Utilise CSR for Social Change

Starting tomorrow (1st April 2014), an estimated 16,000 companies will finally have to start discharging their corporate social responsibility (CSR) as per the new Companies Act, 2013. If most companies actually comply with the requirement of spending 2% of their profits on CSR, an estimated Rs20,000 crore and substantial expertise will flow to the social sector.

This tidal wave is both an opportunity and a challenge. Clearly, the funding will be of immense help given the ocean of needs in India. However, there is also a high risk of money being misspent and stolen. India has nearly three million NGOs. However, many are fraudulent and even many genuine NGOs do not have the capacity to absorb substantial funds.

On the flip side, the vast majority of companies, even otherwise-sophisticated and well-intentioned ones with a long tradition of philanthropy, do not have much of a clue about how to put their money and talent to good use. They often confuse CSR with charity and end up practicing “chequebook philanthropy” — which is simply writing cheques for random requests without any real strategy and, therefore, with very little sustainable impact. Unfortunately, many other companies are busy finding all the loopholes that will enable them to evade their responsibility.

Given this backdrop, how do you approach CSR sensibly?

First, it’s important to realise that CSR isn’t just about compliance with a new Act. It is strategic. Done well, CSR contributes to building corporate reputation and trust. This is critical because trust in businesses is very low, and people are disgusted with corrupt business practices and crony capitalism.

CSR is also a fantastic way of engaging employees. There is a growing desire among educated people to “give back” to society, and a company’s social initiatives are an excellent outlet for this desire.

Working on tough social challenges is also a good way of rounding out rising leaders, and companies that develop a reputation for doing well and doing good are able to better attract talent. Finally, CSR projects can be an important source of innovation.

Microsoft’s work in digital literacy has not only helped nearly 40 million children, it has also inspired product innovations such as Multipoint Server that enables many children to concurrently share a single PC.

Similarly, Hindustan Unilever’s work in rural markets has resulted in the Shaktiamma rural distribution model that today drives 10% or more of the company’s revenues.

Second, it is critical to have the right leadership for your CSR work. The new Act specifies that a company must set up a board committee to oversee CSR with at least one independent director on it.

This is mandatory, but insufficient. You also need to appoint a credible leader who will help shape your CSR strategy, evangelize this to employees, build external partnerships and communicate the impact being created. This cannot be accomplished by a junior manager tucked away deep in the HR department. It has to be a capable leader, well regarded in the organisation and with ready access to the CEO and senior leaders of the company.
It is equally important to pick the areas of focus for your CSR work. Investing in vocational training or literacy in communities around the company’s facilities is an obvious area.

Picking areas adjacent to your core business has great merit because these have the greatest potential to sustain. So, if you are Nestle or ITC, initiatives that help farmers is natural.

However, there are a number of desperately underfunded and important areas that are important to consider, for instance, support for performing arts or support for NGOs that are working on human rights or governance. This is a uniquely opportune time to imaginatively create a portfolio of areas where you want to have impact.

The most important thing, though, is to graduate from chequebook philanthropy to impact investing. Your company is going to be spending 2% of its pretax profits. This is a big deal and needs to be approached with the rigour of a venture capitalist. You need to have a disciplined approach with clear criteria for making grants to the most deserving non-profits.

Mutual expectations and impact metrics must be documented in a simple but stringent MoU. There must be a good process for involving employees to work with each grantee to help build capacity in specific areas like finance, IT or marketing.

Finally, there must be a disciplined annual review of each grantee as well as the whole portfolio that drives necessary course correction.

Instead of seeing CSR as an onerous imposition and a 2% tax, see it instead as a 2% investment in building corporate reputation, employee engagement and innovation. Real CSR not only renews the implicit licence to operate given by society to your company, it helps create a functioning society that we can all live in.

[ - Ravi Venkatesan, former chairman of Microsoft India, chairman of Social Venture Partners India] [Economic times]