3.1.1 CSR trend in Finland
As the evolution of CSR on a global level evolved in different phases, CSR in Finland also has evolved over stages. Mikkilä et al. (2015) divide the development of CSR in Finland in three phases: Industrialization, Environmental awareness, and globalization.
The industrialization phase of evolution of CSR can be split into two sub-phases: (1) Pre-Second World War era and (2) Post Second World War era. The Pre-Second World War era lasted from the period of early 19th century to the start of Second World War.
This phase brought development of trade unions and emphasis towards having work-er’s rights and standardization of daily work time to 8 hours. In this era, individual industry owners used to take voluntary social responsibility for their labors and the immediate society. The Post Second World War era of the industrialization phase last-ed from the end of Second World War to the late 1950s. In this period, the trade union
became stronger. The public sector took the larger social control to provide dedicated commitment towards equal social services for all the citizens (Harmaala & Jallinoja 2012, Juutinen & Steiner 2010). In the second phase of environmental awareness, the focus shifted from worker’s rights to the knowledge that environment has finite re-sources and needs protection from pollutants. This phase was between the 1960s and the 1980s, where there was more scientific proof of the long-term impact of industriali-zation and there was growing public awareness (Harmaala & Jallinoja 2012). This led to the growth of NGOs in Finland. WWF established its very first NGO in Finland in the year 1972. A lot of criticism has been recorded for the paper and pulp industry in this phase. Next, the globalization phase started in the early 1990s and is active to date.
In this phase, the awareness has become stronger and shifted from regional level envi-ronmental issues to a more global level issues such as climate change, biodiversity, the social wellbeing of workers in other countries and natural resources (Hellström 2001).
It has been observed that the involvement of Finnish corporations in CSR activities has been limited after Second World War and government is taking primary responsi-bility of the society. Korhonen & Seppala (2005) identified that the role of Finnish gov-ernment is rather extensive when compared with the role of govgov-ernment in any other Anglo-Saxon countries in managing the social welfare system. From the Post Second World War era of the industrialization phase Finnish public sector has been dominant-ly taking care of social welfare system, and it has been very consistent since then. In Finland because of social welfare management is government’s responsibility, initially there was lot skepticism to implement a public CSR policy but over a period of time a policy was implemented with growing emphasis on globalization (Loikkanen et al.
2007).
The promotion of EU Lisbon agenda, is considered as an unambiguous trigger of CSR in Finland; this brought the thinking of sustainable development, innovation, effec-tiveness, and development through CSR initiatives (Gjolberg 2010). In the recent year, the government has stressed on its views on CSR as voluntary in nature (Midttun et al.
2012). A governmental forum, ‘Committee on International Investment and Multina-tional Enterprises’ (MONIKA), is established by the Finnish Ministry of Trade and In-dustry that promotes the OECD guidelines for encouraging Finnish companies for CSR (Korhonen & Seppala 2005). Although the government is trying to create an infra-structure to promote CSR, the scholars have noticed that there are problems related to lack of information leading the companies to manage CSR unsystematically (Panapa-naan et al. 2003). It is also observed that Finnish CSR public policy appears to be con-strained to the parts that overlap with the Finnish innovation and competitiveness pol-icy model, and little attention is being paid to CSR issues in public enterprises, gov-ernment procurement, or public capital investments (Finskas 2007). However, it is also explored in the literature that the Finnish welfare system is overly getting exposed to the need for economic efficiency and slimming down the budgets (Makinen & Kourula 2014). The public sector continues to take the responsibility for the job to provide so-cial security; but the question is if the government be forced to share the responsibili-ties of the public welfare system with firms because of growing economic instability.
