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Should Government Make It Compulsory to Do Good?

03/06/2014 11:36 BST | Updated 30/07/2014 10:59 BST

Corporate Social Responsibility (CSR) has changed a lot in the past few years. Taking a view on how your organisation affects the environment and community around it, rather than focusing solely on shareholder return, has moved from the fringes to mainstream of executive policy-making.

Even the economic crash of 2008 did not derail the idea that business leaders need to think beyond the balance sheet alone. But should this requirement to do something for society be mandated by law?

It's something that legislators in India have decided should be compulsory. A new CSR law demands that all companies create a CSR board to examine their activities and how they affect society in general. Companies will also be forced to direct 2% of their net profit to CSR activities.

This is the first time I have heard of a government compelling companies to engage in CSR by law, although the penalties for not doing so are still unclear, and this presents some interesting challenges.

When executives initially think of CSR, they usually imagine philanthropic activities, giving money to charities or offering the time of their employees to help out in community activities. This is all very well, but now that Indian companies are being forced to divert some attention to CSR, perhaps they could think strategically about what might really make a difference?

For example, pharmaceutical companies might divert more time and effort to researching new low-cost drugs, IT companies might offer to develop systems for NGOs, retailers might offer their marketing expertise to charities. The list of potential opportunities for companies to do good by offering their expertise - rather than just donating some cash - is endless.

But this does lead us to the underlying moral or philosophical question - what is a company for in the first place?

The business-focused answer is simple; a company is an organisation that should maximise any return to stakeholders. It's there to make a profit for the owners. But companies employ people and people live in towns and cities and those same people are affected by the way that companies operate in their environment. So a more holistic view might be that companies should be there to earn a profit by offering services or making products, but they also need to add something to the society in which they operate.

Most companies today know this already. Any big company will already have an active CSR programme and even smaller companies will get involved in community or charity activities in some way. It's really just good business sense to be a good corporate citizen.

So should governments make CSR compulsory? In the Indian example, it's just 2% of profit after taxes are paid so it's at a level that most companies could realistically bear. But isn't CSR one of those initiatives that only works if the company owners really want it to?

I still need to be convinced that compulsion would work. I can't see any company making a difference to their environment if they are forced to take those measures by a government agency - it will just be seen as a 2% hike on taxes. But time will tell - the Indian experiment could be repeated globally if it is proven that this really does create a catalyst for change.