietly but very strongly entered the boardroom sphere and that is very healthy for the entire country.8 Overall, this institutional change requires firms to change their DNA to integrate CSR with the way they do business.
There are some questions that the top management will need to consider before making any rational decision in compliance with the CSR mandate. How do firms align CSR with business? How do firms develop quantifiable measures to monitor and evaluate CSR goals? Can firms do CSR all by themselves, or would they need support of NGOs to access the resources firms lack? Should the CSR activities be centralized at firms’ headquarters or be localized to cater to needs of varied communities? Do firms actually understand the socioeconomic issues they choose to solve? How can firms leverage CSR to build moral reputation?
Because India is a diverse nation and problems and expectations of people differ from one region to another, what criteria can firms use to select CSR activities?
Many firms still spend less than the required amount on CSR. Noncompliant firms can explain why they cannot meet the target CSR, using the provision of “comply or explain” given in the mandate. Of all the firms that are affected by the mandate, less than half have met the target of spending 2% on CSR. Recently, the government announced its plans for a CSR audit committee to improve compliance. How can the firms be motivated to meet the required CSR target?
Instead of merely encouraging firms to voluntarily engage in CSR activities, the government mandate for CSR may pave the road for making future managers and employees more responsible and better citizens. For instance, a significant proportion of Indian firms surpass the minimum requirement of spending 2% of profits on CSR. Moreover, the mandate, if successful, may have a rippling effect across the globe, such that the idea of mandating CSR may be tested and improved by multiple nations, leading to a better world.
However, if not handled properly, the mandate may also lead firms and individuals to associate CSR with superficial and symbolic behavior. It is yet to be seen whether the CSR mandate will be successful.

Case Discussion Questions

1. What is the difference between voluntary CSR and mandatory CSR? Which of the two is better suited to solving problems in society?

2. How can the Indian government support firms in pursuing CSR?

3. How can firms transform organizational culture to integrate business and CSR?

4. ON ETHICS: If you were CEO of an Indian firm and a big-shot bureaucrat demanded that you use your firm’s CSR money to fund his family member’s NGO that has a noble cause, what would you do?