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THEIR FAILINGS, OUR LEARNINGS

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EXCUSES OR EXPLANATIONS?

Context:

A large listed entertainment company saw the exit of a couple of Directors inter alia because of non-performance of CSR obligations.

  • One Independent Director (ID) and one Non-ID resigned from the Board of a Company on November 22, 2019, citing several instances of poor corporate governance in FY 2018-19.
  • One of the concerns raised by them was that there was laxity in spending Corporate Social Responsibility (CSR) amounts given to the related party Foundation/ Trust.
  • Stock Exchanges sought clarification regarding the reasons cited by the Directors in their resignation letters.
  • On CSR spends, the Company stated that the funds were allocated in compliance with law. This was also certified by the Chair of CSR Committee. It also stated that the necessary certification was obtained.
  • The Company also stated that its Board of Directors had noted all the issues raised by the Directors who had resigned. The issues had been duly discussed, deliberated and acted upon from time to time in the previous Committee/ Board meetings in which those 2 Directors were also present.
  • As per the Annual Report for FY 2018-19, as on March 31, 2019, the Company had an unutilised CSR amount of INR 394.81 million, out of a budget of INR 621.78 million, including INR 224.65 million which was carried forward from the previous year.
  • Of the INR 226.97 million which was spent, INR 222 million was spent through the Foundation of the promoter, and the remaining (INR 4.97 million) were direct spends by the Company.
  • As per the Annual Report for FY 2019-20, as at March 31, 2020, the Company had an unutilised CSR amount of INR 880.18 million, out of a budget of INR 880.90 million, including INR 394.81 million which was carried forward from the previous year. INR 0.72 million, which was spent, was spent directly by the Company.
  • The reason for unspent CSR amounts in both the years was stated to be non-availability of suitable CSR Projects.

Points to ponder

  • Should CSR amounts be placed with the foundation or trust with suitable projects not being available?
  • Is a related party foundation or trust the best instrument to implement CSR?
  • If a thrust idea has been identified for the Company’s CSR initiatives, would there have been a shortage of CSR projects?
  • Should there be more than one implementation agency as a measure of risk diversification?