Government-Mandated Giving Undercuts CSR and Free Enterprise: Lessons Learned from India’s 2% Rule



Four years into India’s controversial law mandating Corporate Social Responsibility (CSR), there are important lessons any company can take from this experiment. The law bolsters the argument that voluntary CSR is most effective for the community and business.

Unintended Consequences
In 2014, India became the first country to require CSR by passing a law. The law required that companies of a certain size spend at least two percent of net profits on CSR. While the change led to an increase in the total number of companies in India engaging in CSR, it had negative consequences on engagement with CSR overall.

According to an investigation out of Columbia Business School,1 companies that actively engaged in CSR prior to the law largely reduced their spending to the required two-percent level. These companies likely engaged in CSR prior to the law in recognition of a societal responsibility to “do good” or a desire to reap the rewards of CSR, but the government requirement redefined the expectations. At the same time, companies with low levels of engagement prior to the law only increased their spending marginally. And, across the board, CSR spending became highly sensitive to negative swings in a company’s profits but did not benefit in the same way from positive swings.

Overall, the study supports the free enterprise theory “that regulatory intervention dampens managers’ intrinsic motivation to “do good” and, hence, could at times be counter-productive.” This lesson from India may point to broader implications for the CSR field: motivation and freedom of choice matter. Business leaders and companies that commit to CSR willingly, are more likely to engage meaningfully with CSR.

At the Satell Institute, our members are dedicated to the greater good and are motivated to invest in their communities. For us, these positive motives are bolstered by an understanding that CSR is in both the company and the community’s best interest. Our members share the belief that healthy, strong communities help to support healthy, strong companies.

1 Rajgopal, S., Tantri, P. (2018, April). Does Mandated Corporate Social Responsibility Reduce Intrinsic Motivation? Evidence from India.

Satell Institute is Expanding to New Markets

Already more than 50 of the Philadelphia region’s most prominent companies and private foundations, with hundreds of thousands of employees, chose to meet the Corporate Social Responsibility (CSR) standards to become active members of the Satell Institute. Because of the warm reception in the community and enthusiasm for the member benefits, the Institute is now expanding to two new geographic regions.

We are currently meeting with interested CEOs in Central Pennsylvania and within a 50-mile radius of Hartford, Connecticut to establish chapters to provide members in those regions with access to the benefits of the Institute’s resources. Stay tuned for more exciting news on the expansion.

The Satell Institute is a nonprofit, nonpartisan Think and Do Tank for Corporate Social Responsibility. Its members support nonprofits of their choice at a minimum level of $25,000 per year for four years. As a fully-endowed nonprofit, there are no membership fees and 100% of the contributions made by corporate and foundation members go directly to the nonprofit of their choice.

Subscribe to our Insights!