Abstract :

The new Corporate Social Responsibility rules which became effective from April 1, 2014 and the Skill India Campaign launched on July 15th, 2015 have a number of business implications. In general, there is a lack of CSR compliance in many countries including India. Living wages and even minimum wages are not paid in many work places. The CSR expenditure on skill development is small and falling. There are legal, economic and social implications of these trends. The objective of the study is to study whether CSR activities have the potential to bring about a people’s capitalism and to know whether Corporate Social Opportunity (CSO) projects will be more effective in pushing the skill India campaign forward. The data collected in previous studies and reports will be used with due acknowledgement. Recommendations and suggestions for further research are given at the end of the study.

Keywords :

CSR expenditure, Minimum wages, Skill India Campaign, CSO Projects

Introduction:-

Making Skill India projects more effective through a transition from Corporate Social Responsibility (CSR) to Corporate Social Opportunity (CSO) is explained in the present paper. Ensuring minimum wages in workplaces as a tool to achieve employee engagement, business success and social welfare is also highlighted. As mentioned in Section 125 of the Companies Act 2013, every company with a net worth of Rs. 500 crores or a turnover of Rs. 1000 crores or a net profit of Rs. 5 crores or more per year must set aside at least 2 per cent of its net profit for any socially responsible expenditure. The CSR activities could be either inward focused like employee welfare, waste management, etc. or outward focused like projects benefiting local community, improving environmental quality, etc. However there are reports on lack of compliance and many of the positive outcomes expected have not come true. One report says that in a sample of 7305 CSR mandated companies, 5985 (about 81 percent) did not report expenditure on CSR during the two years 2014-15 and 2015-16. Another disappointing aspect was that only 2.4 percent of CSR expenditure went to skill development.

Skill India campaign launched on July 15, 2015 by the Prime Minister with an aim to train over 40 crore people of the country in different employee skills by the year 2022 seems to get a very low priority in the CSR expenditure. Living wages and even minimum wages mandated by the government are not paid to the workers in many parts of the country. People’s capitalism seems to be an objective not achievable in near future. Why do companies especially large ones, refrain from taking CSR activities, in the right spirit? What factors explain low priority to skill development in the CSR expenditure agenda? Why are minimum wages denied to workers? These questions are addressed in the present study in a small way. The role of CSR in building people’s capitalism is explained in Part 1 of this paper. Employee engagement through payment of minimum wages as a top priority in CSR is discussed in Part-2. Challenges and opportunities of skilling India are explained in Part -3. In the conclusion, some recommendations and suggestions for further research are given.

Part I

CSR and People’s Capitalism

The idea of social responsibility of business, some might think, is as old as business. In the realms of philosophical and religious discourses there were elaborate descriptions of “giving back” to society and the rich expected to play “Good Samaritans” to take care of the poor and the underprivileged . One might think that the moral sentiment of business prevailed during ancient and medieval periods, especially in the context of writings of, among others, St. Thomas Aquinas, on ‘just price’ and ‘usury’. When capitalism emerged after the Industrial Revolution, the aggressive pursuit of profit motivated the elites to pursue colonisation of distant lands and imperialistic trade and investment practices. Workers were exploited and people in general were treated as means to an end and the end being private profit. One may recall what the America railroad developer and financier, Jay Gould (1836-1892) said on his mission. He made an infamous statement, “I can hire half of the working class to kill the other half”. It must be remembered that he was a contemporary of Karl Marx who tried his best to create a ‘paradise on this side of the grave’ for the working class.

The idea of Corporate Social Responsibility has come a long way since the days Jay Gould. The principles of a 21stcentury company do not need to reflect the priorities of the East India Company, established in 1600 A.D, which went on to grab lands apart from exploitative and unfair trade. Now we witness a new generation of global and Indian business leaders who are busy in extending the scope of the social role of modern business. There are attempts to integrate the social sustainability goals with the core business priorities. As Xynteo’s research shows, the concept of Corporate Social Opportunity (CSO) is becoming popular among several companies in the west and also emerging economies like India(1). A brief account of major theoretical perspectives on CSR may be necessary in this context.

