Corporate Social Responsibility in India and Its Corporate Reporting Practices

8/4/2019 Corporate Social Responsibility in India and Its Corporate Reporting Practices

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Corporate Social Responsibility in India and its Corporate Reporting

Practices

Dr Manoj GoswamiLecturer, Tinsukia College, Tinsukia

[Abstract: Corporate social responsibility and its disclosure have been gaining

importance in India in present economic environment, especially after adoption of policy

liberalization, privatization and Globalization (LPG). With the adoption of policy of

LPG, government of India have been progressively shifting responsibility of social

welfare from their shoulder, however, Still a good number of people is living below

poverty, lack of proper health care, education facilities. Therefore, some welfare step

from corporate sector is desirable. In this paper an attempt has been made to find out the

nature and extent of steps taken by big corporate houses for the welfare of the society and

their disclosure practices in annual reports. ]

A business enterprise is a social unit and its activities are concerned with the

society. Business houses do their business within the society; therefore, they should bear

some responsibility towards the society. Traditional management thoughts and practices

hold that a business is essentially a robust economic engine to drive shareholders wealth.

Philosophically and in practice, though drive for shareholders wealth may be regarded as

a key but it should not be the lone objective. Now, it is believed that the idea of economic

progress and social development should go hand in hand. The integrity and transparency

about its functioning to society can make possible to co-exist business with success.

This results the emergence of corporate social responsibility and its disclosures in

corporate reporting.

During the recent years, social responsibility of business has received very much

attention from all sections of the society. Though, as yet no standards or requirement


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have been proposed for measurement and disclosures of social responsibility to be

assumed by any individual firm in most of the countries. As such, for some stakeholders,

it is matter of concern whether firm is adopting positive policies with regard to social

development, environmental protection etc. By assuming social responsibility and its

proper disclosures a firm can increase goodwill and create favorable impact among the

external users of information. In many developed countries, there has been some

development with regard to the corporate social responsibility and its disclosures. In the

countries like U.S.A., Germany, Britain, France, Netherlands are strictly following the

social accounting concept as mandatory requirements (P. Mohana Rao 1999) for

corporate reporting practices.

In India, especially after adoption of policy of liberalization, globalization and

privatization (LPG), the social responsibility and its disclosure have been gaining

importance. As per the policy of LPG the government has been progressively shifting the

responsibility of social welfare form their shoulder to the shoulder of private owners in

the name of better opportunity for economic development, therefore without entrusting

any social responsibility and its proper disclosure to private owners may create social

conflict between the business and the other members of the society. The disclosure of

social responsibility become significant as it

1) Give clear picture about the role of business on societal development aspects.

2) Give better understanding on social activities of an entity about its various segments

like employees, management, other stockholders, consumers, suppliers, investors,

Government, public and the whole community.

3) Improve the images of the business and generate the markets.


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4) Makes the relation better with government and other groups of the society

The World Business Council for Sustainable Development (WBCSD), an alliance of 180

international companies has defined corporate social responsibility as the commitment of

business to contribute to sustainable economic development, working with employees,

their families, local community and society at large to improve their quality of life and

identified key components for disclosures such as Human rights, employee rights,

environmental protection, community involvement and suppliers relations( WBCSD

2002).

.Prof. Lee Brummet (1973) in his article on total performance measurement has indicated

that social performance of a company is the function of (i) Income contribution (ii)

Human resource contribution (iii) Public contribution (iv) Environmental contribution

and (v) Product and service contribution.

The National Association of Accountants committee on accounting for corporate social

performance identified four major areas of corporate social performance and disclosures:

1) Community development, 2) Human resources, 3) Service and product contribution

and 4) physical resource and environment contribution. (NAA 1974).

In India corporate social responsibility and its disclosure got attention during the eighties.

Sacher Committee (1978), which was formed by Govt. of India to consider and report on

the changes, those are necessary in the form and structure of the Companies Act and

MRTP Act. made some recommendation in this direction. Sachar Committee observed

that, "The company must behave and function as a responsible member of the society just

like any other individual. It cannot shun moral values nor can it ignore actual compulsion.

