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India: CSR As A One More Move for The Regulation

Sudhanshu Chandra, Oleg Koldayev

The Supreme Court of India has never got round to formulate a legal determination on the validity of the digital coins circulation. Meanwhile, Zebpay, the largest regional digital wallets operator, has relocated its head office to Malta. The uncertainty of the highest court instance is the main reason for the withdrawal of strategic companies from the Indian market.

But many said that as soon as citizens got access to electronic payment systems, the future of digital currencies would become clear. They say, cryptocurrencies could interfere with the monetary reform because people have invested savings in independent tokens.

But if we take our mind off the situation, it will become clear that not only the factors of the global economic policy force the court to delay. India is experiencing a heavy deficit of legal instruments regulating the business sphere as a whole. Let’s recall that in July this year, the court has already sent a 43-page conclusion about the necessity to prepare a legislative package in the digital industry to the government. Today, judges simply have nothing to rely on to make a decision. Moreover, political factors also intervene into this process.

“In 2019, parliamentary elections must take place in India, and therefore the government wants to play for the safety and is not eager to introduce any revolutionary law that would by some means or other affect the business sphere,” says our regular commentator and author Sudhanshu CHANDRA, the lawyer of the Supreme Court of India. - Perhaps that is why the Supreme Court is delaying the case. The authorities are busy with the election campaign. But at the same time, India is a rapidly growing economy that is eager to join the developed countries of the world. But to achieve this, it needs a change in thinking. It is not enough to talk about “digital India” and carry out demonetization, we need laws governing business. Including the law on cryptocurrencies.”

We would find difficulty to quarrel with the expert. But a legislative instrument regulating the turnover of digital assets cannot appear out of nothing. The law must have substance: a legal tradition, judicial practices, and a system of current norms and rules forming both the structure of business relations between equal subjects and the attitude of the society to business. At the same time, legislative activity is based on a complex scientific process, which takes into account many factors that make the law fair and balanced. Therefore, we publish the interview and the scientific article by Sudhanshu CHANDRA on the regulation of corporate social responsibility. Perhaps, this topic is not directly related to the digital economy, but the thoughts expressed in it will undoubtedly be of interest to many business representatives.

In addition, the main claim of regulators to the companies that manage digital assets is their low social responsibility. Only a small part of entrepreneurs think about the social consequences of certain business decisions, and the way this will affect the business climate in general. Especially in the traditional caste society.

BNT: The digital industry is still very young, and not all entrepreneurs have experience in the modern business organization. What is the Сorporate Social Responsibility?

SC: Corporate Social Responsibility means such business management that will allow exceeding ethical, commercial, and public expectations. In the past 20 years, significant changes in the nature of tripartite relations between companies, the state, and society have occurred. Today, entrepreneurs have realized: in addition to business growth, it is vitally important to build reliable and sustainable relations with the community as a whole. And this is one of the key drivers of such programs.

For example, a survey conducted by ORG-MARG for TERI-Europe in several cities of India shows that the majority of respondents believe that companies should be fully responsible for the spheres of activity that they control. This includes providing quality products and lowering prices, ensuring that operations are environmentally friendly, fair treatment of employees without any age, racial or religious discrimination, the use of international labor standards, and so on. In addition, the wide public believes that companies should also be responsible for bridging the gap between the rich and the poor, as well as for reducing the scale of human rights violations, solving social problems, and increasing economic stability.

Regulatory compliance of the Corporate Social Responsibility creates an atmosphere of trust in society. Which is not the case of the Indian social climate. For example, citizens are afraid to admit that they have invested their savings in virtual coins. A police official, who asked not to be named, said that investors were afraid to contact law enforcement agencies, even if they had suffered from the fraud with digital coins. People believe that they can face with a thorough check of their financial situation and the origin of their income. Although we managed to track several investors who had lost money on the frauds with virtual assets, they did not file any complaints. We recall that this question arose after the case with the arrest of the founder of ATC Coin Subhashchand JEWRIA. According to the investigation, he appropriated $11.4 million (840 million rupees) to himself.

At the same time, according to estimates of the Government of India, the total damage from illegal activities in the digital market exceeded $600 million

How can CSR affect the popularization of digital companies and the institutionalization of the sphere in general?

In the era of the global competition, the declining brand differentiation, and the increasing of media chaos, companies go beyond the usual marketing mix. This process has one goal - to increase the value of intangible assets. Including digital coins. Moreover, the transition from functionally-oriented brands to emotionally- and value-oriented ones has been taking place for many years.

At the same time, Corporate Social Responsibility remains a very important strategic marketing tool. Many companies use it as a way to enhance their image, form their own brand, and increase employees’ loyalty. As a matter of fact, this is the deliberate inclusion of public interests in the corporate decision-making process.

