Corporate Law and Social Responsibility

Is the only goal of the corporation that of maximizing profit? No. The legal spectrum is continuously trying to justify the answer by clarifying the meaning of Corporate Social Responsibility by creating a balance between the interests of the shareholders and that of the community and environment in which the corporation operates.



Corporate law concentrates significantly on corporate social obligation. This is otherwise called corporate obligation or corporate citizenship, is a type ofself administrative component where by the organization would screen, check and guarantee its backing to group, law, moral standard and global models. This incorporates perceiving the obligations of business towards shoppers,environment, society, open hobby and different partners. The dynamism of todays corporate world makes it imperative for the legal spectrum to have a consolidated approach in formulating any CSR policy. It has to take into account the specific role and situation of law firms and bars, in particular, in the administration of justice. We see increasingly, clients who expect their lawyers to provide advice on CSR matters. As CSR is a new emerging area of lawyers’ activities, encompassing soft and hard law, a lot of issues need further clarification, in particular, the exact scope of the mandate, the insurance coverage, potential liabilities and their limitation in client agreements.

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Corporate Law and Social Responsibility are Voluntary in Nature

The traditional view in the corporate sector has been to maximise profits at any cost. This view has changed considerably over the years, however, inclusion of law in the area of corporate social responsibility still raises few bows and draws skepticim from the profit hungry, radicals of the top management. To remove this predicament and to facilitate the cange, clarification is required in terms of meaning of CSR. Many non-experts take the literal meaning of each word, such that "corporations are responsible for solving society's problems," instead of the narrower interpretation that "corporations cannot do whatever they want with society" or "corporations are responsible for the impact of their actions on society."

Corporate law includes being responsible and focused on significant social activities. Basically, corporate social obligation (CSR) is a promise for the advancement of the group and society. It is safe to say that you are thinking about how organizations do this? They rehearse it by setting up optional corporate exercises and commitment of corporate assets. In any case, such a promise oughtto be intentional in nature and not obliged under the law. The nation' s topbusiness houses frequently take social activities, for example, starting efforts against Cancer, AIDS et cetera.

Legal Theories 

Taking a legal perspective upon the issue enumerates different conceptions about the purpose of a corporation. There are at least two legal theories of the firm. On one side is the contracts theory, which views the corporation primarily as a set of property or contractual relations; on the other side, the entity theory recognizes the corporation as a concession from society with its attendant rights but also obligations towards society. 

Contracts Theory 

Under the contracts theory, the corporation is a collection of private contracts between shareholders, managers, and others. In this view, the primacy is the contract with shareholders, which allows and conditions all other contracts. From this, it follows under the theory that the corporation should only be governed by the interests of the property owners or the contracting parties. It is up to the bargaining power of each of the parties to the contract to defend their interests; therefore, the corporation should defend the interests of the shareholders. And under the assumption that shareholders, being rational human beings, want more wealth and will never be satiated, the conclusion is reached that the objective of the firm is to maximize shareholder wealth.

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Entity Theory 

Entity theory postulates that corporations operate within the societal purview, it needs the resources that the planet and society can provide in order to carry out its activities, and that it needs society to buy its products and services. The corporation does not operate in isolation. As such, it has responsibilities toward society. It recognises the complexities of the relations between corporations and their surroundings and states that corporation contracts are not explicit and have an implications on its surroundings. For eg. The contract formed with the people living nearby a factory that breathe the same air in which the factory releases fumes as a resultant of the production process. Entity thery challenges the fundamental assumptions of the private contract theory by stating that the firm may be private in the sense that it is owned by private individuals, directly or indirectly, it does not necessarily operate exclusively within the realm of those individuals. As it operates in the public space, it does have public responsibilities.

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Indian Legal approach towards Corporate Social Responsibility

India stands at the forefront in manifesting the role of law in context of Corporate Social Responsibility. The corporate social responsibility (CSR) movement began as a response to advocacy for corporations to play a role in ameliorating social problems due to their economic power and overarching presence in daily life. India has gone further than any other country. In 2013, it enacted Section 135 of the Indian Companies Act prescribing a mandatory “CSR spend of 2% of average net profits … during the three immediately preceding financial years” for all companies meeting specified financial thresholds. In other words, companies “having net worth of rupees five billion or more, or turnover of rupees ten billion or more or a net profit of rupees fifty million or more during any financial year” have to ensure that they spend 2% of average net profits made during the three preceding years on CSR activities. The law also requires that firms, above the threshold, establish a CSR Committee of the Board of Directors. This committee is responsible for formulating the firm’s CSR policy, for ensuring that at least 2% of profits are spent on CSR activity, and for explaining why the firm failed to achieve the target. Schedule VII of the 2013 Companies Act provides an illustrative list of activities qualifying for CSR status for purposes of the mandate.

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The Birla Example 

The Birla Group of organizations is known by all in India. The Birla bunch runs 15 healing facilities in India and 78 schools. They additionally work towards therestoration of the debilitated persons and aided more than 5000 incapacitatedindividuals. Their restorative projects have helped more than 100, 000 patients,which incorporates more than 15, 000 kids, 500 waterfall patients and 2, 000 TBpatients. The Birla Group maintain numerous such activities the nation over andhas received a few towns and gave help to the villagers.

Corporate Law Grows Closer to Human Rights

Today, the worldwide society calls itself a worldwide town. There is more mindfulness among general society about requesting changes and assistance from corporates.Ensuring human rights are a key a portion of CSR as it touches upon differentfeatures of social, financial and natural measurements of corporate action.This might incorporate the privileges of works to get reasonable wages, rightto be dealt with similarly and right to wellbeing and security and fundamentaloffices like safe drinking water. The privileges of customers for protected,dependable and valuable products and administrations, right to get authentic data through promoting or other showcasing exercises.