The Indian
Companies Act 2013 has considerably impacted the relationship that
companies used to have with NGOs. From acting as ‘benevolent giver’
to ‘grateful beneficiaries (NGOs)’ the relationship has evolved
to one of partnership and collaborative action. In fact, under the
CSR Rules NGOs are referred to as the company’s “implanting
agency” for CSR activities.
However,
despite statutory and other regulations there is still
lack of understanding, appreciation and trust between Companies &
NGOs. This essentially stems from lack
of clarity of roles & responsibilities on both sides and because
both parties are often unsure
about ‘goals’ & ‘benefits’.
What Is
CSR?
Essentially,
CSR is the process by which an organization thinks about and evolves
its relationships with stakeholders for the common good, and
demonstrates its commitment in this regard by adoption of appropriate
business processes and strategies. Thus, quite clearly, CSR is not
charity or merely an act of giving donations. Yet, many NGOs still
hope that companies will ‘donate’ fund to them to sustain their
‘good work’. This is a ‘myth’ that must be dispelled.
CSR is a way
of conducting business, by which corporate entities visibly
contribute to the social good. Socially responsible companies do not
limit themselves to using resources to engage in activities that
increase only their profits. They use CSR to integrate economic,
environmental and social objectives with the company’s operations
and growth.
The CSR
Rules make it clear that, “CSR activities may generally be
conducted as projects or programs
(either new or ongoing) excluding activities undertaken in pursuance
of the normal course of business of a company.”
- NGOs should apply to the Chairman of the CSR Committee or the CSR Head (if any) of the company. This information can be obtained from the company’s website after studying the company’s CSR Policy & CSR Report.
- It should not be a request for “Donation”. It should be a “CSR Grant Proposal”.
- The NGO should ensure that the project/program that it is applying for meets 3 essential criteria:
- The project/program meets the requirement of “Specified CSR Activity” as listed under Schedule VII of the Indian Companies Act 2013;
- The project/program is in sync with the company’s CSR Policy;
- The project/program as far as possible is in the local area and areas around where the company operates.
- There should be clear ‘grant agreements’ or Memorandum of Understanding (MoU) signed by both parties outlining clear needs, goals, objectives, input, output and projected outcome.
- The budget and budget lines should be very clear but should allow a degree of variance.
- The monitoring and evaluation as also reporting system, including frequency of such reporting should be spelt out clearly.
- Submission of annual reports, both, narrative and financial together with a project utilization certificate by an independent financial auditor would be in good order.
- While CSR spend is not tax deductible as a business expenditure u/s 37 of the Income tax Act, the company can claim tax deduction u/s 80G or 35 AC etc.
- Many companies ask NGOs to raise an invoice and NGOs should feel free to do so, but, these NGOs should ensure that the invoice is raised for seeking “CSR grant instalment for CSR project”
- Some companies wrongly insist on deducting tax at source (TDS) when an invoice is raised. Companies should understand that although a grant is contractual in nature in as much as there are specific, agreed, terms, conditions and program deliverables, a grant is essentially in the nature of a “gift” and therefore TDS would not apply.
- Similarly, because a grant is essentially a “gift”, ‘Service Tax’ would not be applicable.
- Companies should avoid using terms like ‘vendor’ for NGOs. As required under CSR Rules they should be referred to as CSR implementing agencies.
Essentials For Collaborating!
Collaboration
calls for investment of time and energy in the relationship and
making it work. Corporate houses all over the world are realizing
that “money” is not the only corporate resource that they can
provide to social development initiatives. Today, the role of a
grant-maker, be it a company or a corporate foundation, has graduated
from a “giver” (of funds) to an investor in social change and
community development. Voluntary organizations, on the other hand,
are now increasingly being viewed as the investor’s “partner in
change”. The relationship is symbiotic.
Voluntary
organizations have ideas and the capacity to solve problems, but
little or no money with which to implement them. Grant-making
foundations and corporations, have the financial resources but hardly
the time, inclination, skills or the human resource to create,
implement and sustain programs. When the two come together, the
result is a dynamic collaboration.
Like
in human relationships, the corporate-NGO relationship should be
based on equality, mutual respect and trust. Both partners should be
open to new ideas and receptive to constructive criticism.
Grant-makers
should be careful in maintaining their supportive role without
getting involved in implementation. Voluntary organizations should
enjoy the freedom to work according to their own style.
However,
disclosure of information, both as required by law and voluntary
reporting is the most powerful mechanism for public accountability of
voluntary organizations
It
is important for voluntary organizations to re-assess the need for
greater openness as part of their obligation to exhibit leadership in
living up to the highest standards of accountability.
Effective
Communications, good governance, full accountability and transparency
are an integral part of good partnership.
(This article is featured in the latest issue of CAP's quarterly print newsmagazine 'Philanthropy'. To request a copy email us at - connect@capindia.in)
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