Corporate - NGO Collaboration & Partnership

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.”

What Makes for Good CSR?

• Choosing a cause that the company truly believes in and aligning the same to its business interest
• Choosing a cause that would benefit business (e.g: what company employees care about ... what customers believe is important)
• Identifying good grassroots level partners (NGOs)
• Optimal use and impact of CSR funds
• Doing what no one else is doing

 
Due Diligence
Due Diligence is an exercise that both companies and NGOs must conduct before collaborating.

Due diligence is simply an investigation or audit of a potential social investment and it serves to confirm all material facts in regards to a partnership. It refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.
 
While companies could conduct legal and fiscal due diligence checks on NGOs, the NGOs too should exercise diligence in studying the company's CSR Policy and CSR reports for previous years.
 
Legal, Fiscal & Tax Aspects to Consider

1. 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.
2. It should not be a request for “Donation”. It should be a “CSR Grant Proposal”.
3. The NGO should ensure that the project/program that it is applying for meets 3 essential criteria:

i. The project/program meets the requirement of “Specified CSR Activity” as listed under Schedule VII of the Indian Companies Act 2013;

ii. The project/program is in sync with the company's CSR Policy;

iii. The project/program as far as possible is in the local area and areas around where the company operates.

1. 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.
2. The budget and budget lines should be very clear but should allow a degree of variance. .
3. The monitoring and evaluation as also reporting system, including frequency of such reporting should be spelt out clearly.
4. Submission of annual reports, both, narrative and financial together with a project utilization certificate by an independent financial auditor would be in good order.
5. 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.
6. 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 installment for CSR project”
7. 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.
8. Similarly, because a grant is essentially a “gift”, ‘Service Tax’ would not be applicable.
9. 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.
 
Noshir Dadrawala
CENTRE FOR ADVANCEMENT OF PHILANTHROPY
[email protected]
www.capindia.in