The Connection Between CSR and Corporate Governance – Conceptually Analysing the

Concepts

Introduction

Corporate social responsibility and corporate governance were conceptualized by western

countries and gradually was exported to the different parts of the globe via activities of
multinational companies. Both of these concepts are related to each other and are used in
business practices. Both of these concepts are philanthropic and altruistic in nature. Under India's
legal system, corporate governance is the vehicle for joining CSR exercises in Indian firms.
Under the Companies Act, the point of convergence of any organization's way to deal with and
execution of CSR is the governing body. CSR in India is a board work that can't be isolated from
an organization's corporate administration.The present article will analyze both of these concepts
individually and then will highlight their inter-relationship with respect to law and regulations.

Corporate social responsibility

CSR is a concept whereby a company voluntarily donates or contributes for betterment of society
as well as environment.The contributions are taken up by the companies through its business
activities and investment.In a way it also plays an important role in sustainable
development.Corporate Social Responsibility is a term widely being used even though related
concepts and terms, such as business responsibility, sustainable development, philanthropy,
sustainability, corporate citizenship, responsible business, triple bottom line,shared value, value
creation, business ethics, socio-economic responsibility, bottom of pyramid, stakeholder
management, corporate responsibility, and corporate social performance. The Companies Act,
1956 as such had no specific provision for CSR related activities but the Companies Bill, 20121
incorporated a provision of CSR under section 135. Section 135 states2 that every company
having net worth of Rs. 500 crore or more, or turnover of Rs. 100 crore or more or net profit of
rupees five crore or more during any financial year, shall constitute a CSR Committee 3
1
Companies Act, No. 18 of 2013, INDIA CODE (2013).

2
Companies Act, No. 18 of 2013, §135(1), INDIA CODE (2013).

3
Companies Act, No. 18 of 2013, §135(1), INDIA CODE (2013).
consisting of not less than three Directors, out of which at least there should be one Independent
Director, to suggest activities for discharging corporate social responsibilities along with
spending at least 2 per cent of its average net profits of the previous three years on specified CSR
activities. The 2019 Amendment4 made some major changes to Sec. 1355 with regards to CSR
Compliances.CSR activities are important to and even expected by the public and they are easily
monitored worldwide CSR activities help organizations hire and retain the people they want CSR
activities contribute to business performance.

CSR Principles & Strategies -

1. Respect for human rights and liberty.

2. Respect for the different perceptions.

3. Diversity & non-discrimination should be the guiding principle.

4. Make some social contribution.

5. Self-assessment,realization & creative thinking.

6. Fair transaction & cooperation.

7. Feedback from the people.

8. Optimistic and value-addition.

9. Long term economic & social development goals.

CSR Activities in the time of covid-19 pandemic -

4
Companies (Amendment) Act, §21, No. 22 of 2019.

5
Companies Act, No. 18 of 2013, §135, INDIA CODE (2013).
The MCA in its circular dated 23rd March, 2020 provided for the addition of expenditure made
towards fighting against COVID-19 to the list of permitted avenues for CSR expenditure by
qualifying companies. While this is correct from an understanding point of view, the notification
technically only states that funds have been spent on various activities related to the World
Health Organization's declaration of the novel corona virus and the subsequent decision of the
Government of India to treat this as a notified disaster and therefore it would automatically enter
the existing points of Schedule VII of the Companies Act 2013. The slight difference is that the
list has not changed and all the expenses mentioned in Schedule VII for the purposes of COVID-
19 are taken into account for inclusion in the CSR activities.

What is Corporate governance ?

The term incorporates how an organization or substance is managed,controlled and considered

responsible to its investors. The issues in regards to corporate administration have just come up
in India during de-regularization of business.India has one of the most mind-blowing corporate
administration laws, however helpless execution combined with favourable to communist
strategies has affected corporate administration. The Indian business scene is described by
concentrated value cooperation, a pyramid, and a passage of assets. By following best
partnership rehearses collaboration among the partners inside the organization growth.

