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Past Issue • Jul-Sep 2015

The CSR Law: Enabling “Extraordinary” Business

In this paper, Ram Nidumolu, CEO of Innovastrat, USA, and Professor Sanjay Kallapur of the Indian School of Business, argue it is possible to treat CSR strategically while also complying with the new CSR provisions in the Indian Companies Act 2013. Without this strategic approach, CSR becomes only a compliance activity that may end up achieving neither corporate nor social purpose. They go on to suggest a new Responsible Business (RB) Framework, which if implemented properly, can enable companies to turn the new clause in the Indian Companies Act 2013, mandating them to spend at least 2 percent of the average net profi ts of the previous three years, into a driver for extraordinary business in India.  The Companies Act of 2013 thrusts the Indian corporate world into the limelight of global Corporate Social Responsibility (CSR): its Section 135 mandates that every Indian company meeting certain size thresholds should spend at least 2 percent of the average net profits of the previous three years on CSR activities, or explain why it has not done so. In addition, such companies are required to create a CSR Committee of the Board to formulate and monitor a CSR policy, and to report on CSR. While the Act does not define CSR, it restricts the company’s CSR activities to certain focus areas listed in its Schedule VII (that include social — poverty reduction, health, women’s empowerment, and education; cultural — sports, arts, and heritage; and environmental and natural resource preservation activities), and prohibits companies from including in CSR, those activities that would be undertaken in the normal course of business.

ABOUT THE AUTHORS

  • Ram-Nidumolu

    Ram Nidumolu

    CEO of Innovastrat, US-based strategy consulting company.
  • Sanjay-Kallapur

    Sanjay Kallapur

    Professor of Accounting at the Indian School of Business, and an independent director on the Board of the Life Insurance Corporation of India.
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