The real need is for some focus of the accountability on the part of management not being


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limited to shareholders only, proper utilization of resources for the benefit of others also

take care of profit is necessary, but is not primary objective.....................the company

must accept its obligations to be socially responsible and to work for the larger benefit of

the community. The committee has suggested for adequate disclosure relating to

companies social activities and about future plans of the same for the shareholders and

other interested parties as a part of directors report. With effect from 1st

April 1989, under

section 217 of the Companies Act 1956, it has also been made mandatory to disclose

companys position relating to research and development and technology absorption,

adoption and innovation, conservation of energy, technology absorption, foreign

exchange earnings and out go.

In a research study conducted by Institute of Chartered Accountants of India (ICAI) in

1981 on social responsibility disclosure has found that out of 202 sample companies only

123 companies have disclosed some information about their activities towards social

responsibility. Few more studies have been undertaken in India in this field of study.

In a study conducted by Singh and Ahuja (1983) on 40 Indian public sector companies

for the year 1975-76, revealed that only 40 percent of the companies have disclosed 30

percent of total social disclosure items included in their survey.

The studies referred above are mostly made during pre economic liberalization period as

such losing its importance in the present environment. We have surveyed some recent

studies conducted in this area. Some of those literatures surveyed are worth mentioning.

In a micro level study on CSD in India conducted by Hegde (1997) on SAIL found that

company has disclosed social balance sheet and social income statement.


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Another recent study conducted by Raman (2006), on the basis of annual reports of top

50 companies in India has found that the nature and extent of disclosure was varied, and

large emphasis has been given on products and services and community involvement.

This study is limited to the chairmens messages and letters to the shareholders section

included in the annual reports.

In another study conducted by Vijaya Murthy (2008) on 16 top software firms in India

concluded that human resource category was most frequently reported attributes followed

by community development activities and environmental activities was least reported.

The study is sector specific and covers only software firms.

In India, till this date nothing is concerted about social responsibility and its disclosure.

On the other hand, country is lacking behind in providing adequate education facilities,

health care facilities that need attention of the corporate sector. There has been drastic

change in economic environment of the country and policy of the government. In this

juncture it is pertinent to study the social responsibility assumed and to be assumed by

the corporate bodies in India. The present study is conducted to understand the nature of

social corporate social responsibility and its disclosures by some selected corporate

entities in India.

Objectives of study:

The present study been carried out with the following objectives:

1) To examine the social responsibility assumed by some selected Indian corporate

entities.

2) To have a comparative study on corporate social responsibility of public sector and

private sector corporate entities.


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3) To find out disclosure practices in the corporate annual reports to communicate the

same to the external users.

4) The study also examined the extent of diversity in such reporting practices followed by

the sample entities.

Methodology:

The study is based on primary data. As annual report is most widely used document for

the analysis of corporate activities, Primary data and information have been collected

from annual reports of twenty (20) Indian corporate entities for the financial year 2007-

08 as sample. The sample company includes ten (10) public sector companies and equal

number of private sector companies. The sample companies have been selected randomly

from the list of leading companies listed in Bombay stock exchange (BSE) and

considered for calculating BSE sensex and list of top public sector companies. To find

out their contribution on societal development and its disclosure a social responsibility

disclosure index have been calculated taking into consideration nature of social

responsibility assumed by individual company and its disclosure in annual report. After

going though the existing available literature on corporate social responsibility the

following 20 items have been considered for constructing the Social Responsibility

Disclosure Index (SRDI).

1. Community Development:

i) Health care

ii) Educational development.

iii) Development of social infrastructure.

iv) Income generation and rural empowerment.


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v) Gender equality.

vi) Donation and Activity for national census.

2. Environment protection and development.

i) Reduction of emission.

ii) Afforestation.

iii) Policy of reduce , recycle and reuse of resources..

iv) Use of renewable source of energy.

v) Waste generation and management.

3. Human resource:

i) Employment.

ii) Employee training.

iii) Employment of disadvantaged group like SC/ST/ Women/ physically handicapped.

iv) Employees safety.

v) Employees health.

