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Journalism of Courage
Companies wont be strictly bound by law to set aside a part of their profits for corporate social responsibility (CSR) initiatives. Contrary to expectations,the Companies Bill introduced in Parliament on Wednesday is ambiguous on imposing a mandatory CSR bill on companies.
In a climbdown from its earlier assertions that companies above certain defined thresholds will have to spend 2 per cent of their average net profits in the previous three years for CSR,the government now expects these companies to merely make every endeavour towards this objective.
This implies that the proposed CSR spend would virtually be a matter of choice and peer pressure,and violations wont attract any penalty.
Official sources attributed the whittling down of the provision to the need to make exceptions given the changing nature of businesses,but independent analysts and corporate lawyers said such vagueness in legal language was unusual. They were,however,divided on the enforceability of such a loosely-worded provision.
It has learnt that the vagueness is neither an oversight nor negligence on the part of the Ministry of Corporate Affairs,but a carefully-thought-out one. The idea,an official said,is to create a new law which would be futuristic in its approach and create the much-needed peer pressure to nudge unwilling firms to do more philanthropic work. This is not any ordinary law. The nature of businesses is changing rapidly and you need to make exceptions when required. This law would stand the test of time for the decades to come, the official said.
Once the Bill is enacted,firms that qualify on laid-down parameters of net worth,turnover or profit would be required under law to constitute a CSR panel with at least three directors and formulate a CSR policy. They would have to engage in developmental activities and would be required to give reasons in their reports if they did not invest in them.
