Social Responsibilities of Business and Business Ethics

SOCIAL RESPONSIBILITY OF BUSINESS AND BUSINESS ETHICS

❖ Social Responsibility
➢ Concept- Social responsibility refers to the duties and responsibilities of business
enterprises towards the society at large. As a business makes use of the society’s resources
to undertake production and earn profits, it becomes its moral duty to work towards the
betterment of the society by taking up favourable activities.

❖ Need for Social Responsibility

Arguments for Social Responsibility The following points justify the need of social
responsibility by business houses:
i. Existence and growth of business- The existence of a business depends on how
efficiently it serves the society by providing goods and services and considering the various
aspects of social responsibility.
ii. Long-term interest of a firm- Giving due consideration to the welfare of the society and
serving the various members of that society can help a business gain maximum profits in
the long run.
iii. Avoidance of government regulations- Working in line with the values and ethics of
the society will help a business avoid unwanted government intervention.
iv. Availability of resources- As compared to other members of the society, business
enterprises have greater availability of financial and other resources at their disposal
which can be effectively utilised for solving various social problems.
v. Conducive business environment- Solving social problems like unemployment, illiteracy
and poverty will not just benefit the society but also the business house by creating a
favourable environment for its working.
vi. Social peace and harmony- The interests of any business enterprise can be hampered if
the members of the society feel that the activities of the business are against the social
welfare. So, fulfilling various social responsibilities is a must for every business.
vii. Creating opportunities out of problems- A business organisation is said to convert the
problems into opportunities for the individuals of the society. This helps in solving various
social problems like unemployment.
viii. Holding business responsible for social problems- Often business enterprises are
blamed for many social problems like pollution and corruption. So, it becomes all the more
important for the business enterprises to give due consideration to such social problems.

❖ Arguments against Social Responsibility

i. Violation of profit maximisation objective- It is argued that a business enterprise exists

primarily to make profits. Thus, engaging the business in solving social problems will
deviate it from its primary objective.
ii. Burden on the consumers- Social responsibility initiatives often pose a huge financial
burden on the business enterprises. This increased burden, however, is often passed on to
the consumers in the form of higher prices.
iii. Lack of social skills- Business enterprises are basically attuned to solve business-
related problems and many a times lack those specialised skills required to solve social
problems.
iv. Lack of public support- In general, the public looks up to the government for solving
complex social problems. As a result, business enterprises may face lack of public support
and confidence in them for fulfilling such social responsibilities.
v. Difficulty in implementation- As social responsibility is a broad term, it becomes
difficult for the business organisations to clearly identify and fulfil their social
responsibilities.

❖ Reality of Social Responsibility- The various forces that are responsible for increasing
the concern of business enterprises towards social responsibility have been presented
diagrammatically below.

i. Threat of public regulation: Not working in line with the overall social welfare can
attract unwanted government attention; this can further pose a threat to the image and
goodwill of business enterprises. Thus, business enterprises should fulfil their social
responsibility to avoid such instances.
ii. Pressure of labour: Overtime, an increase in the mobility of human capital has increased
the pressure on business enterprises to pay attention to the welfare of the workers by
providing them healthy working conditions along with good remuneration.
iii. Impact of consumer consciousness: As the consumers are increasingly aware of their
rights and responsibilities, business enterprises are compelled to work more efficiently and
produce better quality products at reasonable rates so as to satisfy their demands.
iv. Development of social standards: Modern business enterprises are not mere profit-
making entities. To ensure long-term growth and survival, they must work towards
fulfilling social responsibilities.
v. Development of business education: The spread of education over time has made
consumers, investors, employees and owners more aware of various social problems,
 thereby, making them more sensitive to social issues.
vi. Relationship between social interest and business interest: No business enterprise
can work in isolation from society. In this regard, for their long term growth, the business
must create a balance between business interests and various social interests.
vii. Development of a professional managerial class: Today’s professional managers, in
addition to the profit maximisation objective, are equally sensitive towards various social
issues and make conscious efforts to satisfy the interests of all the members of the society.

Kinds of Social Responsibilities The following table presents the major kinds of social
responsibility of businesses.
Social Responsibility Meaning Example
Undertaking economic activities ⚬ To take care of the
like producing goods and services interests of the investors
Economic responsibility according to the needs and and the shareholders
demands of the consumers and ⚬ Efficient utilisation of
selling them at reasonable prices economic resources
⚬ To pay taxes on time
Respecting the laws and
Legal responsibility regulations of the country in which ⚬ To operate within
the enterprise operates government laws and
regulations
⚬ To produce good quality
Following only those business products to ensure safety
practices that are in line with the to consumers
Ethical responsibility
social values and ethics ⚬ To respect the religious
sentiments of different
groups of consumers
⚬ To contribute towards
the development of the
Voluntarily choosing to contribute weaker sections of the
Discretionary responsibility towards the betterment of the society
society ⚬ To generate employment
opportunities for the
people in the society
❖ Social Responsibilities towards Different Interest Groups
i. Responsibilities towards shareholders: As the owners and shareholders invest their
money in the business, it is the responsibility of business enterprises to safeguard their
investments and provide a fair and timely return.
ii. Responsibilities towards workers: It is the responsibility of the management to provide
safe and harmonious working conditions along with a fair compensation to its employees
so as to develop a sense of belonging in them.
iii. Responsibilities towards consumers: Every business enterprise must work to ensure
maximum customer satisfaction through measures such as supplying high-quality products
at fair prices, providing all the relevant information to the consumers and handling the
grievances of the consumers.
iv. Responsibilities towards the government: A business enterprise must behave as a
responsible citizen. In this regard, various measures should be taken by businesses to
address environmental and social problems.
v. Responsibilities towards the suppliers: It is the responsibility of business enterprises
to ensure regular payments to their suppliers and safeguard them from any form of
exploitation.

