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Blighted Benevolence - CSR in India
 
By James Crabtree
Financial Times
March 30, 2012

Tata, the Indian conglomerate, provides education and training at an archery academy

To say that Tata Group has a reputation for corporate social responsibility would, in India at least, be to commit a notable understatement.

Drive around any big city and you will spot schools, hospitals, medical research centres and civic institutions funded by Tata. The more than 100 companies that make up the country’s most recognisable conglomerate are part owned by a charitable trust that doled out more than $100m in 2010-11 alone to charities and non-governmental organisations. Ratan Tata, the group’s chairman who is retiring at the end of the year, has a reputation for philanthropic generosity so powerful it borders on the religious.

This seemingly unimpeachable corporate probity goes some way towards explaining the shock last year when the company was dragged into one of India’s raciest corruption scandals, which riveted the public.

The group’s was just a walk-on part, and one that turned on whether it had been pressured into using its charitable arm to invest in medical equipment for a hospital that happened to be in the constituency of a powerful politician – who in turn found himself at the heart of another explosive corruption scandal, and, ultimately, in jail.

Tata strenuously denied wrongdoing, but the incident raised wider questions about the extent to which the good works of India’s largest companies were purely charitable. More importantly, as the concept of corporate social responsibility takes off in the world’s largest democracy, it illustrated the tricky balancing act required to establish corporate good behaviour against India’s unusual backdrop of rocketing growth and deeply imperfect politics.

To ask a business leader in Mumbai or Delhi about the rise of Indian CSR is to elicit an exasperated response. The concept is gaining increasing prominence in the glossy brochures and polished websites of a new generation of companies, but few things irritate Indian executives more than the idea that cajoling business to think about its social effects is a western concept, and one that must be imported to fix their country’s broken corporate culture.

With justification, they point out that large Indian businesses, most obviously the older dynastic conglomerates such as Tata, Mahindra & Mahindra and the Aditya Birla Group, have been pioneers in the field. Birla, for instance, claims to spend around $60m each year on charitable works, running dozens of schools and hospitals, and supporting development work in roughly 3,000 villages. Similar projects are common in a country whose self-evident social needs have long demanded that businesses chip in to support social welfare.

Neither historic nor contemporary CSR efforts in India are entirely charitable, of course. Much of it stems from the need to house, heal or educate workers in industrial facilities. As in the developed world, the concept also tends to be oddly popular among enterprises that have recently been criticised for environmental or social problems. Fast-growing energy and infrastructure outfits such as Vedanta, Essar and Adani are now some of the biggest converts.

India’s ferocious media culture, rising environmental consciousness and powerful anti-corruption campaigns have also played a role, creating a background against which corporate social irresponsibility is much less acceptable. Ever more international businesses are also moving in and bringing their CSR programmes with them. Meanwhile, India’s celebrities are getting in on the act too, with Bollywood actors and Sachin Tendulkar, the cricket player, setting up foundations.

“There is something of a CSR boom going on in India,” says Emily Harrison, executive director and founder of Innovaid Advisory Services, a Mumbai-based company that advises businesses on CSR. “The way it is happening is changing too,” she says, “with a move [away] from a world of corporate philanthropy and writing cheques to NGOs, to one where businesses try to understand and manage systematically how they affect their environment, customers, suppliers and employees.”

Admittedly much of this starts from a low base. KPMG, the consultancy, recently admonished India Inc for its unstructured approach, noting that barely two in 10 large companies had systematic CSR programmes, compared with roughly three-quarters in the west.

This may change soon, given planned legislation to make annual CSR reporting mandatory for large businesses. Last year, further plans were floated to force all large businesses to spend 2 per cent of their net profit on charitable endeavours ­ but the proposal was quietly dropped in the face of fierce protests from industry, as well as campaigners worried about corruption.

Industrial-scale philanthropy

Tata, the Indian industrial conglomerate, has built up its storied reputation for corporate good behaviour through more than a century of programmes providing relatively generous benefits to its workers, and by investing in a wide range of civic projects. The company even constructed a model city around its steel plants, which now houses more than 10m people and bears the name Jamshedpur, after Jamsetji Tata, the group’s founder.

Today, Tata says it invests around $170m a year in corporate social responsibility projects, two-thirds of which is spent by the charitable trust that owns much of the overall group. The rest comes from its individual companies, including Tata Motors and Tata Steel. Projects range from rural irrigation and household nutrition to female literacy, and even the restoration of the tomb of Humayun, the Mughal emperor, in New Delhi.

The Birla group, India’s other long-time corporate giant, also invests heavily, spending around $60m on a mixture of education, healthcare and infrastructure projects. Mahindra & Mahindra, another large conglomerate, runs similar projects, including Project Nanhi Kali, an education programme helping 70,000 underprivileged girls in rural, tribal and slum areas.

