Balancing the Social Balance Sheet

Balancing the Social Balance Sheet

Balance sheets are always supposed to be balanced. A balance sheet is a financial statement of what a firm owns and what it owes. What it owns are its assets, while what it owes are its liabilities.

Anil Kshatriya, Assistant Professor, IMT Nagpur
Balance sheets are always supposed to be balanced. A balance sheet is a financial statement of what a firm owns and what it owes. What it owns are its assets, while what it owes are its liabilities. Let us put this idea in a different perspective. Let us call a company's statement of social assets and social liabilities as its Social Balance Sheet. Without any exception this statement also needs to be balanced. The value of what it owns in the form of social wealth should match the value of what it owes as social responsibilities. If such a balance is recognised and met, a company can claim to present holistically true and fair view of its business.

In a strict financial sense, when assets exceed the liabilities there is financial imbalance in the company. Either it leads to excess capacity or excess debt. Either ways, the balance gets disturbed. There are several checks and controls which try to ensure this financial balance. So, when we look at published financial records, we are unlikely to spot an unbalanced balance sheet. But does the same financial prudence of balancing work for social assets and liabilities? Do companies try to ensure that its social wealth creation matches its social obligations? Are there social accountants who help companies to make it happen?

Let's understand social wealth creation. Like assets created through application of funds, companies generate social capital by spending on projects of social welfare. This spending is not targeted towards for-profit business activities. This is in fact a mechanism to transfer a portion of profit to the stakeholders who could not be compensated in the normal course of business. Also, like liabilities that arise out of various sources of funds, companies accept social responsibilities and prioritise areas of fulfilling some of the responsibilities.

Large conglomerates of India have been attempting to balance their social accounts voluntarily since long. Tata, Mahindra, ITC, Godrej, Infosys and many others have been doing commendable service to the society in some way or the other. Much before the mandate of Companies Act 2013 to contribute 2 per cent of average net profits for three years came into operation, some Indian companies represented and nurtured ethos of corporate social responsibility.

It is perhaps impossible to set any benchmark or standard in write the social accounts and drawing a social balance sheet. Any attempt to do so will not only be futile but also counterproductive. Each company should decide how it wants its social balance sheet to look like. There could be few business leaders who might like to go beyond any stipulated standard for accepting their social responsibility. Their standards of social wealth creation could be higher than average measure of central tendency. After all what matters is whether there is balance. The sum total of what the company owns and what it owes cannot become more important than balancing the equation.

Why did the need for a compulsory rule to contribute rise in India? As a special case our Companies Act is the first law towards mandatory CSR spending. The premise of such an unprecedented law is simple. Businesses must be encouraged and forced to share their wealth on social issues which need institution frameworks of men, machinery and money. Individuals, howsoever motivated they are, have limited capacity to spread their reach for solving social problems. When such individuals get support from institutions i.e. corporate entities they are able to achieve their goals. What such compulsions do is that it establishes a model for social control. It leads to design of systems which are essential to execute programs for social wealth creation.

With willingness to fix accountability, both in letter and spirit, companies can become structurally powerful to bring about social change and well being. From primary education to rural sanitation, every single objective can be framed into a smaller short-term target. People can be trained to own the targets assigned to them. Only when the degree of engagement is phenomenally high there can be rewarding satisfaction in balancing what is owned and what is owed. Balance is therefore about this mindfulness of knowing what belongs to you and what does not. The more you give, the less you lose.

The author is Assistant Professor, Institute of Management Technology (IMT), Nagpur