Four Models of CSR:

The CSR has a long history(2). Social responsibility concept has a longer history. It is easy to appreciate the relationship between social responsibility of corporates and the growth of corporates themselves when we visualise the changes in modern industrial societies. The CSR grew and flourished with the growth of corporates. Most management historians say that the CSR took a form in 1950’s and since then it has expanded in size and variety. There are four major theories which explain CSR activities. These may be briefly explained to provide a context for our discussion presented in this paper.

The earliest approach was the one which emphasized corporate social performance, through responsible business behaviour in the sense of doing the right things. Ethical business practices would lead to maximum social benefit. The second theory namely Shareholder Value Theory is fairly popular one. Milton Friedman, the American Noble laureate famously said,” There is one and only one social responsibility of business- to use business resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engage in open and free competitions without deception or fraud”(3). Freedman’s argument is clearly against the concept of CSR and it has led to a huge debate ever since he made his observation.

The third view is the ‘Stakeholder Theory’ which says that corporates have to benefit their stakeholders, namely customers, employees, shareholders, suppliers, government and local communities(4). In spite of several weaknesses, this has been a powerful CSR theory to emphasize goodbusiness-society relations in a modern industrial economy. The fourth theory focuses on the concept of corporate citizenship. There is a saying that social responsibility begins from where the law ends. It means that corporates should go beyond legal requirements like taxation and environmental protection and take measures which would benefit society at large. The term ’citizenship’ is taken from political science and is applied in the business context. The concepts of ‘business citizenship’ and ‘global business citizenship’ carry with them references to respective rights and duties.

As already mentioned asper the Companies Act of 2013, companies with a net worth of Rs. 500 crore or more or with an annual turnover of Rs.1000 crore or more or with a net profit of Rs. 5 crore or more per year have to spend 2 percent of the average of their net profit earned during the last three years. Ten major fields have been identified by the government for CSR activities by the corporates which include education, promoting gender equity, providing sanitation facilities, eradication of hunger and malnutrition, making available drinking water, health care, promoting national heritage, spending on welfare of armed forces veteran and their families, promoting environmental sustainability and making contributions to prime Minister’s Relief Fund. The corporates can avail assistance from the National Foundation for Corporate Social Responsibility, an apex body set up to provide information and guidance regarding NGO network for implementing sustainable CSR projects. The corporates can also get guidance from the Environment Ministry, Corporate Affairs Ministry and Pollution Control Board in the matters of identifying and implementing viable environment-friendly CSR projects. When these projects are framed and implemented in the right spirit, people’s capitalism would emerge.

The concept of “Triple bottom line” is relevant here. Corporates should focus their efforts in achieving their goals in the matter of maximizing profits, benefitting people and also protecting the planet. CSR is a valuable opportunity for the corporates in their concern for “profit, people, and planet”. However, a tobacco products trading company hardly spends a part of its profit on running clinics to provide medical treatment to tobacco users. Mining industry hardly spends a part of its profit on managing negative environmental externalities and protecting the fragile eco-system in the neighbourhood. Many polluting industries hardly spend money on eco-efficiency based projects under their CSR initiatives. It is reported that Indian corporates spent Rs. 9309 crores on CSR initiatives during 2015-16 which was Rs. 163 crores more than the amount as per the 2 per cent of the net profit rule prescribed in the Companies Act. There was an improvement over the previous year 2014-15, when Rs. 8,606 only was spent on CSR projects. Smaller companies seem to have spent more on CSR activities than big companies. The Ministry of Corporate Affairs reports that many corporates express difficulties in identifying long-term projects and in finding suitable implementing agencies as reasons for not performing well in CSR activities. In the matter of allocation of funds also one finds shortcomings. Education accounts for 44 per cent, eradicating extreme hunger only 6 per cent and reducing child mortality receives nothing at all even though there is high degree of malnutrition among children especially in the rural and tribal areas of the country.

The relationship between corporate social performance and corporate financial performance has been attracting the attention of the researchers in recent times. The general perception that financially successful corporates display good social performance also is tested using statistical techniques on empirical data. The outcomes of CSR activities are difficult to measure empirically. Corporates may mention that a given amount was spent on CSR projects. For example, a few lakhs of rupees may be spent towards renovation of a village school building and provision of books and other study materials to the school children.

