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Are We Moving Beyond Voluntary CSR? Exploring Theoretical and Managerial Implications of Mandatory CSR Resulting from the New Indian Companies Act

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Abstract

Although the literature on corporate social responsibility (CSR) has discussed the scope and meaning of CSR extensively, confusion still exists regarding how to define the concept. One controversial issue deals with the changing legal status of CSR (i.e., the voluntary vs. mandatory nature of the concept). Based on a review of CSR definitions and meta-studies on CSR definitions, we find that the majority of definitions leans toward voluntary CSR. However, some recent regulatory amendments toward mandatory CSR have called into question the established idea of CSR as merely a managerial tool of self-regulation. In this paper, we juxtapose the evolution of CSR in India against the scholarly literature discussing voluntary-versus-mandatory CSR to understand the recent shift toward a new conceptualization of CSR as a form of co-regulation that includes elements of both voluntary and mandatory regulation. The Indian Companies Act 2013 (Section 135) is a remarkable example in that it replaced an older version from 1956, taking a bold step toward the integration of voluntary and mandatory aspects in the application of CSR. We present practical implications of the Indian case for businesses and discuss implications for CSR theory development; we particularly consider the evolution of the business and society relationship from a voluntary soft law approach to CSR to an increasingly hard law approach and transitory hybrid forms in-between like soft–hard law and hard–soft law.

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Notes

  1. The expression “lex imperfecta” stems from Roman law and designates a norm deprived of any sanctions in case of violation.

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Acknowledgements

This study was funded in part (Babitha Vishwanath) by a Swiss Government Excellence Scholarship for Foreign Scholars (No. 2015.0601/India/OP). The authors thank Mario Schultz for valuable comments on an earlier version of this article.

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Authors and Affiliations

  1. Ethics and Communication Law Center, Università della Svizzera italiana, Via Buffi 13, 6904, Lugano, Switzerland

    Lucia Gatti

  2. Sarojini Naidu Vanita Maha Vidyalaya, Exhibition Grounds, Nampally, Hyderabad, 500001, India

    Babitha Vishwanath

  3. Ethics and Communication Law Center, Università della Svizzera italiana, Via Buffi 13, 6904, Lugano, Switzerland

    Peter Seele

  4. Faculty of Communication Sciences, Ethics and Communication Law Center, Institute for Public Communication, Università della Svizzera italiana, Via Buffi 13, 6904, Lugano, Switzerland

    Bertil Cottier

Authors
  1. Lucia Gatti
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  2. Babitha Vishwanath
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  3. Peter Seele
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  4. Bertil Cottier
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Corresponding author

Correspondence to Lucia Gatti.

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Conflict of interest

All authors declare that they have no conflict of interest.

Ethical Approval

This article does not contain studies with human participants or animals performed by any of the authors.

Appendices

Appendix A: Section 135 of Companies Act 2013—Corporate Social Responsibility

  1. 1.

    Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

  2. 2.

    The Board’s report under subsection (3) of Section 134 shall disclose the composition of the Corporate Social Responsibility Committee.

  3. 3.

    The Corporate Social Responsibility Committee shall—

    1. (a)

      formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

    2. (b)

      recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

    3. (c)

      monitor the Corporate Social Responsibility Policy of the company from time to time.

  4. 4.

    The Board of every company referred to in subsection (1) shall—

    1. (a)

      after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s Web site, if any, in such manner as may be prescribed; and

    2. (b)

      ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

  5. 5.

    The Board of every company referred to in subsection (1) shall ensure that the company spends, in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of subsection (3) of Section 134, specify the reasons for not spending the amount.

Explanation For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of Section 198.

Appendix B: Schedule VII of Companies Act 2013

Activities Which May be Included by Companies in Their Corporate Social Responsibility Policies

Activities relating to—

  1. 1.

    Eradicating extreme hunger and poverty;

  2. 2.

    Promotion of education;

  3. 3.

    Promoting gender equality and empowering women;

  4. 4.

    Reducing child mortality and improving maternal health;

  5. 5.

    Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria, and other diseases;

  6. 6.

    Ensuring environmental sustainability;

  7. 7.

    Employment-enhancing vocational skills;

  8. 8.

    Social business projects;

  9. 9.

    Contribution to the Prime Minister’s National Relief Fund or any other fund setup by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities, and women; and

  10. 10.

    such other matters as may be prescribed.

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Gatti, L., Vishwanath, B., Seele, P. et al. Are We Moving Beyond Voluntary CSR? Exploring Theoretical and Managerial Implications of Mandatory CSR Resulting from the New Indian Companies Act. J Bus Ethics 160, 961–972 (2019). https://doi.org/10.1007/s10551-018-3783-8

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