Legal

Assessing The Mediating Role Of Corporate Social Responsibility In Companies’ Performance

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This Blog is written by Rahul Chatwal from Christ University, Pune. Edited by Pranoy Singhla.

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INTRODUCTION

It is truly said that “goodness is the only investment which never fails.” In today’s era when there are so many international firms that are gaining a large amount of profit, they should also do something good for society because society is the only reason because of which they are only able to earn a large amount of profit so doing something good will motivate them and ultimately there will be the positive effect that will be shown in the profit graph of these firms. Corporate social responsibility means giving back to the community it is a type of private international business and the set of rules that aims at societal goals, activist and have a charitable nature by supporting people in the different fields and engaging in volunteering works. In simple words, it is an initiative that is taken by the companies to build their brand values. Company social responsibility is the most important key aspect that every firm has to adopt because besides building a great brand image it can also help the company to achieve the higher amount of profit that is considered to be the key aspect of any firm.

There are many positive and negative consequences that companies have to face many times. The CSR policy can help at the time when the company is facing negative effects such as by increasing positive public relations and high ethical standards to reduce the risk and aim at earning the high-profit CSR policy help the companies in their difficult times. Corporate social responsibility is not only linked to the profit motive but also has many sides to it like it can hold a positive impact on the stakeholders and many other persons like consumers, employees, investors, and community by engaging in the volunteering work that gives them benefit. Some of the companies adopt CSR policy because of the ethical mindset of the senior management because it is a common point of view that the material that is not in use should be recycled. As we talk about the current situation the concept of CSR is used by a lot of companies in the time of COVID-19 when so many people are suffering from financial problems these companies came in front and help the society just the reason behind that is to build the brand image in society. CSR has changed the thinking point of view of many business companies towards society. Indian Standard Organisation 26000 is the recognized international standard for corporate social responsibility. It is also called corporate sustainability, sustainable business, responsible business, and conscious capitalism.

SIGNIFICANCE OF THIS DEVELOPMENT

The concept of corporate social responsibility was discovered and start gathering the attention of several companies and stakeholders in the year 1960. There are a lot of significance of this concept to the companies as well as any other organization that are linked with them the significance is-

• Improve public image– this is the most important question that arises in the mind of the consumer whenever the purchase is made whether to buy from this company or that company is the question that arises in the mind of every consumer. The solution to this answer is that the company should build its brand image. Building brand image can be done through several ways like the employees of the company taking part in the charity or organizing some of the camps that are going to help the society as the whole or in simple terms doing anything for the society help in building the brand image of the product. If the brand image of the product is good the consumer will make their final decision and buy that product from that place only and this will maximize profit.

• Increase brand awareness recognition– if the company is committed to following the ethical practices and the consumers get to know that the particular company is not involved in any fraud practices with the customers then they like to buy from the particular company only. Because the normal mindset of the people is this if they are paying for the particular thing then they expect that the thing should be accurately given to them. This practice of following the ethical practice gives them an increase in brand recognition and this will finally attract the consumers.

• Cost savings– many simple ways in sustainability such as using the less package will help in the cost-saving of the product. Like using less material for packing is good for the society as the whole as it helps in the reduction of waste that leads to achieve the sustainability and also lower the cost of the product because less material is used for packing this will lead to cost-saving.

• An advantage over competitors– if the company is using the corporate social responsibility as the regulation and the main theme on which the company works set the company different from other companies as it increases the brand image of the company because of the good practices that are followed by that company to achieve success. These set of regulation make the company different from the other company and the consumer makes sure that the good should be brought from these types of companies. CSR is the main reason that separates one unique company from the other companies.

• Increase customer engagement– if the company is involved in some of the good practices and helping the society in the best manner and posting it same on the social media and posting them in the newspaper about their good works toward the society will able to attract the customers and help them to earn more profit. And this will increase customer engagement.

• Greater employee engagement– besides attracting the customers from the CSR policy it is equally important to attract the employees from the different fields who are professional in their fields because the employee also likes to work in an organization that has a good brand image and follows the good practices and the main thing is that if the people get to know that you are doing work in the favor of the society the company can retain the top employees so the brand image is the most important thing.

• More benefits for employees– if the company adopt the method of CSR it will give high benefits to the employees that are working there because everyone one to work in a good environment and enjoy the culture or the brand image that the company has created it gives a large benefit to the employees and they can work positively and give the good result to the company. By encouraging the employees to volunteer help them to think about themselves largely and this will increase the professional as well as the growth of the employee.

• Positive public attention– active CSR promotes and creates a different image of the company when they are involved in some good work like helping the society several media platforms notices these activities and tries to showcase them in the newspaper and several other media platforms then this will try to build the brand image of the product and try to make the company different from the other company and this will lead to the positive public attention because the consumer gets influenced by the brand name of the company.

These are the significances of the company’s social responsibility policy when adopted by the particular company.