4. Other contributions.

i) Product development.

ii) Implementation of official language.

iii) Vigilance.

iv) Employees participation in management.

The composite score of individual companies have been calculated by assigning score

1(one) to each item reported any where in the annual report. Such score have been

compared by taking average and standard deviation to find out nature and extent and

variation of social responsibility and its disclosures.


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Analysis and Findings of the study:

The findings are presented on the basis of aggregate of information of the sample

companies. The information about above mentioned social development programme is

presented in Table-1

Table-1

Corporate social responsibility of Sample companies

Public company Private companiesAttributes

No P.C %) No P.C (%)

A. Community development

Health care 10 100 8 80

Educational 9 90 8 80Development of social infrastructure 8 60 3 30

Economic empowerment ( Income generation) 6 60 7 70

Gender Equality 4 40 4 40

Aid govt. and act for national causes 2 20 2 20

Total 39 ----- 32

B. Environmental development

Reduction of emission 7 70 8 80

Afforestation 6 60 6 60

Reduction, reuse and recycle 7 70 6 60

Development of renewable source of energy 4 40 5 50Waste generation and management 4 40 5 50

Total 28 ----- 30 ------

C. Human development

Employment Generation( employee no) 9 90 8 80

Employee training development 9 90 8 80

Employment of disadvantageous group 8 80 nil nil

Employee safety 6 60 5 50

Employee health 3 30 4 40

Total 35 ----- 25 ------

D. Others

Product development 10 100 9 90

Vigilance committee 8 80 nil nil

Implementation of official languages 10 100 nil nil

Employee participation in management 1 10 nil nil

Total 29 ----- 9 ----

Grand total 131 96

Source: Annual reports


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Disclosure of corporate social responsibility:

The study of annual report reveals that all the sample corporate bodies have disclosed

some information about their social responsibility. Such disclosures have been found in

different parts of annual report as there has been no uniformity in reporting of such

information. Disclosure practices of corporate social responsibility by sample companies

have been summariesd in table 2.

Table 2

Corporate social responsibility disclosure in annual report

Place in annual report Public sector

companies

Private sector

companies

Corporate profile 1 nil

Directors reports 8 5

Management discussion and analysis 3 5

others 2 8

Source: annual reports.

It has been observed that the sample companies have disclosed such information in

annual report under different captions like corporate profile, directors report,

management discussion and analysis and in some other statement like separate

sustainability report, corporate social responsibility report etc. In case of public sector

companies most of such disclosures are in the place of directors report. Out of 10 sample

companies 8 companies disclose such information in directors reports. In case of private

sector companies other statement is most popular place for reporting about their social

responsibility. They disclose such information by preparing separate statement. Out of

10 sample companies 8 such companies disclosed social responsibility information in

separate statement. It has also been observed that most of such disclosures are in

descriptive form not in quantitative form. Only few sample companies disclose such


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information in figures. Only 5(five) public companies BHEL, SAIL, CCI, OIL, and

MMTC and 1 (one) private company INFOSYS disclosed such information by preparing

separate statement like value added statement, social income and balance sheet. It gives

clear indication that there is variation in disclosure practices among the sample

companies.

Another very pertinent issue has been noticed during the course of this study is that,

there is wide variation of the social responsibility reporting practices assumed by the

individual entity. Aggregate data reflects such variations among the public sector and the

private sector companies. The average of composite social responsibility score in case of

Public Sector Companies is 13.1 and in case of private companies is 9.6. It also gives an

indication that public sector companies have assumed more responsibility than the private

companies. Variations in corporate reporting scores have been analyzed by calculating

standard deviation and it has been found that the standard deviation in case of pubic

company is 2.38 and in case of private companies is 2.45. It also makes clear that the

variation among the public sector companies is comparatively less than the private sector

companies.

