By Mallika Mahajan & Pawan K Sinha
In 1933, when Joseph Strauss, the engineer of the Golden Gate Bridge, provided hard hats and safety nets below the bridge for workers, it was unusual because, at that time, worker safety was the last priority. In 1971 the Ford Motor Company – to compete with Japanese subcompact cars – produced the Ford Pinto. He built the Pinto in 25 months versus the average of 43 months to design and build a typical car. However, they completely overlooked the safety angle. Ford marketed the Pinto despite the high risk it carried of igniting on impact, often trapping occupants inside. Ford could have fixed the Pinto for $11 per car, but that would have affected their profits too much. Pinto was not recalled by the National Highway Traffic Safety Administration until 1978. In various lawsuits against him, Ford argued that they had no obligation to make the Pinto safer than the law required. demanded, even if it caused deaths.
Fast forward to 2021, corporate social responsibility (CSR) takes precedence over profit maximization. ExxonMobil, a major oil and gas producer, is spending $3 billion on carbon capture as a method of environmental sustainability and cutting spending on new rigs and focusing on higher-yielding fields bred in places like Guyana and the American Permian Shale Basin.
Corporate actions were in step with the times. Nobel laureate Milton Friedman dominated in the 1970s, whose doctrine was simply that corporate social responsibility is to increase profits. In 1994, John Elkington’s “The Triple Bottom Line” approach became prevalent, according to which companies should not only be concerned with profits, but also with the environment and society. In 2011, Michael Porter and Mark Kramer caused a stir when they suggested that companies should create shared values (CSV), also called the third generation of CSR. Businesses are committed to improving the social context in which they operate, thereby achieving better business results. Nestlé practiced CSV when it sent a team to study malnutrition in Indian children. After studying the culinary and food customs of rural households, the team concluded that spices were an optimal vehicle to mask the bad taste of essential micronutrients: iron, iodine and vitamin A. Nestlé launched the Maggi Masala Magic, a micronutrient-enhanced spice product at a special price. for low-income consumers in India at `3. It has become a real revenue generator for Nestlé.
The authors argue that it makes business sense to incorporate anti-corruption as a CSR activity. Over the past two decades, law enforcement has become more focused on the supply side of corruption, as more and more public goods are provided by the private sector. Rapid privatization and service delivery through commercial entities have shifted the dots of corruption into the hands of the private sector. Until the end of the 20th century, paying bribes in developing countries was considered a normal business model and paying bribes abroad was even tax deductible in some developed countries. Since the 1990s, companies have been required to comply with foreign and domestic laws against corruption. India’s Prevention of Corruption Act 1988, as amended in 2018, criminalizes the offer of bribery. The United States, United Kingdom, and OECD countries have prohibited engaging in corrupt practices, even in foreign countries. The United States imposed more than $1.7 billion in such sanctions in 2010, 80% of them against non-US companies. These countries create liability for parent companies if anyone associated with them, including affiliates and associated third parties, pays a bribe to obtain a commercial/business advantage for the company. The world’s multilateral development banks (MDBs) agreed in 2010 that if one MDB declared a company ineligible for public procurement because of fraud and corruption, all other MDBs would do the same. According to the World Bank, corruption adds 10% to the cost of doing business and adds 25% to the cost of public procurement. This diverts resources from legitimate investments and decreases efficiency.
These factors should encourage companies to move beyond “das Kopfkino” or mental speculation and into concrete action.
In India, CSR expenditure is legally mandated under Section 135 of the Companies Act (CA) 2013. It requires certain for-profit companies to spend 2% of their profits on CSR. In order to avoid abuse, Annex VII also provides for activities for which CSR funds can be used. The authors recommend that anti-corruption activities such as training and organization for it be included in Annex VII of the CA, 2013. Additionally, at least 50% of the training and organization anti-corruption activities should be mandatory for segments of society such as local NGOs, journalists, grassroots activists. The authors advocate a synchronization of CSR with anti-corruption activities which is the need of the present times caused by the evolution of national and international law as well as public sentiment.
To sum it up, we use these lines from a Bob Dylan song, “the waters around you have grown….if your time for you is worth saving, you better start swimming, or you’ll sink like a stone For the times they change.
Mahajan is Chief Commissioner, CBIC, and Sinha is Director, International Anti-Corruption Academy, Austria