Corporate Social Responsibility in India and its Corporate Reporting Practices Dr Manoj Goswami

Lecturer, 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

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.

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

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.

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.

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 200708 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.

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.

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 Attributes A. Community development Health care Educational Development of social infrastructure Economic empowerment ( Income generation) Gender Equality Aid govt. and act for national causes Total B. Environmental development Reduction of emission Afforestation Reduction, reuse and recycle Development of renewable source of energy Waste generation and management Total C. Human development Employment Generation( employee no) Employee training development Employment of disadvantageous group Employee safety Employee health Total D. Others Product development Vigilance committee Implementation of official languages Employee participation in management Total Grand total
Source: Annual reports

Public company No 10 9 8 6 4 2 39 7 6 7 4 4 28 9 9 8 6 3 35 10 8 10 1 29 131 P.C %) 100 90 60 60 40 20 ----70 60 70 40 40 ----90 90 80 60 30 ----100 80 100 10 -----

Private companies No 8 8 3 7 4 2 32 8 6 6 5 5 30 8 8 nil 5 4 25 9 nil nil nil 9 96 P.C (%) 80 80 30 70 40 20

80 60 60 50 50 -----80 80 nil 50 40 -----90 nil nil nil ----

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 Corporate profile Directors reports Management discussion and analysis others
Source: annual reports.

Public sector companies 1 8 3 2

Private sector companies nil 5 5 8

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

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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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;
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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 publication.1999. P-57.

6.

Accounting and Reporting. Edited: Deep & Deep

Sachar Committee's Report.

ANNEXURE-I Corporate social responsibility score of Sample companies Sl no 1 2 3 4 5 6 7 8 9 Public sector companies Name of com SR score BHEL 12 NRL 13 MMTC 10 CCI ONGC SAIL NTPC GAIL OIL 10 14 13 11 14 17 17 131 13.1 2.38 Private sector companies Name of the co. HUL NESTLE RANBAXY TATA STEEL WIPRO TCS INFOSYS JSPL ITC RELIANCE INDUSTRIES SR score 10 7 5 11 8 8 11 14 14 11 96 9.6 2.45

10 BRPL TOTAL AVERAGE OF SR SCORE S.D. OF SR SCORE

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