However the quality of education and training the children receive in the school depends on other factors like the availability of qualified and dedicated teachers and the efficiency of school administration. On the contrary, the corporate financial performance can be measured and compared with less amount of ambiguity and contestation. Most studies point out that there is a positive though weak relationship between the corporate financial performance and corporate social performance (5). Effective CSR can bring mutual benefit to all stakeholders and companies. Employees are key stakeholders. CSR efforts to ensure minimum wages for employees would be a great beginning for efforts to benefit the community and the environment.

Part II

CSR and Minimum wages

People’s capitalism does not mean a socialistic redistribution of nation’s assets and a scheme of production based on common ownership of means of production. It is a plan to promote capitalist development through more efficient distribution of income and wealth. CSR expenditure on labour welfare can play a positive role to bring about people’s capitalism. Ensuring minimum wages in all work places is an essential requirement in promoting labour welfare. It is disappointing to note that minimum wages are not paid in many places of work both in developed countries and developing countries. Two studies, one on Walmart employees of the USA and another on Indian garment industry workers, are taken for consideration in explaining the conditions of workers who are denied minimum wages in spite of government agencies’ efforts. The relevant details are given below and the numbers explain the condition of workers.

In a study “Walmart on Tax Day- How Tax Payers Subsidize America’s Biggest Employer and Richest Family” (2014), it is explained how U.S. tax payers subsidize workers of Walmart because they get low wages and low benefits(6). Many Walmart workers are paid $9 per hour and they work 34 hour in a week. It means an average Walmart worker takes home only $ 15,912 per year. If he is unmarried, he would be eligible for three out of five public assistance programmes for which a single poor person is eligible. A worker who is married with two children would qualify for all the eight of such programmes. Some of these eight programmes are food stamps, medicaid, and child care. Walmart is the largest private employer in the USA with 1.4 million employees. Walmart employees are paid so little that many of them depend on many tax payer-funded programmes mentioned above. It is estimated that about $ 6.2 billion of tax payers’ money goes to support the low paid Walmart employees annually. Walmart earned a net profit of $16 billion during 2014-15. Ironically a part of it comes from Walmart’s sale of goods to the government which supports the low paid Walmart employees (among others) through the programmes mentioned above.

Similar studies on the workers of, for example, Reliance Company or Tata Company in India are not available. We do not know about details of Indian tax payers’ money going to support the welfare programs whose beneficiaries may be low paid employees of, for example, Reliance, among others. The study on Walmart says that Walmart captures about 18 percent of food stamps market in the USA. We do not know which Indian company captures what percentage of goods and services market created by the welfare programmes of the government. One may argue that this is all in the game of market mechanism. However it should be emphasized that minimum wages if not living wages must be paid to workers. In a study “Wage structure in the Indian Garment industry” (2013) the miserable condition of workers is explained(7). The study is based on a field study conducted on ready-made garment factories located in Gurgaon, Bangalore and Tirupur. Qualitative data based on personal interview of major actors like garment workers, trade union leaders, employers, government functionaries of labour department and health and safety department and social workers are provided in the study apart from quantitative data. The following table is based on the findings given in the study.

Table -1:Garment Industry Wage Structure and Conditionsof Work in Gurgaon.

The study points out that there is no national level data pertaining to wage structures in the garment industry. There is no data also about the total number of each category of garment workers like tailors, stitchers, cutters and ironers. Through these garment factory workers make clothes with global brands like GAP, Next, Marks &Spencer, Adidas, Nike and Puma, they suffer in various ways in the work place. The study says that there is huge presence of minimum wage violations, non-payment, underpayment and late payment of basic wages as well as illegal overtime wages, theft of social security benefits, threats to break union formation and sexual harassments of female workers. As per the study a tailor gets Rs. 8120 per month. If he is married and has a child, then he and his family would be coming under below poverty category which is defined as $ 2 per day per head. He becomes a member of ‘working poor’ group widely found in developing countries like India. The inference is that with low wages and lack of benefits, workers suffer whether they work for Walmart in the USA or a garment factory in India.

Employees are key stake holders in an organization and many observers point out that employee compensation is a crucial CSR issue. In corporate governance discussions, one of the topics is employee engagement through compensation and companies are told to focus their CSR efforts on providing living wages or at least minimum wages to their employees. However in the Indian context, company law and capital market regulation compliance alone are considered to be the legal foundation of corporate governance. In reality, labour relation and minimum wage compliance are the legal, economic and ethical basis of good corporate governance practice. The increasing use of the phrase “market for virtue” may be mentioned in this context. Effective CSR may promote employee attraction and retention. Some studies say that most consumers are willing to switch from one brand to another if the brand is associated with effective CSR activities.