❖ Business and Environmental Protection

➢ Environment and Environmental Pollution
Environment refers to the sum total of the surroundings and resources, including both
biotic resources ( i.e., living creatures such as plants and animals) and abiotic resources
(i.e., non-living things such as air, water and land) that affect our existence and our quality
of life. However, due to the rapid increase in population and industrialisation, there has
been an excessive use of resources (greater than the rate of regeneration); this has resulted
in their degradation and depletion. Also, the discharge of harmful substances into the
environment has contributed towards pollution. All this has hampered the environment to
a large extent.

➢ Types of Pollution

i. Air pollution: It is caused by the emission of harmful gases and chemicals from factories
and vehicles into the atmosphere.
ii. Water pollution: Discharge of industrial and household wastes into rivers, streams or
lakes causes degradation of the water quality and cause water pollution.
iii. Land pollution: This is caused due to the dumping of toxic material and wastes on land,
which in turn damages the quality of land, making it unfit and unproductive for agriculture
and crop plantation.
iv. Noise pollution: It is a result of the sound generated from the machinery and other
equipment operating in various industries and factories. It causes serious health problems
to the workers working in those factories and to the population residing in the adjacent
areas.

❖ Need for Pollution Control

The followng are some of the reasothat justify the need for adoption of pollution control
measures.
i. Reduced heath hazards: Pollutants in the environment cause deadly diseases such as
cancer and respiratory problems. Thus, pollution control measures can help reduce the
incidences of such diseases and allow people enjoy a good and healthy life.
ii. Reduced risk of liability: Enterprises are often held responsible for polluting the
environment and are therefore asked to compensate for the same. Adoption of pollution
control measures can help reduce the risk of such liabilities on part of business enterprises.
iii. Cost savings: Efficient pollution control mechanisms can help enterprises reduce their
cost of waste disposal and cost of cleaning up the production plants. This, in turn, can help
businesses reduce their overall cost of production.
iv. Improved public image: Education has made people more knowledgeable about the
environmental problems, and they have started realising the need of protecting the
environment. Thus, business enterprises that adopt pollution control measures have a
good reputation in the society.
v. Other social benefits: Pollution control provides various other benefits such as cleaner
surroundings, availability of good quality resources, better quality of life, etc.

❖ Role of Business in Environmental Protection

The following steps can be taken by business enterprises to control pollution:

i. Control by top managers: The top management of every organisation should be

committed to creating and maintaining a work culture that is conducive to environmental
protection.
ii. Control by employees: Employees at their individual level should be committed towards
keeping the environment clean and protected.
iii. Better technology: Enterprises should employ sophisticated and superior technology
for the production and waste disposal. Government rules: Business operations must
conform to the rules and regulations laid down by the government for the prevention of
environmental pollution.
iv. Increased awareness: By conducting workshops and training programmes, business
enterprises must make an effort to spread awareness among their employees on the need
of conserving the environment.
v. Assessment programmes: An efficient mechanism for the periodic assessment of
pollution control programmes may also be adopted to weigh their costs and benefits.
vi. Participation in government programmes: A business should also participate and
extend its cooperation to government programmes and initiatives to spread awareness on
the management of wastes and hazardous substances, reduction in air pollution, etc.

❖ Business Ethics - Concept

Business ethics refers to the code of conduct that a business must follow, such that it takes
up only those activities that are desirable from the viewpoint of overall social welfare. It
acts as a guide to managers and other employees in an organisation in performing their
jobs in a manner that is socially acceptable.

❖ Elements of Business Ethics

i. Commitment by top management: Top-level officers in an organisation must sincerely

follow the ethical code of conduct and guide employees towards adopting the code.
ii. Publication of a ‘code’: The management in an enterprise must clearly define the ethical
code of conduct that needs to be followed. It should include the guidelines regarding the
standards for quality work, laws governing production and standards for employee health
and safety.
iii. Establishment of compliance mechanism: An enterprise must also devise a suitable
mechanism through which it can measure the actions of the employees so as to ensure that
the ethical standards are duly met.
iv. Involvement of employees at all levels: The employees, at different levels in the
organisation, must be actively involved in the successful implementation of ethical
standards as set by the enterprise.
v. Measurement of results: Although it is difficult to measure the result after
implementing ethical standards, the top management should take steps to monitor the
compliance and curb any unethical behaviour.