India’s CSR scene is no longer just dominated by its older businesses, however. Vedanta, the fast-growing mining and energy group, was listed on the London Stock Exchange in 2005. Facing sustained criticism over its environmental record, notably in the mineral-rich rural state of Orissa, the group has also begun talking up its charitable efforts. It says it spent more than $36m last year on “community investment” programmes, including funding for local computer centres and child nutrition programmes.

Even without compulsion, India’s increasingly healthy CSR industry seemed in full swing on a sunny Saturday in early February, when I entered the lobby of one of Mumbai’s plushest five-star hotels to pay a visit to a large conference marking “world CSR day”.

Walking past a Louis Vuitton shop in the lobby, I headed down to the basement, ending up in a sponsorship area trumpeting the beneficence of many of the largest companies operating in India – from DHL and Bharti to Coca-Cola and ArcelorMittal. A prominent board outside the main ballroom “saluted the contributions” of the nation’s most charitable tycoons, with smiling pictures of Sunil Mittal, Kumar Birla and (inevitably) Ratan Tata.

If jargon is any indication, India’s CSR cadres seem easily on par with their industrialised world counterparts. Serious-faced executives produced numbing talk of “triple bottom lines” and “social metrics”. The day ended with a self-described “glittering awards ceremony”, one of many that now dot the corporate calendar in Mumbai and Delhi.

Yet for all the pictures of smiling children and back-slapping chief executives, the reality of CSR in India can be rather more opaque, as Tata’s problems in 2011 showed. The scandal was brought about by Nira Radia, a prominent lobbyist who worked for both Tata and billionaire Mukesh Ambani’s Reliance group. She had her phone tapped by the tax department for the best part of a year. The resulting “Radia tapes” were leaked to two current affairs magazines in 2010, and the transcripts published online. The files exposed a murky world in which powerful behind-the-scenes go-betweens pushed deals and fixed problems in the nebulous intersection between business, journalism and public policy in India.

In one of the transcripts, Radia talks to an aide to Andimuthu Raja, the telecoms minister at the time, who is now in jail awaiting trial for his part in India’s multibillion 2G mobile scandal. The two discussed whether Tata’s trust might provide medical equipment to a hospital in the minister’s home town.

When the tapes aired, Tata produced a speedy public denial. Ratan Tata had been approached about a $4m grant to the hospital, it said, but the trust had ultimately spent only around $600,000 on a scanner. “The attempt that was made by certain quarters to establish that this support was a quid pro quo has since been disproved,” a spokesman told the Financial Times.

Tata’s statement also stressed “a condition of such grant support is that the recipient grantee provides free medical services to the poor and disadvantaged sections of the community”. But the impression lingered that, in a country widely recognised for its political infelicities, such corporate generosity was being used as a type of bargaining chip by businesses to respond to pressure from grasping politicians keen to fund pet causes.

“There is a real risk in India that CSR just creates a new kind of patronage network, where one politician runs an educational trust, or another politician wants something done in their constituency,” says Pratap Bhanu Meta, president of the Centre for Policy Research, a respected think-tank based in New Delhi. But Meta says the risks could equally flow the other way, with companies using charitable arms to buy off opposition in local communities, for instance.

Such concern seems especially warranted in a country filled with dynastic, family-owned businesses, whose many charitable foundations are typically run by relatives or friends of the owners, with minimum accountability. Indeed, worries about just this sort of problem were part of the reason moves towards a compulsory CSR system were shelved last year.

There is another danger – that the money will be spent badly. This is partly due to the belief of India’s increasingly assertive new business elite that it can bring special techniques to solving the problems of poverty or education. Speaking at a panel on world CSR day in Mumbai, Bhaskar Chatterjee, director-general of the Indian Institute of Corporate Affairs, remarked on one common problem, where “a company turns up and says ‘let’s build a school’ or ‘let’s build a road’” ­ but without asking local populations what their communities need.

Inefficiency is also an issue, notably in India’s 250 or so state-owned enterprises. Many of these are gigantic outfits such as Coal India; most are also exceedingly badly managed. Nonetheless, many are used by the government to distribute funds to local communities.

“The public sector companies spend lots of money, largely because they are forced to,” says Gurcharan Das, a former chief executive of Procter & Gamble India, the consumer goods group, turned writer and management theorist. “But just as with their own businesses, they manage this charitable money very badly. They are all over the place.” Das sees a glimpse of a more positive future in India’s upper strata of competently managed, less-regulated companies, such as Infosys and Wipro, the technology outsourcers. Both are revered and they and their peers also tend to take CSR seriously. Copy their example and remove the malign hands of the state, Das thinks, and you might just unleash a virtuous cycle of corporate performance and generosity. But if not, India’s CSR boom is unlikely to win the country the corporate reputation it hopes for.