The concept of CSR pays much attention to corporate ethics. How important is it for business?

In my opinion, this is a very significant moment for enterprises. The CSR ethics necessarily implies the practice of applying socially accepted norms in the case of business. In other words, don't do unto others what you would not have done unto you. At the moment, more and more corporations see it as a management issue and have already begun to systematically deal with the ethical and legal compliance of their corporate activities with public expectations. This trend, in many ways, dictated the necessity of the formal legal regulation of CSR.

Speaking about the ethical practices in the relations between business and society, we should not forget that politics is a no less vulnerable area for social conflicts. The issue of distrust of digital assets was raised by the authorities after the Indian National Congress had accused the ruling People's Party (Bharatiya Janata Party, BJP) of laundering money with the use of digital currencies. Opposition politicians believe that party functionaries have withdrawn more than $12 million through the stock exchange located in the city of Gujarat.

The Supreme Court of India was given the task to monitor the investigation of the financial incident

Is there any practical experience in this sphere in India?

The new bill regulating the activities of companies has been prepared by the Government of India. However, unfortunately, it is more focused on corporate management and accountability. It does not consider the social consequences of corporations’ activities. Provisions on social responsibility have been pushed into the sphere of voluntary application. But, as practice shows, voluntary measures, such as codes of conduct or voluntary social and environmental reporting, did not allow to achieve real changes.

During last year’s discussions on the necessity of a new bill, specific requirements were raised for making legislative changes. Firstly, it had to ensure transparency regarding social and environmental consequences: companies should be legally required to report this both to shareholders and to the public.

Secondly, the responsibility of the companies had to be registered. Their management, directors, in particular, must carry real responsibility for the social and environmental consequences of their management. Including measures to minimize any harm to workers, local communities, and the environment.

Thirdly, accountability. Persons affected by the company’s activities should be able to bring in lawsuits against them in the court, especially when state legal tools are inadequate or inaccessible.

Has any Indian proposed law been compared with similar laws, active in other countries? Has law enforcement experience been analyzed?

Yes, we made such a comparison. For example, we compared the Indian bill with the UK Companies Act. Unfortunately, in our regulatory document, the gaps in the proposed legal regulation were identified.

The English law, in particular, states that companies must consider their impact on the community, as well as see the connection between the company's financial performance and the social and environmental consequences of its activities. Moreover, according to British law, company directors are obliged to take into account the influence of business on a number of social and environmental issues; and to make a public listing. When companies are required to openly announce to shareholders the social and environmental risks and opportunities, as well as employees’ problems and the risks in the supply chains. The Indian bill is extremely lacking this.

The Companies Act has been in effect since August 7, 1862, in Great Britain. Since then, there have been many editions of this regulatory document. It fell under the most global alteration in 1998 and after that became the longest law of the United Kingdom - 1,300 articles and 16 appendices on 700 pages.

It regulates all aspects of corporate management, and at the same time has the advantage over other regulatory documents included in the English legal system. For example, according to this law, you can become a director of a company in England at the age of 16, that is, before you reach the age of full legal capacity, 18 years.

The norms of Corporate Social Responsibility registered in the law imply real economic benefits, for example, a preferential tax treatment for companies that comply with CSR

What issues does the Indian proposed law raise to the chief managers of the organizations? And can this affect the activities of companies operating virtual assets somehow?

The Companies Bill contains the responsibility of directors to “promote the success of the company” and to take into account the impact of the company's activities on society and the environment. Perhaps, this is the first time when the statute obliges managers to deal with broader social issues than employees’ promotion and insurance. However, the opinions on what “promotion” and “success” mean are extremely subjective.

When combined with increased accountability of state bodies for the implementation of fair competition principles while making public contracts, public and private law seem to be coming together. The provision about government contracts in 2006 establishes requirements for government agencies to make contracts in accordance with the principles of competition in the open market. The new rules codify the possibility of inclusion of relevant social and environmental considerations (as technical specifications) in a government contract between the government bodies. Perhaps, this is the legacy of Enron and WorldCom. Transparency is becoming increasingly relevant in a legal sense, and not as a result of social responsibility.

The main responsibility of digital companies directors is also to promote its success for the benefit of shareholders, holders of tokens, in particular. It is important to note that the bill should state that while performing theduty, the directors should also consider issues relating to employees, suppliers, customers, the community, and the environment. In practice, this means that the violation of social and environmental standards can be a financial risk for an enterprise. Business owners and managers will need to better understand how they manage their social and environmental impacts. A new accountability system is required for mandatory values, in addition to traditional financial performance.

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