Corporate Governance Assignment

Indian Institute of Management, Kozhikode

Executive Post Graduate Program (ePGP) 2011

Corporate Governance Assignment

CSR and Sustainability in Indian industry

Submitted to: Prof.

Submitted by: Mukesh Kumar Rai

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Date: 02 June 2011

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Table of Contents
ISSUES COVERED UNDER CSR INITIATIVES RATIONALE FOR SELECTION OF CSR INITIATIVES PERSON RESPONSIBLE FOR CSR IMPLEMENTATION (IN PER CENT) POSSIBLE BENEFITS OF CSR (IN PER CENT) EXAMPLE OF CSR - TATA GROUP EXAMPLE OF CSR - INFOSYS EXAMPLE OF CSR ITC EXAMPLE OF CSR - BILT EXAMPLE OF CSR - HDFC ACKNOWLEDGEMENT REFERENCES 6 6 7 7 8 9 10 11 12 13 13

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Corporate Social Responsibility an introduction Corporate Social Responsibility (CSR) is the commitment by business to behave ethically and contribute to economic development while improving the quality of life of workforce and their families as well as of the local society. Looking at the individual words and their contextual meaning: Corporate organized business Social dealing with people/ society Responsibility accountability between corporation and society CSR is not charity. Charity means selflessly donating money, effort, time for needy. CSR is also aiming at social cause but is not a total selfless act. At one end of the spectrum, CSR can be viewed simply as a collection of good citizenship activities being engaged by various organizations. At the other end, it can be a way of doing business that has significant impact on society. Some might say that it is easy for corporate houses to support CSR when the economy is growing at 8-9 per cent. The real test is what happens to CSR budgets during an economic downturn. Most villages in India need basic infrastructures like schools, medical facilities, vocational centers, parks, computer centers, counseling centers for employment. This needs the cooperation of NGOs, government organizations and corporations that can together create complete and empowered villages. With the involvement of more and more companies, a sense of competition would arise as they would eventually vie for honors that would create a win-win situation for all. In the context of CSR, another very important issue is Sustainability. A very recent move by the Ministry of Company Affairs deserves a special mention here. The Ministry of Corporate Affairs (MCA) has taken the "Green Initiative in the Corporate Governance" by allowing paperless compliances by companies through electronic mode. This move by the Ministry is welcome since it will benefit the society at large through reduction in paper consumption and would

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contribute towards a sustainable greener environment. (The communication from two listed companies in this regard, can be seen in the annexure). In 2008, for the first time in India, a move to measure performance of businesses in sustainable development was launched and the measure was termed Sustainable Development Index (SDI) Motivation for Corporate Social Responsibility Because of the growing size and power of multinational corporate houses, bond rating agencies and investment funds are exerting increasing influence. In particular, they are demanding an accounting for non-financial measures of value creation as they seek to determine risk premiums. These include an assessment of CSR activities, as well as governance practices, management of intellectual capital, and transparency in reporting. The FIIs now consider CSR activity when deciding whether to invest in public traded companies. CSR Virtue Matrix It depicts the forces that generate CSR Civil foundation CSR at most meets the societys baseline expectations. Instrumental CSR serves the cause of maintaining or enhancing shareholders value. Frontier Innovations in CSR Intrinsic CSR practices are a result of behavior towards advancing corporations strategy

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Objectives of CSR Policy CSR policy aims to uphold commitment to complement the efforts of the Government in the nation-building process. The policy aims at providing localized rural employment and livelihood opportunities to empower rural communities. It also aims at improving the lifestyle of rural people. The policy aims at creating business leadership ensuring social and environmental sustainability in a responsible manner. . The policy adopts triple bottom line accounting methods expanding the traditional reporting framework to take into account environmental and social performance in addition to financial performance. The policy aims to create sustainable economies and transform stagnant lives into active partnerships through synergized proactive handholding in areas of infrastructure, education, training, health and environment. The policy also aims at fostering innovation by partnering with Indian universities and providing digital inclusion for people who do not have access to Information and Communication Technologies (ICT). The policy pledges to work with international communities towards mitigating global, human and environmental concerns. Times foundation has done a survey on CSR in India and 4 important conclusions from the survey are shown below:

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Issues covered under CSR initiatives

