Paths have been cleared for reintroduction of the Companies Bill, 2011, in the monsoon session. If the bill is passed after endorsing all the propositions made by the Parliamentary Standing Committee on Finance, corporate social responsibility (CSR) would become mandatory for the first time in the world in any country.

The statement advocates that those companies with net worth above Rs. 500 crores, or an annual turnover of over Rs. 1,000 crores, shall earmark 2 percent of average net profits of three years towards CSR.

However, all this debate about CSR and it being mandatory greatly magnifies the danger of not understanding the very notion of CSR accurately. At the heart of it, CSR should be about doing business in a socially responsible and ethical manner and not just about donating or spending money on causes. The mandate to spend a stipulated amount of profits makes CSR too focused on the latter, leaving very little room for focus on the former.

Consider the case of any company wanting to undertake CSR activities. Whereas earlier the company would have thought of the vast scope of activities which came under the umbrella of CSR, it will now just think in terms of spending an x amount of money on the one cause which can help the company get the most bang for its buck. It is the government mandate which plays a limiting and restricting role and perpetuates a definition of CSR, not exactly conducive to long term sustainability.

There is also a massive danger of the CSR spending to actually be a cloak for hiding illegal or unethical activities. Satyam, long before it became infamous due to the scam actually had a reputation for spending heavily in CSR and even getting some big awards for it. Enron, another global example, is one more case in point of how spending money on local causes and winning CSR awards is a far cry from being a socially responsible organization.

If the government’s intention is to transform corporates into model citizens who contribute effectively to problems of sustainability and development, then this particular approach followed by the government is a myopic vision.