January 05, 2010
Indian Government Issues Voluntary Guidelines for Corporate Governance and Corporate Social Responsibility
by Robert Kropp
At the conclusion of the first India Corporate Week, the Ministry of Corporate Affairs issues
guidelines intended to encourage best practices in corporate governance and corporate social
Asserting that “the business sector also needs to take the responsibility of exhibiting socially
responsible business practices that ensures the distribution of wealth and well-being of the
communities in which the business operates,” India’s Ministry of Corporate Affairs issued Voluntary
Guidelines for Corporate Social Responsibility, the intention of which is to encourage Indian
corporations to acknowledge the need for observance of corporate social responsibility (CSR).
The guidelines were issued at the conclusion of the first India Corporate Week, which is
planned to be a monthly event. Also introduced at the event were Corpora
te Governance Voluntary Guidelines, which are intended to help create a “system of transparent
and accountable corporate functioning.”
The CSR guidelines state that the CSR initiatives
of Indian companies should become integral parts of overall business policy and aligned with
business goals. The guidelines set out six core elements for companies to address.
Companies should engage with all stakeholders, including shareholders, employees, customers,
suppliers, project affected people, and society at large, to inform them of inherent risks as well
as strategies to mitigate them.
In order to function in an ethical manner, companies
should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.
The CSR policies of companies should fully respect the rights of workers in the areas of
workplace environment, career advancement, and freedom of association. Furthermore, companies
should not employ child or forced labor, and should maintain equality of opportunities without
Companies should respect human rights for all and avoid complicity with
human rights abuses.
Companies should adopt sustainable environmental policies that
prevent pollution, recycle, manage and reduce waste, and manage natural resources in a sustainable
manner. Corporate environmental policies should also address the challenges of climate change by
adopting cleaner production methods and promoting energy efficiency and environmentally friendly
Finally, “companies should undertake activities for economic and social
development of communities and geographical areas, particularly in the vicinity of their
In order to facilitate implementation of the CSR guidelines, “companies
should disseminate information on CSR policy, activities and progress in a structured manner to all
their stakeholders and the public at large through their website, annual reports, and other
communication media,” according to the report.
The need for improved CSR performance was
documented in a 2009 report from Karmayog, a
Mumbai-based online organization, which found that while 51% of Indian companies practice CSR in
some form, only 2% publish a separate sustainability report, and only 3% report the amount they
spent on CSR.
And in a December report by the Emerging Markets Disclosure (EMD) Project of
the US-based Social Investment Forum
(SIF), Indian companies were among those in emerging markets with the lowest disclosure rates
on CSR reporting.
In her speech at India Corporate Week, Indian President Shrimati
Pratibha Devisingh Patil recognized that India is “one of the largest agrarian economies of the
world,” in which “agriculture provides employment to around 60% of the country's workforce and is
contributing about 18% to the Gross Domestic Product.”
The President said, “Through a
sense of social responsibility, the corporate sector can contribute to rural development.” She then
outlined a number of ways in which corporations can do so.
“I call on corporate leaders
to voluntarily come forward to partner with Government in mission mode programs, for the provision
of basic infrastructure facilities in rural areas,” she said. Corporations could also “consider
setting up a dedicated fund for entrepreneurship development and capacity building among farmers.”
The President continued, “The private sector could invest in storage, market terminals,
cold chains and grading facilities.” She also called on information technology (IT) companies to
help the Government in creating IT networks in villages throughout India, and also for support for
environmentally friendly technological innovations.
The guidelines for corporate
governance include calls for independent boards of directors, separation of the positions of Chief
Executive Officer and Chairman of the Board, executive compensation in which performance-related
remuneration should form a significant proportion of the total compensation, and disclosure of a
critical risk management framework that identifies risks as well as strategies to minimize them.
In his Preface to the Corporate Governance Voluntary Guidelines, R. Bandyopadhyay of the
Ministry of Corporate Affairs stated, “Sound and efficient corporate governance practices are the
basis for stimulating the performance of companies, maximizing their operational efficiency,
achieving sustained productivity as well as ensuring protection of shareholders’ interests.”
In another 2009 report, commissioned by the International Finance Corporation (IFC), India was found to have the
lowest standards of environmental, social, and governance (ESG) implementation of the five emerging
market countries surveyed. In particular, active ownership of Indian companies was found to be