Rationale for selection of CSR initiatives

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Person Responsible for CSR Implementation (In per cent)

Possible Benefits of CSR (In per cent)

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Example of CSR - Tata group It would be relevant to start with a quote from Jamshedji Tata The Tata credo is that give back to the people what you have earned from them. Moreover for any business to sustain in the long run they have to look beyond business. Tata group is considered a pioneer in CSR initiatives and has played an active role in socioeconomic development of India. 63% of the equity capital of the parent firm Tata Sons Limited is held by Tata Trust, which are philanthropic in nature. The Tata Business Excellence Model (TBEM) integrates social responsibility into the framework of corporate management. All social service departments in Tata companies have annual programs and budgets and all this is aligned to MDs Balanced score card. Tata Steel was ranked 9th (as a Level 4 CSR Company)in a rating done by Karmayog of 1000 largest Indian Companies, being the highest rating accorded in 2008. Some prominent CSR initiatives of Tata group: Tata Steel Rural Development Society (TSRDS) About 7000 villages around Jamshedpur and Orissa are covered by this program and the issues like education, irrigation, adult literacy, vocational training is covered. Community Development and Social Welfare Department (CDSW) carried out by Tata Steel for medical and health programs, blood donation drives. Tata Council for Community Initiatives (TCCI) commitment to the welfare of the community. It is a central body that acts as a facilitator for the entire groups social initiatives. While the Tata group companies may continue to provide health services, education and other tangible benefits, its focus is more on building self-reliant communities, and working towards sustainable livelihoods. For this the company intends to involve volunteers from within the group who will be project leaders. They will be responsible for measuring human impact on a five-point scale of human excellence.

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Sustainability: TCCI (discussed above) is involved in in assisting Tata companies address sustainability reporting as per guidelines set by the Global Reporting Initiative. It is also the focal point for the UN Global Compact in India, which has 42 Tata companies as signatories the highest in the world from a business group. Tata Corporate Sustainability Reporting Initiatives: o Global Reporting Initiative o SA 8000 o UN Global Compact o Tata Index for Sustainable Human Development o Tata CS Protocol

Example of CSR - Infosys Infosys is an interesting example of the new-age CSR. Infosys was ranked 4th (as a Level 4 CSR Company)in a rating done by Karmayog of 1000 largest Indian Companies, being the highest rating accorded in 2008. The company is utilizing its core competence in the area of technology to bring larger good to the community. As a part of this strategy, the company, along with Microsoft, launched a new program in 1998-99, called Computers@Classrooms. As part of this initiative, Infosys has donated 1185 computers to 435 institutions across India. Most importantly, Infosys is working closely with the government to conceptualize innovative ideas that has resulted in the Government of India bringing out three different plans aimed at eradicating poverty through information technology. Infosys employees actively participate in the welfare of the local community through their Development Centers (DCs) in different cities. Project Genesis at Bhubaneswar: This initiative of the Infosys Affirmative Action Program (IAAP) prepares students for a career in the Business Process Outsourcing industry. Helping the visually challenged: by partnering with NGOs and hospitals Notebook distribution: distributing books and stationery to underprivileged children Blood donation: Frequent camps and participation
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Educare: In Chennai, Sneham, the local CSR team, manages a dedicated intranet portal to help employees support education of the children of our housekeeping and security staff. Sustainability: Infosys Sustainability Executive Council (ISEC) oversees the strategic implementation of companys business, social, environmental and code of ethics practices. Sustainability agenda of Infosys focuses on social contract, resource efficiency, green innovation and reduction of carbon footprint.

Example of CSR ITC

Some of the prominent initiatives taken by ITC towards CRS are as below:

e-Choupal : A knowledge portal providing farmers with information on daily prices of a variety of crops in India and abroad, weather forecasts, the latest farming techniques, crop insurance, etc. It enables farmers bargain collectively. ITCs strategic intent is to develop eChoupal as a significant two- way multidimensional delivery channel, efficiently carrying goods and services out of and into rural India. Integrated agriculture development: Facilitation to farmers to form agri-business societies, pool knowledge and resources; improve productivity and quality of crop. ITCs strategic intent is to develop captive resources of certain crops that are essential to business such as leaf tobacco, spices, soya etc. Through this program ITC develops season long collaboration with farmers and intervenes for desired quality crop Women Empowerment: Micro credit for keeping buffer for household expenses or for income generation projects Livestock development ITC collaborates with NGOs to engage small farmers towards scientific practices of increasing cattle productivity. Support to Art ITC promotes arts, Indian classic music, Indian theatre productions Sustainability: Platinum LEED rating achieved by Companys iconic hotel ITC Royal Gardenia in Bangalore for its leadership in green energy & environmental design. This follows a similar rating achieved by the ITC Green Centre in Gurgaon. 31 % of energy consumed by ITC today is from clean and renewable sources such as wind power. ITCs low carbon growth