Soon after independence, the Minimum Wages Act of 1948 was enacted and thereby, India became one of the first countries in Asia to make such a law. But soon India became one of the most complex minimum wage systems in the world with about 1700 prevailing rates at national, regional and sectoral levels. Reports say that efforts are being made to bring an Act to empower the Central Government to fix minimum wages for all sectors nationwide. Ensuring minimum wages for informal sector employees is a huge challenge. About 93 per cent of the workforce in the country is engaged in the informal sector where conditions of work like wage level, job security, number of hours of work and social security facilities are less helpful to workers than those obtained in formal sector. Most workers in this sector have skills but not certification to prove evidence of their skill. This deprivation makes them more vulnerable in the labour market. They need training and certification to get empowered in the market to demand and get the wage they deserve. Skill development will not only make them more assertive and successful in obtaining higher compensation but also economically more productive to add more value to the economy. We now move on to discuss the role of CSR in skill development.

Part III

Challengesand Opportunities of Skilling India:

India, a country of 1.3 billion with a distinction of being the fastest growing major economy of the world, has the median age of 28 which means a huge demographic dividend. About 10-12 million young people enter job market every year. Where is the government-corporate-academia partnership to generate enough jobs? Does the country have the necessary infrastructure to provide skill to the young people? A report points out that only 4.69 per cent of India’s workforce has some kind of formal training whereas it is 75 percent in Germany, 80 per cent in Japan, and 96 per cent in in South Korea (8). It may be mentioned that on July 15th, 2015, The Prime Minister of India launched ‘Pradhan Mantri kaushal VikasYojana’ (PMKVY) hoping to make India “the human resources capital of India”. The target is to train 40 crore people in various skills by the year 2022. The National Skill Development Corporation (NSDC) claims to have trained during the three years 2015-2018,only about 2.5 crore people through 527 PMKV centres across the country. The training is given relevant to 252 job roles which include masonry, carpentry, welding, healthcare, hospitality, retail etc. However a report says that only 12.4 percent of the people who received such training could find jobs (9). It means jobs seem to be elusive. At the same time workers with necessary training and skill are needed.

A Skill India report mentions that a large number of workers are in demand in various sectors and professions(10). A partial list is given below:

Construction – 320 lakh

Retail - 107 lakh
Beauty and Wellness - 82 lakh
Electronics and IT - 69 lakh
Road Transport - 62 lakh
Textile and Handicrafts - 60 lakh

There are many more areas where a large number of trained and skilled workers are needed. There seems to be mismatch between supply and demand. On the one hand, training programmes are conducted with funds from government agencies, and on the other hand, most people who got training are not able to get jobs. Further jobs in the informal sector carry low wages. There seems to be both job issue as well as wage issue. What would be the role of CSR in this context?

From CSR to CSO :

There is an increasing realization that in the public perception the intention and outcome of CSR initiatives do not seem to get the necessary appreciation and approval. As already mentioned, in a sample of 7305 eligible firms (i.e. those firms which are required by the new CSR rule to spend 2 per cent of their profit on CSR activities) 5985 (about 81 per cent) did not report expenditure on CSR during the two years 2014-15 and 2015-2016. Those firms which spent on CSR spent only 2.4 per cent on skill development programmes. This is disappointing. In this scenario the new concept of Corporate Social Opportunity (CSO) has emerged. One major reason for both less compliance record of companies and poor outcomes of the initiatives is that most CSR projects are framed and implemented with a legal mind-set of ‘responsibility’ or ‘duty’ towards society rather than with a positive economic motive of achievement and success. It is pointed out that business leaders conceive CSR initiatives as those framed under ‘fear’ rather than ‘opportunity’. The media quite often reports social activists and non-governmental organisations protesting company policies and practices adversely impacting society and environment. This scenario should change in order to bring out methods to enhance skill development through corporate efforts. For this purpose CSO is recommended in the place of CSR.

Corporate Social Opportunity (CSO) is defined as “commercially viable activity which also advances environmental and social sustainability. The goal is to be able to create an environment where numerous CSO’s are possible” (11). New business models have been developed to frame and implement CSO projects. A CSO project model may have the following aspects as guidance.