3.1.2 CSR trend in India
Like Finland, India also has philanthropic roots in CSR. The growth of CSR in India can be divided into four stages (Sundar 2000). The first stage, from 1850 – 1914 was the stage of business philanthropy, rich business families considered it as their moral responsibility to take care of the society by setting up trusts and establishments such as schools, colleges, universities and hospitals. The second stage, from 1914 – 1960 was the stage of business philanthropy with a motiva-tion to support the freedom struggle. In this stage, the Indian businesses were enlightened to support various social and cultural causes that allied with the 'nationalist' movement and directly supported the freedom fight against the British rule. The third stage, from 1960 – 1980s was the stage of Socialist India, when there was a decline in the active participation of businesses in CSR activi-ties. It was the era of the ‘License Raj’, where companies had to obtain licenses from government for performing any kind of business expansion. During this time, there was increase in state led development. The fourth stage, from the 1990s till 2013, when the reemergence of business led CSR was observed. Post liberalization in the 1990s, due to low public budgets and extreme social needs, many businesses saw an opportunity of strategic CSR as an option to closely interact with public (Sundar 2000). During this time, many MNCs used the op-portunity to penetrate to the bottom of the pyramid (Prahalad 2006). From 2014, a new stage of mandatory CSR has begun. The new mandatory CSR law under the Companies Act (2013) in India could be marked as the beginning on a new stage of CSR in India.
The Companies Act 2013 of India has replaced the Companies Act, 1956. This legislation was signed by the President of India on 29th August 2013 and is ap-plicable from April, 2014. According to clause 135 of the Companies Act 2013, certain companies subject to their net worth or net profit have to make a man-datory spending of at least two per cent of their average net profits before tax (average of three years profits) towards CSR activities. The directive is applica-ble to only those companies that have a minimum net worth of ₹ 500 crore, or turnover of₹ 1,000 crore, or net profit of ₹ 5 crore. The law is applicable to every company including the holding companies. It is believed that, this act helps to uplift the underprivileged section of the society.
Schedule VII of the act (Companies Act, 2013) clearly provides the specifics and classification about what kind of spending are to be considered as CSR spend-ing. This classification of CSR activities put some limitations on the companies in defining their CSR strategy. According to the Act, every spending for a CSR project should have prior approval of the board based on the recommendations provided by the CSR committee. One-time promotional event such as mara-thons, awareness programs on radio or TV, charity, advertisement or sponsor-ship to a cause does not qualify as a CSR spending. All the spending should happen only in India and not outside the country. All the expenses involved in
the CSR project can be factored as CSR project cost and can be part of the CSR budget.
Every company which fulfills the net profit criteria as stated in the Companies Act, 2013 is to constitute a CSR Committee of the board members consisting of three or more directors. At least one of the CSR committee members shall be an independent director. The committee is to formulate and recommend a CSR policy to the Board. The CSR policy shall recommend the activities to be under-taken by the company that are specified in the Schedule VII of the policy. Also, the committee has the responsibility to recommend the amount of expenditure incurred on each activity. The committee is to have a binding duty to review and update the CSR policy on a time to time basis.
According to the schedule VII of the act the companies can give preference to the local areas around their operations. The schedule VII of the Act also classi-fies the activities that qualify as CSR activities. The activities defined under this section are a) eradicating hunger and poverty, b) promotion of education, c) promoting gender equality and empowering women, d) health issues such as reducing child mortality, improving maternal health, combating HIV, AIDS, and malaria, e) employment enhancing vocational skills, f) contribution to PM's fund or any other fund that is set up by the Central government or the State governments ( used for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward clas-ses, minorities and women), g) ensuring environmental sustainability, h) social business projects, i) contributions or funds provided to technology setups locat-ed within academic institutions which are approvlocat-ed by the Central government, and j) rural development projects. The list was extended later and the other CSR activities included healthcare and sanitation, providing safe drinking water, protection of national heritage sites, and art forms and culture, actions to bene-fit armed forces veterans and war widows, promoting rural sports and national sports, and setting up care homes and hostels for women, orphans and senior citizens (Annexure 27.2.2014 of Companies Act 2013).
3.2 Contrasts between approach to CSR in Finland and India