A case against punishing non-compliance of CSR guidelines (Mint)

Mains Paper 4: Ethics
Prelims level : Not Much
Mains level : CSR and its importance

Context

• To mandate that private firms donate a part of their revenues to charitable causes is to profoundly misunderstand both the social responsibility of corporations and the meaning of the word donation.

Key arguments highlighted against punishing non compliance

• The fundamental social responsibility is to generate wealth for their shareholders in a law-abiding, ethical and sustainable way.
• They generate surpluses for society, provide consumers with goods and services that they need, create employment, purpose and dignity among workers, and strengthen the nation.
• A profitable, well-run corporation does more for India and its people than any charity could possibly do.
• Government through taxation to providing public goods like education, public health, safety and environmental protection etc.
• The government should not to pour more money into loss-making airlines, run soap companies, employ a salt commissioner and subsidise the undeserving in numerous ways.
• Philanthropy is a private matter it is up to the individual to decide whether, how much and who to give to. The government can encourage this—through tax deductions, public acclamation and moral suasion—but has no business intervening in those decisions.
• In other words, shareholders and employees, as individuals, should be giving money to causes that they like. The right role and the right balance between corporate profits, government taxes and individual charity promote social welfare.

Why CSR is mandatory?

• Allocate funds into activities that a government of a low-income democracy cannot.
• Faced with immense developmental challenges, our governments cannot easily justify allocations for world-class art galleries, museums, theatres, sports facilities, research institutions and so on.
• Individual philanthropy and CSR can support causes that democratic politics won’t allow the government to.

Limitations

• The bulk of CSR spending is going into education, health, rural areas, environment and so on. Already the government is spending hundreds of lakhs of crores for the same purposes.
• Corporate executives are unable to decide on the best social use of CSR funds because they are not equipped to do so.

Way ahead

• The right role and the right balance between corporate profits, government taxes, and individual charity promote social welfare.
• Do away with mandatory CSR, lower corporate taxes, and introduce tax deductions for certain activities that the government wishes to promote.

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Prelims Questions:

Q.1) With reference to the ‘Singapore Convention on Mediation’, consider the following statements:
1. Recently the Union Cabinet has approved the signing of the United Nations Convention on International Settlement Agreements resulting from mediation by India.
2. It provides a uniform framework for the enforcement of international settlement agreements resulting from mediation and for allowing parties to invoke such agreements.

Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both
D. None

Answer: C
Mains Questions:
Q.1) Why choose such an expensive way to launder our conscience when simpler methods—like reducing taxes to promote growth have proven to be a lot more successful in improving the lives of our people?