Sunday, November 11, 2007

The business of social responsibility

Any voluntary measure from the private sector will be fruitful only when there is a firm legal and policy regime

SANTANU SABHAPANDIT,The Hindu 11November 2007

Recent developments surrounding the operation of India’s largest foreign direct investor in the mineral sector, POSCO, in Orissa are indicative of the extreme conflict situation that exists on the ground. Incidents of violent protests and kidnapping of company officials can be seen as a manifestation of deep distrust and frustration that fills the general psyche of those living in one of the poorest parts of the country, bearing the brunt of development activities th at offer little to their needs.

Breaking the law cannot be justified, but it is indeed doubtful if criminal law alone can take care of a situation that the company is facing today. Clearly, social and economic interests are once again at loggerheads. Here is, however, an opportunity to recognise the finer linkages between business, governance and society.

What are the policy options that we have to respond to such a situation? It must be noted that we need private sector participation in the mining sector and the proposed new mining policy is trying to promote this. Beyond this, there seems to be a reliance on voluntary measures when the High Level Committee recommendations refer to the sustainable development framework, developed by industry association ICMM and the IUCN, in addressing social issues such as environment protection and meeting local needs.

Voluntary measures — e.g. the concept of corporate social responsibility (CSR) — are gaining ground in corporate strategy discussions or policy considerations in general.

There are a number of studies that show positive business outcomes of such measures, which in turn underwrite their reliability. However, the definition of CSR is still not free from controversy, as any prima facie drift from the profit-maximising objective by the corporations is believed to be unrealistic and seen with suspicion. From industry’s point of view, besides the economic, political or ethical underpinnings, CSR is increasingly becoming a necessary licence to operate within society.

Objectively, a company would be legitimate in carrying out its activities if it has received necessary approvals from the authorities to start operation and as long as it complies with the relevant laws during their operation. Also legitimate is their profit-maximising motive. There is perhaps no legal justification in the expectation that the company should carry out socially beneficial measures beyond what is required by law.

Any such measures undertaken would finally be led by individual business concerns of the company and would remain in the sphere of volunteerism. Yet if a company has to face a situation where it cannot initiate or carry out its ‘legitimate’ operation, it is doubtful whether a concept like CSR would at all be useful.

Voluntary measures cannot replace duties established by law or policy by the government. It is more so when the government needs to recover its credibility in public perception. Even from a responsibility point of view, the government, whether at the State or Central level, has much to undertake.

It cannot be denied that mining operations themselves are to be blamed for the distrust and suspicion that is pervading the general perception. Given that the public sector undertakings account for more than 80 per cent of the total value of mineral production of all minerals excluding atomic minerals, it must own responsibility for the externalities of its production process.

However, undertaking both regulatory and production activities simultaneously, the government subjects itself to a situation where likelihood of violation or dilution of statutory requirements is higher. This can, to a large extent, explain the public sector’s greater responsibility in nurturing the distrust among project-affected people in the mining sector.

The policy options in the hands of the government to address the situation are by and large obvious. Efforts are being made to address concerns of land acquisition and consequent rehabilitation policy for project-affected people. What needs to be emphasised is that such efforts deserve the additional thrust from business considerations that the policy is trying to promote.

What should promote a more proactive stance from the government is the fact that social responsibility is fast becoming a sine qua non for business operations and consequently for private sector investment. And only the government can provide the minimum standards through appropriate policy measures. Any voluntary measure from the private sector would be feasible and fruitful only when there is a firm legal and policy regime that ensures the basic minimum to society.

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