Wednesday, February 20, 2013

Mega CSR opportunity: Are PR agencies ready?

Eminent lyricist-script-writer Javed Akhtar had presented the right perspective in which Corporate Social Responsibility (CSR) should be viewed as fatigue often sets with philanthropy. He was speaking at a recent CNBC-TV18 awards function.

“Do you know what percentage of Indian population had watched Aamir Khan’s hit film 3 Idiots?” he had asked the audience, answering the question himself. “Only 2 per cent of the Indian population. Yet the film was the biggest hit grossing Rs 200 crore. Imagine what the revenue would have been if a higher percentage of the population had watched the film?”

Akhtar had implied that the CSR should be considered an investment, not cost. CSR would eventually bring in profits for corporates as inclusive programmes tend to grow the market.

Such a realization has been sweeping across the US which, decades back, had witnessed radical anti-CSR views. "The social responsibility of business is to increase its profits," wrote Milton Friedman, economist and Nobel laureate, in his article in The New York Times Magazinein 1970. He had considered CSR a "hypocritical window-dressing", and had seen "a suicidal impulse" in business leaders who had pursued such programmes. Four decades later today, the US has come a full circle with CSR budgets increasing and concepts like cause marketing gaining increasing acceptance.

Maybe Akhtar’s thoughts on inclusive growth should set the agenda as to how the mandatory CSR budgets should be spent in India, as and when they are available in the near future, thanks to a new law. As it is well known, the new Companies Bill, passed by the Lok Sabha in December 2012 and which is likely to be tabled in the Rajya Sabha in the Budget Session beginning on February 21, 2013, makes it mandatory for companies to spend 2 per cent of their net profit on CSR. Perhaps India is the first country in the world to make CSR mandatory.

According to clause 135 of the Bill, “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 make every endeavour to ensure that the company spends, in every financial year, at least two % of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility (CSR) Policy.”

“A Business Standard analysis of balance sheets of BSE 500 companies showed that some 457 companies will have to make provisions for spending,” according to a report by Sundaresha Subramanian and Sameer Mulgaonkar in Business Standard. “Based on the average profits of the preceding three financial years, these firms will have to spend a whopping Rs 6,751 crore in the first year after the Act comes into force. Over half of this amount has to be spent by the top 30 firms alone. Fifteen of these firms will have to allocate spends of at least Rs 100 crore. State-owned explorer ONGC has to allocate Rs 405 crore, while Reliance Industries has to spend Rs 377 crore, followed by State Bank of India (Rs 194.25 crore), NTPC (Rs 180.36 crore) and TCS (Rs 161.1 crore).” According to the media report, Business Standard Research Bureau arrived at these numbers based on the average net profit of these firms for the financial years 2009-10, 2010-11 and 2011-12 on a stand-alone basis.

The Bill specifies activities which may be covered under a company’s CSR programme. These include: (i) eradicating extreme hunger and poverty; (ii) promotion of education; (iii) promoting gender equality and empowering women; (iv) reducing child mortality and improving maternal health; (v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; (vi) ensuring environmental sustainability; (vii) employment enhancing vocational skills; (viii) social business projects; and (ix) contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.

Sachin Pilot, Union Minister for Corporate Affairs, has told the corporate world that he was open to the idea of corporate houses being incentivised by means of suitable tax provisions.

However, the corporate world would require a lot of assistance in scaling up their CSR activities. Business Standard had quoted a senior official of Indian Institute of Corporate Affairs in the above-mentioned report as saying, “At present the corporate sector is spending about 0.2% of their profits on CSR activities, even substantial portion of these spends may not fit in to the specific sphere of activities that are prescribed in the Bill.”

According to the World Bank’s May 2012 Newsletter,a symposium had been organized to launch a long-term engagement among the Government of India, the World Bank and Harvard Business School to spread the message of CSR across Indian industry.

Speaking at the symposium, Praful Patel, Union Minister for Heavy Industries, said that the public and private sectors needed to pool their resources and undertake larger projects to make a visible impact on the community they are working with. Ashok Kumar Pavadia, Joint Secretary, Public Sector Enterprises, Government of India, hoped “our partnership with the World Bank and HBS will help us share knowledge and learn from what's happening in the field of CSR".

