Corporate Social Responsibility and Human Rights

1. Aditya Gogna Corporate Social Responsibility and Human Rights

2. Overview • The Indian Social Responsibility • Case Study - Satyam case • Re-imagining Satyam

3. Indian Social Responsibility National Voluntary Guidlines? The Companies Act 2013 What? Importance? History? Perspective’s 1850-1914 1910-60 1950-1990 1980 onwards • Business • Eco-Socio • Rights based

4. The concept of CSR is not simple to define, various concepts overlap this term. The concept of corporate citizenship, sustainable business, environmental responsibility, social and environmental accountability, social ethics and corporate accountability. • It strengthens company and stakeholder relationship, encourages innovation, mitigates risk. • History - Phase 1 (1850-1914, purely philanthropic), Phase 2 (1910-1960, as social development, corporation responsible to owners,managers,employees), Phase 3 (1950-1990, ‘mixed economy paradigm’), Phase 4 (1980’s onwards, confused CSR)

5. National voluntary guidelines are applicable to all businesses irrespective of size, sector or location. These guidelines were designed with the aim of assisting enterprises to become responsible entities much before the CSR Act (Companies Act -2013) came into force. In fact various propositions from NVG have been taken into consideration for structuring the Companies Act. Contains 9 Principles ranging from transparency and accountability (P1) to respect and promote Human Rights (P5) National Voluntary Guidelines

6. The Companies Act 2013 FEATURES • The provisions of CSR apply to the companies with net worth of 500 cr or more, turnover of 1000 cr or net profit of 5 cr. • An average of the previous three financial years PAT will be considered for calculating the 2% • CSR policy of the company should ensure that surplus arising out of CSR activity will not become part of the business • All companies falling under the provision of Sec135(1) should report the details of CSR initiatives in the directors report on the company’s website.

7. The Act does not provide any penal provision if a company fails to spend the stated amount on CSR activities. The threshold limit of Rs.5 cr net profit for applicability of CSR requirements seems, in comparative terms, to be in lower side vis-a-vis net worth and turnover threshold of Rs. 500 Cr. and Rs 1000 Cr. This may result in companies getting covered under CSR even when they do not meet net worth/turnover criteria. The CSR expenditure shall be taxable apart from a few exemptions. However, there is no clarity yet on these activities. Key Concerns

8. Sec 135 relates to the linking of a company’s profit making with the development of local areas. This is an absurd proposition as it will increase the inter state disparities The rules of the Act make it difficult to pursue strategic CSR-aligned to business strategy- since any expense that can be traced back to financial profits may have to be set aside. CRITIQUE

9. The Satyam Scandal

10. “It was like riding a tiger, not knowing how to get off without being eaten” –Phil Fersht

11. What went wrong? • Inflated figures for cash and bank balance of INR 5,040 cr. (as against INR 5,361 cr. reflected in the books) • Operating Profit were artificially boosted from the actual 61 cr. to 649 cr. • Satyam also showed an interest earning of INR 376 cr. that was fictitious. • It was one of the biggest accounting fraud in Indian history and raised pivotal questions regarding corporate governance and how we perceive corporations. • Raju used dummy accounts to trade. Violated insider trading norms.

12. Effects of the disaster? • Investors - Panicked as stock plummeted and class action suites were filed. • Employees - Stranded in many ways, morally, financially, legally and socially. • Customers - Shocked and worried about the project continuity. • Indian IT companies scrutinised. Unethical business practices. • Jobs were lost, money was lost, the entire system took a hit.

13. Satyam’s shares fell to 11.50 rupees on January 10, 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In the New York Stock Exchange, Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US$1.80. Thus, investors lost $2.82 billion in Satyam (BBC News, 2009). Unfortunately, Satyam significantly inflated its earnings and assets for years and rolling down Indian stock markets and throwing the industry into turmoil (Timmons and Wassener, 2009). Criminal charges were brought against Mr. Raju, including: criminal conspiracy, breach of trust, and forgery. After the Satyam fiasco and the role played by PwC, investors became wary of those companies who are clients of PwC (Blakely), which resulted in fall in share prices of around 100 companies varying between 5‐15%. The news of the scandal (quickly compared with the collapse of Enron) sent jitters through the Indian stock market, and the benchmark Sensex index fell more than 5%. Shares in Satyam fell more than 70%

14. Re-imagining Satyam, 2016 • Legal Effect - UN Guiding Principles (state duty to respect, business corporations to respect and right to remedy), National Voluntary Guidelines, Role of business v. Role of State, The Companies Act 2013, Active Judicial and legislative intervention, aspects of corporate Law. (https://www.youtube.com/watch?v=BCoL6JVZHrA) • Social Effect - Role of Social Movements (NGOs, Civil Movement, Business and human rights agenda), • The Sanction theory - ‘Oliver Wendell Holmes’ • Ambiguity in law a recipe for disaster? Alternate? • Relationship between the aforementioned ?

15. Guiding Principles core principles 1. State Duty to protect Human Rights against Human Rights abuses by third parties. 2. Corporate responsibility to respect human rights. 3. Effective remedies? ‘The forgotten Pillar’ What is a remedy? Civil, Criminal, Grievance mechanism. Issue with remedies? ‘Passive Construction’ in the guiding principle. Who is responsible?

16. Opinion The Hypocrisy - Long after the details of the scam had been made public, one could still read homilies about the great contribution to society that this corporate giant is making, together with the whole complex network of organisations that it has floated and partnered with the best of professionals in the field, to be a ‘responsible corporate citizen’. And listed against each of these sister organisations is a long list of global awards to assure us that our future is in very safe hands. On these pages you can find C K Prahlad, Abdul Kalam, Thomas Friedman, and Sam Pitroda, lauding the contributions of Satyam, and/or the organisations floated by it. Universities like Carnegie-Mellon and Stanford have collaborated with some of the NGOs floated by Satyam. Some more surfing will reveal that chief ministers from Uttarakhand, Gujarat, Tamil Nadu queued up to sign MOUs with Satyam and its offspring. Even the then finance minister, P Chidambaram, is prominently featured awarding Satyam Foundation the TERI corporate award for Corporate Social Responsibility.

17. Alternate Retribution and Rehabilitation - Satyam enabled the best water management schemes, rural uplift, urban development, health services and so on, but surely that is beside the point. What matters – the only thing that matters -- is what Satyam did with its IT business and how it utilised the massive resources that it accumulated through its huge business operations. Justified? Not a Strong Precedent - Easy escape Most Important - Its normal, Rational Apathy. Question - Should the corporate entity be responsible or should the promoters, shareholders be responsible ? Where does the responsibility to respect human right lie? Philosophical question and not a legal question. Creation of Spectacle - Minor issues are not addressed effectively.

18. Question? • Where do we stand presently with respect to Human right and development in the Indian context? • How do we handle the problem of an unorganised market? • How do we ensure accountability? • After a particular threshold, do human rights get saturated?

19. References 1.https:www.academia.edu6298587CORPORATE_ACCOUNTING_SCANDAL_AT_SATYAM_A_CASE_STUDY_OF_INDIAS_ENRON 2. http://www.ipsnews.net/2009/01/india-satyam-scam-questions-corporate-governance/ 3. https://www.whistleblower.org/satyam-scandal 4. http://www.norwayemb.org.in/News_and_events/Business/Corporate-Social-Responsibility-CSR-in-India-2014/#.V47CFyQ-CYU 5. http://www.hrpub.org/download/20150510/UJIBM4-11603564.pdf 6. https://www.theguardian.com/sustainable-business/india-csr-law-debate-business-ngo