Will the govt’s business responsibility norms improve corporate governance?

Business Standard, June 13, 2012

The guidelines can ensure sustainable corporate commitment to society but insisting on compulsory compliance is tricky

“The guidelines urge firms to integrate responsible business conduct within its core business model, rather than treating the issue peripherally, as a mere PR function”

Notwithstanding the Satyam scandal, the number of cases of corporate misdemeanours hitting the headlines in recent times has seen an exponential increase. There are manifold reasons for this. Greed coupled with unethical behaviour is one, for which there is no solution other than strong disincentives. Political demands is the other, particularly as we see currently in our growing economy, which leads to higher demands for rents and crony capitalism. Vigorous competition is another major driver for such behaviour. Corporations do everything but follow good business behaviour. However, there are still many business houses in India that are widely respected for their value systems, standards and products. This testifies that conducting business in a responsible manner is possible. Alas, there are many bad fish in the pond.

Issues regarding healthy competition, business ethics, transparency and accountability are beginning to find more space in the public policy discourse in India. Growing public pressure by a burgeoning middle class, improved access to information, splendid court actions, sensational audit exposes and enforcement is leading to greater accountability of market players and the administration. It is quite unlikely that cases involving delinquent firms would escape attention anymore.

The government has also provided a significant fillip to the issue by developing an umbrella instrument: the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, popularly referred to as the NVGs. The NVGs provide a framework comprising nine principles for defining responsible corporate conduct. According to the NVGs, the level of responsibility of a firm is gauged by assessing effectiveness of its business model (and practice) in minimising adverse impacts on related social, environmental and economic aspects. It lays considerable emphasis on compliance with applicable rules and regulations. It urges firms to integrate responsible business conduct within its core business model, rather than treating the issue peripherally, as a mere public relations function.

The unholy alliances of health care providers and pharma companies were recently highlighted by the popular TV programme Satyameva Jayate. It got brickbats from doctors and bouquets from consumers, although pharma companies kept mum. At CUTS, we have been working in this area for long and are currently testing the NVGs in these two critical sectors in India – pharmaceutical and private health care – through empirical research in four states. Our findings would contribute towards greater uptake of the NVGs.

NVGs emphasise business responsibilities and are more than corporate social responsibility (CSR), seeking a long-term and sustainable commitment to society. The issue of CSR has received unprecedented attention since late 2010. The Parliamentary Standing Committee on Finance recommended that private sector companies should mandatorily allocate two per cent of their average net profits for previous three years towards CSR programmes. However, there was an uproar and the recommendation is unlikely to fly. Notably, public sector companies are already mandated to allocate two per cent of their net profit to CSR activities.

The three terms: philanthropy, corporate social responsibility and business responsibility have been used inter-changeably in recent discussions and related analyses on the subject. These are three different delivery systems used by business to meet its societal expectations. At one end, there is philanthropy that stems from the idea of altruistic “giving” to society. Business responsibility is at the other end and involves alignments of a firm’s methods of doing business by committing to abide by all applicable rules and regulations at the workplace and marketplace, and for the community and the environment. It comes with a commitment from the top management. Thus, NVGs need to be incorporated in business strategies of firms, and the government should ensure that the concepts are well understood and applied. Only then can business responsibility norms lead to better corporate governance, and corporate citizenship in our country.

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