Prof V Kasturi Rangan, the Malcolm P. McNair Professor of Marketing, Harvard Business School, told the symposium, "We can take good CSR models that are working in the country today and create a forum where they can be shared. Between HBS and the World Bank, we can create best practices, share through education forums, and probe in a much deeper way. This cross-pollination will work very well under a partnership of HBS and the Bank," he had suggested.

Bhaskar Chatterjee, Director General, Indian Institute of Corporate Affairs, felt that failure too should be looked at. "If people spoke of those failures, we'd learn far more," he had said.

Anu Agha, Chairperson, Thermax Limited, had raised a pertinent question at the symposium, "The past two decades has seen great economic growth, but India is among the three countries where the hunger index has gone up... Today public and private sectors may be working on the same issues, but separately. How can we converge and partner?"

Tata Group veteran Kishor Chaukar, who is presently Chairman, Tata Teleservices (Maharashtra) Limited, had urged companies to make CSR a strategic business exercise rather than mere philanthropy. "We need to stay there for the long run and can't be fly-by-night operators," he had said.

In her article,
Why CSR's Future Matters to Your Company, in Harvard Business Review, Susan McPherson, Senior Vice President, Fenton, a London-based global network focusing on issue campaigns, had stated, “More and more companies are building long-term commitments to Corporate Social Responsibility.”

McPherson felt that the rise in consumer activism and mobility, the Occupy movement, 24-hour accountability (thanks to social media), and global resource depletion will force every enterprise, large and small, to make CSR a focal point. Four particular areas stand out among many, according to her. They are:

Employee engagement: According to Gallup, 86% of engaged employees say they very often feel happy at work, compared to 11% of the disengaged. Engaged organizations also grew profits as much as three times faster than their competitors. The Corporate Leadership Council reports that highly engaged organizations have the potential to reduce staff turnover by 87% and improve performance by 20%.

Cause marketing: According to a PRWeek/ Barkely PR Cause Survey in 2010, two-thirds of brands now engage in cause marketing, up from 58% in 2009. The same survey found that 97% of marketing executives believe this to be a valid business strategy.

The sceptical consumer: As social media platforms continue to grow beyond their pre-teen years, consumers will demand more transparency from corporations and non-profits.

Board-level involvement: In 2011, The National Association of Corporate Directors Public Company Governance Survey asked about the highest priorities for the Board. The highest priority at 72% was strategic planning and oversight and amongst the lowest was CSR at 2%.

In an article, ‘From Fringe to Mainstream: Companies Integrate CSR Initiatives into Everyday Business’, Knowledge@Wharton had stated, “Ten years ago, for instance, only about a dozen Fortune 500 companies issued a CSR or sustainability report. Now the majority does. More than 8,000 businesses around the world have signed the UN Global Compact pledging to show good global citizenship in the areas of human rights, labour standards and environmental protection.”

The Wharton article had also stated, “Today, amid a lingering recession that has dented corporate profits and intensified pressure from shareholders, companies are devising new CSR models. Rather than staffing a modest CSR department -- and slapping it on the org chart as a small offshoot of the public relations (PR) or philanthropy division -- many companies are instead trying to embed CSR into their operations. Some blue-chip companies, such as Visa, are creating new markets in the developing world by closely aligning social causes with their overarching corporate strategies.”

Jerry Wind, the Lauder Professor and Professor of Marketing, Wharton School, had said CSR is "socially responsible capitalism.... At the company level, the business objectives need to be to both maximize shareholder value in the long term and to address society's biggest problems. This requires having any CSR initiative be an integral part of the business strategy and not a separate department."

The Wharton article had also quoted Marcus Chung, Vice President, CSR and Sustainability Practice, Fleishman-Hillard, as saying, "There are more CSR practitioners today whose main job is to find ways to support business strategy and save the company money."

Leading PR consultancies featured in the CSR A list of PR News are: APCO Worldwide, Burson-Marsteller, Carmichael Lynch Spong, Cone Communications, Edelman, Euro RSCG Worldwide, MWW Group, RF|Binder, Strategic Objectives, Waggener Edstrom Worldwide and Weber Shandwick.

In India, a couple of consultancies claim they have built CSR practices, but whether any agency has initiated the required steps to equip itself to tap the emerging opportunity is the million dollar question. Stakes are high, and fast-tracking plans is the key to success.

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