Nature of social responsibility:

Considering nature of social responsibility, it has been come to light that companies have

paid emphasis on different issues. As shown in Table-1, community development has

occupied the highest priority in corporate social responsibility agenda in case of public

sector companies. In social responsibility disclosure most of the company disclosed

community welfare programmes under the head of corporate social responsibility. Under

community development programme, the corporate bodies have undertaken welfare


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activities like organizing health check-up camp in near by villages, providing donations

to hospitals, educational institutions, development of social infrastructure like roads,

culverts, provides safe drinking water facilities, progremmes for generation of income for

which they provide skill development training, financed Self Help Groups (SHGs) etc.

The sample public sector companies has reported about their health care initiatives and in

case of private companies 8 sample companies have reported about community and heath

related programmes. After health care, community related educational initiative occupied

major place. From among the public sector companies nine of them reported about their

programme for educational development whereas eight private sector companies have

promoted such programme. Development of social infrastructure also gets importance in

corporate community development activities. Many companies build roads, culverts and

provide safe drinking water facilities in their operational areas and near by villages. It has

been revealed that 6 Public Sector Companies and 3 private sector companies took

initiative to build social infrastructure in their operational areas. Some of the sample

companies have undertaken some progammes to help in income generation by the weaker

section of the society. Few corporate entities are arranging skill development training

programmes and also provide financial support to some groups. The annual report

reflects that 6 public and 7 private sector companies have initiated programme for

generation of income by the weaker section of the society. Out of total sample company 4

public sector companies and 2 private sector companies also focused on up-liftment of

women folks of the society.

Environmental protection and development is one of major challenge for economic

development. The present state of climatic changes has alarmed the human civilisation


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that if we use the nature indiscriminately the world will not be suitable for all living

being. Therefore, it is the ethical responsibility to every one to do all possible for

protection of the environment. The study has revealed that corporate entities have put

some efforts to preserve the environment. Out of sample companies 75% (7 public and 8

private) of them disclosed that they have put emphasis on reduction of emission of green

house gases from their industrial plants. Again, 60% of the sample companies have

undertaken afforestation drive as trees can contribute important role for the protection of

environment and maintaining ecological balance by sinking carbon dioxide and

generating oxygen. 65% of the sample (7 public and 6 private) companies have adopted

policy of reduction in uses of natural resources, reuse of such resources and recycling of

the used resources. Two of the sample companies i.e. INFOSYS and WIPRO Technology

limited have reported that they prepare their annual report in 100% recyclable paper. The

other important measure for protection of environment is the use of renewable source of

energy. 45% of the sample companies comprising 4 public and 5 private companies have

already put effort to use renewable source of energy like bio-diesel, solar energy, wind

energy etc. Use of renewable source of energy can reduce the pressure on non-renewable

source of energy and such sources are comparatively less pollutant. It has also come to

light that 45% of the sample companies have proper policy for reduction of industrial

waste and proper handling of such waste. Industrial waste is one of the major pollutant

elements which not only affect atmosphere but also have adverse affect on the food chain

of biotic and abiotic elements of nature. The reduction of waste generation and its proper

handling is one of important step towards conservation of biodiversity.


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Human resource is another area where the corporate giants are most frequently reported

in their annual reports. Such information is disclosed in directors report under the head

human resource. Out of sample companies 85% Companies have disclosed about number

of employee and various training programmes conducted for them. Employee training is

an activity that fosters their development and enhances the value of employee. It also

benefited the organization by way of increasing employees productivity. 85% of the

sample companies have disclosed information about training facilities. Some companies

have also reported information about employment of disadvantageous group like

schedule caste, schedule tribe, women and physically challenge group. Employment of

such group is an effort to uplift the weaker sections of the society. Eight sample public

sector companies have reported that they are strictly following the Government of Indias

reservation policy in employment however; private sector companies annual reports are

silent in this regard. Other attributes, those are covered by annual reports are employees

health and employees safety etc. Existence of adequate safety devices and continuous

check up of employee health ensures the enterprise to handle exigencies, avoid casualties

and minimise injuries at shop floor. 55% of the sample ( 6 public sector and 5 private

sector ) companies have adopted policy to ensure employee safety at work place and 35%

( 3 public and 4 private sector) companies give due importance to employees heath and

have policy for continuous health check up.

