Unit 4: CSR practice and corporate governance

• Internal CSR: responsibilities towards employees — fair wages, health and safety, diversity and inclusion, training, work-life balance, employee volunteering.
• Operational CSR: responsible sourcing, quality and safety of products, energy and resource efficiency, ethical supply chains.
• Structures: CSR committee of the board, CSR policy, implementing agency or foundation, monitoring and impact assessment.

• Responsive CSR: good citizenship and mitigating harm from operations.
• Strategic CSR (Porter and Kramer, 2006): choose social issues that intersect with the business so that social and business value rise together.

• Focus areas: climate action and net-zero targets, renewable energy, water stewardship, waste and plastic reduction (EPR), biodiversity, clean technology.
• Tools: ISO 14001 environmental management systems, life-cycle assessment, carbon footprinting, green building ratings, BRSR environmental disclosures.
• Schedule VII item (iv): environmental sustainability, ecological balance, protection of flora and fauna, conservation of natural resources.

• Applicability (Section 135): companies with net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year.
• CSR committee: at least three directors, at least one of them independent; a private company with only two directors may have a two-member committee, and a company not required to appoint an independent director may form it without one. If the CSR obligation does not exceed ₹50 lakh, no committee is needed — the board performs its functions.
• Spend: at least 2% of average net profit of the preceding three years on Schedule VII activities, with preference to local areas.
• Unspent amount: for ongoing projects, transfer to an Unspent CSR Account within 30 days of year-end and spend within three years; otherwise transfer to a Schedule VII fund (e.g., PM CARES) within six months.
• Disclosure: CSR policy on the website, annual report on CSR in the board's report; impact assessment for companies with obligation of ₹10 crore or more.

• Lessons: link CSR to core competence, involve communities, measure outcomes, partner with NGOs, ensure transparency.

• Evolution: chartered companies (East India Company, 1600) → joint stock companies with limited liability (UK Companies Act, 1844–1862) → separation of ownership and control (Berle and Means, 1932) → modern governance codes (1990s onwards).
• Corporate governance (Cadbury, 1992): "the system by which companies are directed and controlled"; OECD: a set of relationships between management, board, shareholders and other stakeholders that provides the structure through which objectives are set and performance monitored.

Corporate objectives and ownership patterns

• Shareholder primacy: maximise shareholder value (Friedman). Stakeholder approach: balance interests of employees, customers, suppliers, community (Freeman). Enlightened shareholder value: UK Companies Act 2006, Section 172; India's Section 166(2) requires directors to act for members, employees, community and environment.
• Ownership patterns: dispersed ownership (USA, UK — agency problem between managers and shareholders); concentrated/promoter ownership (India, continental Europe, Asia — conflicts between controlling and minority shareholders); state ownership (PSUs); institutional ownership (mutual funds, FPIs).

Need for corporate governance

• Separation of ownership and control creates agency problems.
• Protects minority shareholders and other stakeholders.
• Builds investor confidence and lowers the cost of capital.
• Prevents frauds and corporate failures (Enron, Satyam).
• Ensures accountability, transparency and fairness in decision making.

• French model: mix — unitary or two-tier boards, state and family ownership, cross-shareholdings.