1. how a business is developed
2. how finance is raised
3. how purchasing practices are organized and
4. how a business is staffed.

There are possibilities of introducing innovations in order to make the CSO project more effective. The International food company Nestle has one such model for long –term capacity building farm sector in emerging economies. For example, in Brazil, Nestle provides technical assistance and loans to support more than 3 lakh farmers with no conditions that the farmers should sell the products to Nestle. The local communities in Brazil have experienced significant improvement in socio-economic condition and wish that Nestle expands its projects to more areas. We find such success stories in the case of other companies like Procter & Gamble, General Motors, Schindler, etc. When the Oslo-based consulting firm Xynteo organized a business meet to promote CSO model in India, business leaders from Tata Sons Ltd., the Aditya Group and Hindustan Unilever expressed great interest (12). A recent report says that Infosys foundation has decide to spend Rs 200 crores of its CSR expenditure to develop a metro railway station in Bangalore. It seems the colonial fascination for railway development continues in the 21st century also. This CSR money could have been spent in a more useful way. In the present form it will lead to “crowding out” effect in the sense it drives away government funds possibly to less useful activities. Instead, Infosys could have requested its employees to sponsor one person to a free high value job enabling skill training fully funded by the company. Such a CSR expenditure would have achieved three things, namely employee engagement, community welfare and value addition to the company and the Indian economy.The major thrust of the argument presented in this paper is that the flagship scheme of the government namely, Skill India Project should get support through Corporate Social Opportunity (CSO) business models funded by the corporates of the country. The NSDC and Corporates should join together in making CSO supported Skill India Projects a success

Conclusion:

The need of the hour is to make Skill India Project a grand success to lift the socio-economic condition of the people of the country. The government and the corporate sector should join hands in this effort. There have been reports about gaps between CSR rhetoric and actual practice and outcomes. Good corporate governance involves ensuring living wages or at least minimum wages to workers and all CSR activities should begin after completing this responsibility. Skill development seems to get low priority in CSR agenda. This has to change. There is a need for paradigm shift. CSR in general, is viewed mostly as anaspect of business operations. CSR mind-set should be replaced by CSO mind-set. A CSO business model views expenditure on social and environmental improvement as a business strategy. Indian Corporates have started showing interestin developing CSO business models. When they take up Skill India Project as an item high in their agenda of expenditure, it would be wonderful. The present paper ends with an optimistic note and recommends further research in this exciting area of study.

Notes:

• Oslo based consultancyfirmXynteo has come out with a report “Leading Out” recently in which it elaborates the responses of companies favouring efforts to seek business opportunities by addressing social issues and environmental challenges. Some Indian business leaders call CSO, the mantra for 21st century business. See Mint, 29, March 2017.
• Carroll, Archie.B (2008): ‘A History of Corporate Social Responsibility’ in The Oxford Handbook of Corporate Social Responsibility (ed) Andrew Crane et al New York, OUP. The authors say that few subjects in management arose as much controversy and contestation as Corporate Social Responsibility debates.
• This celebrated observation is found in, Friedman, M and Friedman, R. (1962): Capitalism and Freedom, Chicago, University of Chicago Press.
• Many management historians consider Edward Freeman as a pioneer in this position.
• Ullmann,A. 1985. ‘Data in search of a Theory: A Critical Examination of the Relationship among Social Performance, Social Disclosure, and Economic Performance.’ Academy of Management Review, Vol 10, No. 3, PP. 540-557
• Americans For Tax Fairness(2014)Walmart on Tax Day, Washington, ATF publication.
• Ganguly, Arpan (2013) Wage Structures in the Indian Garment Industry, http://bargad.org/2012/11/22/ garment makers in India.
• See ‘Skilling for India’s Future’ Financial Express, 20thJuly, 2018.
• See ‘Soft on Skills’ Business Line, 14th July, 2018.
• See NSDC Report (2017).
• Grayson, D and Hodges, A (2004) Corporate Social Opportunity-7 steps to make Corporate Social Responsibility work for your Business, Sheffield, Greenleaf Publishing.
• See ‘Changing Attitudes Towards Corporate Social Responsibility’ in Mint, 29th March, 2017.

References:

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