IMPACT

There is the larger point of impact of the company’s social responsibility to the stakeholders and on the organization. The impact of CSR affects the stakeholder and can also affect the interest of the person in the company. Like for example if the company client who is a stakeholder is mostly influenced by the mindset of the employee. The employees’ CSR in marketing their mindset influence the stakeholder and then they want to invest in the particular firm and this is how CSR is important for the particular company and can influence many people. The impact of CSR is this much that it can help the company when they are at looses because if the company has a good brand image anyone is ready to help that company. Like for example if the company has a good brand image they can get financial help from several banks they don’t have to worry about the losses they had incurred. The impact of CSR can be in the following way-

• Importance of stability– a small business firm that is newly developed and wants to work for a shorter period may not look at the long term goals of the sustainability or according to them sustainability is nothing but the firm that is standing still but for the companies that want to work for the longer period sustainability is one of the major key points that the companies should keep in mind while achieving its goal for the newly developed companies their goal must be on earning the high profits and scoring the best position in the market but for the long aim firms that sustainability is the key point that every firm should keep in mind to achieve their goals. Sustainability according to them means earning high amounts of profits and increase in the revenue that is more important to them.

• Customer satisfaction and retention– the customer only wants to work with those companies that have a good image in the society and are equally trustworthy in their deals in the business firms. They don’t like to carry out business with socially irresponsible firms. If the customer is satisfied then he wants to deal with that company only. And the satisfied customer is the best asset that the company has.

• Access to funding– capital is one of the important things that is needed while the expansion of the company and the capital can be needed at any point of time and can be needed by anyone who wants to start their firms. The most important point is that there are many a time chances that the company has the loss occurred and there is need of capital then if the company has the good public image the company can get financial help from several banks and stakeholders of the company can also help. If the firm has a good brand name it becomes easy to get financial help at the time of losses.

PROVISION IN THE LEGISLATURE

There is a particular section under the company laws that is related to the social responsibility of the business. Special provisions are made for the corporate social responsibility that is Section 135 of the companies Act 2013 that is related to corporate social responsibility. According to the companies act 2013, the corporate social responsibility means that the company decides to voluntarily help the society and for a cleaner environment a concept in which the company integrates social and other useful concerns in their business operation for the betterment of their stakeholder and their customers that are interested in the company. Corporate social responsibility means and include but is not limited to-

• Projects and programs that are related to activities specified in the scheduled VII of the Act.

• Projects or the programs that are done by the board of directors that are related to the implementation of the CSR.

• CSR applies to every company.

• Its holding company, it’s a subsidiary company and its foreign company.

• Net worth is more than 500 crore, turnover is more than 1000 crore and the net profit is more than 5 core.

It is discussed and the special provisions are made in section 135 of the companies Act 2013 that are related to corporate social responsibility.

CASE LAWS RELATED TO THE CONCEPT OF CSR

There are several landmark judgments related to section 135 of the companies Act 2013 that is related to corporate social responsibility.

• Technicolor India (P.) Ltd. V. Registrar of Companies– this case is considered to be one of the most important case laws of the companies act 2013 related to corporate social responsibility. In this landmark case, the company met the net profit criteria under section 135 of the companies Act 2013 and a CSR committee but it sends some amount in the fiscal year of 2017-18 the amount was below the threshold mentioned in section 135(5) of the Act for which the reason was duly provided by the company in its director report. After the analysis, it was found that the amount was mentioned wrong that was spent by the company in the matter of CSR. Then the report was sent to NCLT Bangalore. The Tribunal allows the company of the company to revise its reporting. Then the court held that chance of correcting the report should be given and the company should come out with the revise report mentioning of all the cost that was incurred while CSR implementation and was given the liberty to file for compounding under section 441 of the companies Act. This was the landmark judgment that was related to the error that was made while making the report of the money that was incurred in the CSR implementation.

• M/S. Bilfinger Neo Structo Ltd. V. Intelligence Inspector 1936– under this landmark case the court held that the corporate social responsibility provisions do not apply to the company where three criteria under the Companies Act such as net worth or the net turn over nor net profit are not considered to fulfil.

• Pan Asia Logistic India Private Ltd. V. Commissioner of Chennai– the case was related to failure to comply with the corporate social responsibility for the financial year 2014-2013 and were found in the violation of section 135 and 450 of the Companies Act which is related to CSR. The company was directed by the court to remit the penalty from the companies account and the two directors were ordered to pay the penalties from their accounts.

ANALYSIS

According to me, CSR is one of the important set of regulation that all the companies should adapt and work according to the set of rules that are mentioned in the provisions of the companies Act. CSR is important as it helps in building the brand image of the company in society. Because if the company has to survive in the long run then the company should be able to attract customers. Customers should be the primary goal for every company. Corporate social responsibility is not only linked to the profit motive but also has many sides to it like it can hold a positive impact on the stakeholders and many other persons like consumers, employees, investors, and community by engaging in the volunteering work that gives them benefit. CSR should be adopted and followed by every company worldwide.

CONCLUSION

The concept of corporate social responsibility is not a new topic it was noticed and the companies tried to implement it in late 1960. The concept of CSR means using some of the resources to help the society and the customers by carrying out several camps related to the issues in the societies and opening up of the charitable trust. As we talk about the current situation the concept of CSR is used by a lot of companies in the time of COVID-19 when so many people are suffering from financial problems these companies came in front and help society in a great way. As we all know that the CSR is the adopted method in every company and they are doing their best in serving society. Several landmark judgments are related to the concept of CSR. The concept of CSR is explained in detail in section 135 of the companies Act 2013 that is related to corporate social responsibility.

REFERENCES

(1) https://smallbusiness.chron.com/pros-cons-corporate-social-responsibility-56247.html

(2) https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr

(3) https://indiankanoon.org/doc/94233295/

(4) http://www.legalservicesindia.com/article/2265/Corporate-Social-Responsibility.html