Corporate Social Responsibility: Should It Be A Law?

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India is the first country to have corporate social responsibility (CSR ) legislation, mandating that companies give 2% of their net profits to charitable causes.

Innovative?  Perhaps on a policy level.  But some small-medium size enterprises within India have already embedded social impact into their company ethos.

The new CSR law is a massive 294-page act that requires companies to set up a CSR board committee, allocate 2% of net profits in the last three years to CSR, and be reviewed at the end of each financial year by the board’s director to ensure compliance.  Beyond that, enforcement is a bit vague.

The law applies to the following companies registered in India: those with net worth of 5 billion Rs. (approximately $80 million); turnover of 10 billion Rs. at least ($160 million); or net profit that exceeds 50 million Rs.  ($830,000).  According to the Economic Times, about 8,000 Indian companies meet this definition, which would equate to 12,000 -15,000 crore Rs. annually in giving (or nearly $2 billion).

The corporate giants such as Wipro WIT -0.52%, Reliance, Tata, Airtel already have foundations and partake in philanthropic activities aimed at poverty reduction.  But critics say that philanthropic funding is not always the smartest way to tackle India’s serious social issues.

In 2008, Bill Gates spoke at the World Economic Forum about “creative capitalism.”  He encouraged companies to identify their expertise- be it technology, agriculture, healthcare- and develop products that could “stretch the market forces.”  A slightly more nuanced take on “doing good,” it meant honing in on the business’ specialty, not just throwing money at various charities.

Can that be applied to India’s new CSR law? Is it merely about giving or does the kind of giving matter?

ZMQ Technologies is medium-sized company housed in Manesar, a community on the fringes of India’s new tech city, Gurgaon.   Founded by two brothers, Subhi and Hilmi Quraishi, ZMQ produces commercial software for schools, corporations, universities, and more.  Since inception in September 1998, the Quraishi brothers have been allocating 12% of their profits to tech tools.  Hilmi is keen to point out that they produce tech tools for development rather than donate directly to development organizations.  Why?

Read the rest of the story at Forbes.com.

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