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strategy also places it in the forefront of corporations that contribute to the goals of the National Action Plan on Climate Change.

Example of CSR - BILT BILT is a leading paper manufacturing company in India and has been at the forefront of CSR in India. It was rated as a Level 4 CSR Company in a rating done by Karmayog of 1000 largest Indian Companies, being the highest rating accorded in 2008.The respective BILT units at the local levels are involved in the CSR activities. The key stakeholders are communities in the periphery of our manufacturing units including suppliers, employees, contractors, truckers and transporters. BILT has specific policies on Environment and HIV/AIDS. Some of the key initiatives of BILT are: Micro entrepreneurships with Rural communities: BILT operates in very remote parts of India.
Most people who live in the periphery of BILTs mills are illiterate or had very modest levels of

education. BILT sees a potential for local level micro entrepreneurship and self employment using the existing resources they have. BILT has looked at skill building sand funding with a result that more than 500 youth and women have been benefitted. CSR in farm forestry: The Farm Forestry initiatives of BILT are aimed to create a sustained livelihood in the periphery of its mills. Farmers around the mill can utilize their unutilized/ degraded land to grow pulpwood and BILT can give a guarantee to buy the pulpwood. BILT has formed Joint Liability Groups (JLG) of these farmers and extended long term loans to them. More than a 1000 of the poorest farmers have been covered through this project. Society For All Round Development (SARD): SARD focuses on focusing on rural communities and promoting their development through participatory, holistic and integrated programs. BILT is one of the companies supporting SARD. SARD is working on many health initiatives (AIDS/ HIV, tuberculosis). SARD also organizes skill enhancement courses on dress designing and tailoring as well as on other handicrafts.

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Partnership with a small NGO for ensuring quality education: Sankalpa Bahu-Udeshiya Sanstha, is a small grass roots level NGO which BILT has been partnering with for the last five years. This is an education program for children between 6 to 14 years almost 7000 children are covered in this. Partnership with Banking and Financial System: Linking the poor to formal system of credit has been a big challenge, since most of them do not have the required creditworthiness needed by the formal banking system. BILTs strategy, in this sphere, has been to facilitate creation of Self Help Groups (SHGs) who can access credit and other financial services from the formal banking system by providing the group guarantee and other group resources as collateral. BILT has formed 504 SHGs till date. This has been a successful initiative and banks are happy to lend as the default rate is close to zero. Partnership with international donor agencies: International agencies like IFC and Intel foundation have been associated with BILT for some time. These associations are beneficial in terms of access and exposure to global best practices in project planning, implementation and monitoring. This also allows BILT to showcase its CSR initiatives internationally.

Example of CSR - HDFC HDFC has been focusing on low cost housing and microfinance. HDFC was ranked 3rd (as a Level 4 CSR Company)in a rating done by Karmayog of 1000 largest Indian Companies, being the highest rating accorded in 2008. Some of the key CSR initiatives launched by HDFC are as follows: Lending for weaker sections for housing: The objective is to provide loans to NGOs and state government agencies towards low-cost rural and urban EWS housing projects. Association for Cricket for the Blind in India: HDFC organizes Zonal, State and National level tournaments wherein several teams from across the country participate. HDFC was approached to sponsor the 2nd World Cup Cricket for the Blind, which was played in Bangalore and Chennai in December 2002.

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Shelter Assistance Reserve: it is a broad spectrum of social causes involving over 110 development agencies and NGOs were supported under the Shelter Assistance Reserve during the year. Sir Shapurji Billimoria Foundation for education: The objective is of undertaking research and training for the promotion of integrated education the concept being that mainstream schools should accommodate children of varying abilities Family Planning Association of India (FPAI): HDFC runs projects all over the country with a network of over one lakh volunteers trying to reach vital health information to the most marginalized communities. ChildLine India Foundation: Across 39 cities, the Foundation has emerged as a unique example of co-operation between government and nongovernment agencies with child welfare being the key focus.

