Reflect on India’s new comprehensive approach to corporate law and governance. Because other countries — including a few of India’s fellow BRICS? — may find it attractive.
India is now beginning to implement its Companies Act 2013, arguably far-reaching national legislation regulating board composition and performance for many companies doing business in that country. Much of the Act is intended to generate significantly increased CSR activity.
Chhavi Ghuliani, Manager of Partnership Development and Research at Business For Social Responsibility, has charted prospects for this pioneering corporate governance regulation:
The Act, he reports, “requires that one-third of a company’s board comprise independent directors and that at least one board member be a woman. It also requires companies to disclose executive salaries as a ratio to the average employee’s salary, and it allows shareholders to file class-action suits.
“The provision that has gotten the most attention is the so-called ‘2 percent’ requirement, which made India the first country to mandate CSR.” Ghuliani, in offering five key points related to the law, explains that as a result, the regulated companies (about 8,000 domestic or foreign subsidiaries of a certain size and profitability incorporated in India) are likely to spend an estimated US$2 billion annually on CSR activities. The Act defines CSR as activities on poverty reduction, education, health, environmental sustainability, gender equality and vocational skills development.
However, he points out that the impact may not meet government expectations: “Indian companies still equate CSR with corporate philanthropy rather than considering CSR as a holistic view of the impacts business has on society and the environment through its operations.”
Still, in the best tradition of issues management, corporate leaders around the world will do well to monitor the outcome of India’s Companies Act of 2013.