Corporate Governance provisions in the Companies Act, 2013

The passing of the Companies Act 2013 was leading evolution in the area of corporate
governance.The new Act replaces the old Companies Act, 1956 and plans to further develop
corporate administration principles, work on guidelines and improve the interests of minority
investors.

i. A maximum of fifteen directors have to be appointed in a company.

ii. The concept of independent directors (IDs) as a concept has been inserted for the first time in
the company law in India.

iii. The new Act requires that no company should enter into RPT contracts pertaining to sale,
purchase or supply of any goods or materials.
iv. The new Act has mandated the companies to spend on CSR related activities during its profit
making year.

v. A listed company cannot appoint or reappoint an auditor for more than one term of five
consecutive years,

vi. In the new Act, there is significant transformation in non-financial annual disclosures and
reporting by companies as compared to the earlier format in the Companies Act, 1956.

vii. For the first time, a provision has been made for class action under which the order passed
by the Tribunal shall be binding on all the stakeholders including the company and all its
members, depositors and auditors.

Relationship between CSR and Corporate Governance

The conceptualization of CSR was, at first, absolutely as far as generosity or noble cause.
Nonetheless, the post-advancement stage has seen a principal shift from this altruism based
model of CSR to a partner support based model. Besides, CSR is progressively getting melded
into organizations' Corporate Governance rehearses. Both Corporate Governance and CSR centre
around the moral practices in the business and the responsiveness of an association to its partners
and the climate in which it works. Corporate Governance and CSR brings about a superior
picture of an association and straightforwardly influence the presentation of an association.Over
the previous decade, the assembly of CSR and corporate administration in India has become
fundamentally more articulated. Since the last part of the 1990s, India has gone through earth
shattering changes in its corporate administration standards 6. India's corporate administration
change endeavours were prodded by the necessities of its quickly growing economy, including
endeavours to internationalize India's capital business sectors to draw in both unfamiliar and
institutional investors.7 India's corporate administration changes started through the presentation
of intentional investor centred administration norms proposed by driving industry groups. In
resulting years, the Securities Exchange Board of India (SEBI), the country's essential capital
6
Tonello (2013), p. 9

7
Van Zile (2012), p. 271; Kerr, Janda and Pitts (2009), p. 515
business sectors controller, and the Ministry of Corporate Affairs (MCA) have attempted to
move India's corporate administration system toward a thorough arrangement of compulsory
prerequisites. These endeavours finished in a thorough correction of India's essential corporate
law, the Companies Act 2013.

It is relevant to specify here that straightforwardness, divulgence, manageability, and moral

conduct is a focal subject in both CSR and Corporate Governance. Further, it is beneficial to
make reference to that CSR depends on the idea of self-administration which is identified with
the outside legitimate and administrative system, though Corporate Governance is the greatest
control component inside which an organization takes its administration choices. Besides, the
destinations and advantages of CSR and Corporate Governance are comparable in nature, some
of them are expressed thus underneath:

-Revamping of public trust and certainty by expanded straightforwardness in its monetary just as
non-monetary detailing and subsequently expanding the investor esteem.

-Establishing a solid brand name for the organization.

-Making generous improvement in its relationship with different partners.

-Contributing to the improvement of the district and the general public around its space of
activities.

-Addressing the worries of its different partners in a decent manner to keep a solid market
position.

The connection between corporate administration and corporate social obligation (CSR) is only
one piece of the advancement of corporate businesses. Sustainability, corporate administration,
and social obligation are generally high on the plan for organizations and their directors. Both
Corporate Governance and CSR focus on ethical practices in the business activities and the
responsiveness of an organization towards its stakeholders and the environment in which it
functions. Corporate Governance and CSR results in improving the image of an organization and
directly affect the performance of an organization.While Corporate Governance suggests being
considered responsible for, CSR signifies assessing and the two instruments are progressively
utilized by a risk management system to control their activity.
Conclusion

A reasonable cross-over between this origination of Corporate Governor and the partner
origination of CSR that considers business as capable versus a mind-boggling web of interrelated
partners that maintain and enhance the risk management.Both Corporate Governance and CSR
call on companies to assume their fiduciary and moral responsibilities toward stakeholders. This
act of accountability is crucial for a business to gain and retain the trust of its financial investors
and other stakeholders.It may be seen that, at this point, Corporate Governance is compulsory
under various courses of action analysed herein above. In any case, there is no significant
structure for CSR, it is basically optional. In addition, since Corporate Governance and CSR are
interrelated and comparing to each other, merging CSR courses of action inside the Corporate
Governance construction would be useful for India.

Sources -

1. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3355808

2. https://www.researchgate.net/publication/
227503758_Corporate_Governance_and_Corporate_Social_Responsibility_Synergies_and_Inter
relationships

3. https://www.slideshare.net/YadneshShinde/corporate-governance-vs-corporate-social-
responsibilities

4. https://www.academia.edu/732581/Relation_between_CSR_and_Corporate_Governance