Acknowledgement I would like to thank Prof. for the teachings and explanation of the Corporate Governance

concepts in the class. I would also like to acknowledge the contribution of the websites that augmented the Teachings and helped me prepare this project report. These are mentioned in the reference Section of this project report.

References http://www.csridentity.com/tata/Sustainability%20Reporting.pdf
http://timesfoundation.indiatimes.com http://www.biltcsr.com/ngo_partners.asp?Locat=Society%20For%20All%20Round%20Development%20 (SARD) http://www.karmayog.org/ Annual reports of Infosys, BILT, Tata, ITC

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ANNEXURE

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Sustainability initiative by Ministry of Company Affairs letters from listed companies to shareholders - 2 examples
Coal India Limited (A MAHARATNA COMPANY) Registered Office: Coal Bhawan, 10, N S Road, Kolkata 700 001. 13.05.2011 Dear Shareholder, Sub: Green Initiative Ministry of Corporate Affairs (MCA) has launched a Green Initiative in the Corporate Governance by allowing paperless compliances by the companies. MCA has issued circular nos. 17/2011 dt. 21-04-2011 & 18/2011 dt. 29-04-2011 stating that the service of a notice / document by a company to its shareholders can now be made through electronic mode. In view of the above, Company proposes to send Annual Report (Audited Financial Statements, Directors Report, Auditors Report, etc.,) and documents such as the Notice of the Annual General Meeting, henceforth to the shareholders in Electronic Form. You are holding Companys share(s) in Electronic Form and have registered above mentioned email id in the records of the Depository which has been made available to the company by them. In case you wish to receive the above documents in physical form, please inform us before 21.05.2011 by clicking below mentioned option.* We at Coal India appreciate the Green Initiative taken by MCA and trust you would help implementing the e-governance initiatives of the Government. * Click this link If you want Annual Report & other documents of Coal India Limited in physical form. Thanking you, Yours faithfully, For Coal India Limited (Dr. H.Sarkar ) CGM(F)/Company Secretary

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Godrej Properties Limited Regd.Off: Godrej Bhavan, 4th Floor, 4A Home Street, Fort, Mumbai-400001 May 17 , 2011
Dear Shareholder, The Ministry of Corporate Affairs (MCA) has taken the "Green Initiative in the Corporate Governance" (Circular No.17/2011 dated April 21, 2011 and Circular No.18/2011 dated April 29, 2011) by allowing paperless compliances by companies through electronic mode. Companies are now permitted to send various notices/documents to their shareholders through electronic mode to the registered e-mail addresses of the shareholders. This move by the Ministry is welcome since it will benefit the society at large through reduction in paper consumption and would contribute towards a sustainable greener environment. From your point of view, it will ensure prompt receipt of communication from the Company and avoid situations where physical documents get lost in postal transit. Keeping in view the underlying theme and the circulars issued by MCA, we propose to send all documents to be sent to the Shareholders like General Meeting Notices including the Notices for Annual General Meeting, Annual Report including Audited Financial Statements, Directors' Report, Auditors' Report etc., henceforth to the shareholders in electronic form, to the e-mail address provided by the shareholders and made available to us by the Depositories. Please note that these documents will also be available for download on the Company's website www.godrejproperties.com and physical copies will also be available for inspection during office hours at our Registered Office. In case you desire to receive the above mentioned documents in physical form, please inform us on or before May 31, 2011 by clicking the following link.

.Please note that you will be entitled to be furnished free of cost, with a copy of the Annual
Report of the Company and all other documents required by law to be attached thereto, upon receipt of a requisition from you, any time, as a member of the Company. All your correspondence should be addressed to our Registrar & Transfer Agent at the below mentioned address: We are sure, that as a responsible citizen, you will whole-heartedly support this initiative and will co-operate with the Company in our mutual endeavour towards a sustainable greener environment and brighter living.

Thanking you. Yours faithfully, For Godrej Properties Limited, Sd/-, Shodhan Kembhavi,Vice President (Legal) & Company Secretary.

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