As a part of social responsibility report some companies have incorporated information

about product and service offered by them. Development of product and improvement in

quality of services are some of the important contributions made by the corporate houses

from the macro economic prospective. Such development has positive contribution


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towards the economic development of the country. 95% sample companies (10 public

and 9 private) have disclosed information about product and service they have developed

and offered to their clients. Other area in which companies are giving due weight is

vigilance and introduction of regional language as their official language. Study reveals

that 8 sample public sector companies have formed their vigilance committee to check

corruption in their organization. Checking of corruption is the moral responsibility of

each and every individual. Corruption can destabilize an economy and increases social

tension. However, it is found that none of the sample private companies have taken any

step to combat corruption. The study reveals that all sample public sector companies are

giving due attention for introduction of regional language as their official language so

that they can motivate the people from their periphery area. However, no private sector

companies have disclosed any information about the step taken to introduce regional

language as their official language. Study also reveals that only one public sector

company out of the sample companies has employee representation in management.

Employee participation in management is a way to win employees moral and can

enhance harmonious industrial relation and reduce industrial disputes.Cordial industrial

relations are not only essential for smooth functioning of an organization but also for the

wellbeing of the employees and it also help in building nation. However, it has been

found that Indias corporate bodies have grossly ignored this vital area.

Conclusions:

Corporate social responsibility and its disclosure is an important issue in present

economic environment. Government of India has already welcome the private sector

almost in all areas and gradually privatising the existing government undertakings. On


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the other hand central and the state governments are still not successful in fulfilling the

basic needs of the all sections of people like education and health. The public expenditure

on social sector is to the extent of 46.6% of the total budgetary support; out of which they

are spending 10.7% on education and 3.4% for health, still 28% of total population is

living below poverty line (human development report 2009 p-201). Therefore, the big

corporate giants who are earning high profit have responsibility to do something for the

benefit of the society. Study reveals that corporate bodies have already given some effort

for community development, environment protection, human development etc. It also

comes to light that public sector entities have assumed more such responsibility in many

areas where government have certain policy like employment of disadvantageous groups,

implementation of official languages, reduce corruption etc. However, such social

responsibility and its disclosure is still remain as voluntary in nature, as a results there is

a wide variation in nature and extent of its reporting and most of the disclosures are in

descriptive form rather than in quantitative term. Therefore, it is felt that government

should put forward some guidelines on corporate social responsibility and its disclosure

specifying areas and minimum spending of pre-tax profit on it, by the corporate entities

to have a better result in future.

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Reference:

1. Glautier MWE. and Underdown.B;Accounting Theory and Practice', 5th edition PP. 417 to430, Pitman Publishing;

2. Jawaharlal: Corporate Financial Reporting Theory and Practice: P675-706

Taxmann:2003:


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3. Murthy Vijaya; Corporate Social Disclosure Practices of Top Software Firms in India;

P: 173-188;Global Business Review. 2008.

4. Porwal L.S.; Accounting Theory An Introduction: p445-463 Tata McGrow-Hill Publishing

Company Limited., New Delhi:2004

5. Rao P Mohana; Corporate Social Accounting and Reporting. Edited: Deep & Deeppublication.1999. P-57.

6. Sachar Committee's Report.

ANNEXURE-I

Corporate social responsibility score of Sample companies

Public sector companies Private sector companiesSl

no Name of com SR score Name of the co. SR score1 BHEL 12 HUL 10

2 NRL 13 NESTLE 7

3 MMTC 10 RANBAXY 5

4 CCI 10 TATA STEEL 11

5 ONGC 14 WIPRO 8

6 SAIL 13 TCS 8

7 NTPC 11 INFOSYS 11

8 GAIL 14 JSPL 14

9 OIL 17 ITC 14

10 BRPL 17 RELIANCE INDUSTRIES 11

TOTAL 131 96

AVERAGE OF SR SCORE 13.1 9.6

S.D. OF SR SCORE 2.38 2.45

Documents

Corporate Social Responsibility in India and Its Corporate Reporting Practices