11th Class Business Studies Social Responsibilities Of Business And Business Ethics Social Responsibility of Business and Business Ethies (Notes)

Social Responsibilities of Business and Business Ethics

Facts that Matter

• A business enterprise should do business in such a manner which fulfills the expectations of the society.
• Certain things are prohibited legally like supply of adultered goods, deceptive advertisements, making false information in advertisements, exploiting workers and polluting environment.
• There are certain things beyond it like providing healthy working conditions, supplying high quality goods, paying taxes honestly etc. These are called social responsibility of business which we shall discuss in this chapter.
• Business ethics are also important in this context.

Meaning of Social Responsibility

• Social Responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objective and values of our society.
• It refers to the obligation of business towards various social groups like employees, consumers, investors, government etc.
• In the words of H. R. Bowen, "Social responsibility of business is to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society."

Areas of Social Responsibility

• Economic Responsibility: Business enterprises are economic units that exist to make profits. Therefore, it is the responsibility of every business enterprise to undertake economic activities such as producing goods and services according to the needs and wants of consumers and selling them at reasonable prices.
• Legal Responsibility: It is the responsibility of every business to respect the laws and regulations of the country in which it operates, as laws are formed for the betterment of society.
• Ethical Responsibility: This responsibility implies that a business enterprise should follow only those business practices that are in line with the social values that are desirable from the viewpoint of society. This includes respecting religious sentiments and producing quality products.
• Discretionary Responsibility: This responsibility is completely voluntary in nature. It means that a business enterprise may choose to open a charitable school or hospital for the poor, grant aid to people affected by natural calamities, provide employment opportunities to the physically challenged and so on.

Arguments for Social Responsibility

Business enterprises must assume social responsibility because of the following reasons:

• Justification for existence and growth: It is justified for growth and existence of business.
• Long-term interest of the firm: It is in the long term interest of business.
• Avoidance of government regulation: If social responsibility is fulfilled, government intervention can be minimised.
• Maintenance of society: It is necessary to maintain society in a crime free manner.
• Availability of resources with business: Business has financial and human resources to fulfill it.
• Converting problems into opportunities: It converts problems into opportunities.
• Better environment for doing business: It provides better environment for doing business because when interest groups are satisfied, they cooperate in a better way.
• Holding business responsible for social problems: Non-compliance with social responsibility makes business responsible for social problems like corruption, forgery, scams etc.

Arguments against Social Responsibility

There are some arguments against the concept of social responsibility:

• Violation of profit maximization objective: Social responsibility is against the objective of profit maximization.
• Burden on consumers: Ultimately social responsibility involves a cost. The burden of this falls on consumer.
• Lack of social skills: Business claims that they lack requisite resources for it.

Reality of Social Responsibility

The various factors which have persuaded businessmen to consider their social responsibilities are:

1. Threat of public regulation: In reality, business houses do not assume their social responsibility on their own but due to threat of public action.
2. Pressure of labour movement: Labour laws are also followed not out of a sense of social responsibility but because of increasing pressure of labour movement.
3. Impact of consumer consciousness: Consumers are also becoming aware of their rights since enactment of Consumer Protection Act, 1986.
4. Development of social standard for business: No business can be done in isolation with the society. The performance of a business is judged on social standards..
5. Development of business education: Nowadays businessmen are professionally qualified due to changing pattern of business. It is also making socially more responsible.
6. Relationship between social interest and business interest: Businessmen are able to find that social interest and business interest are correlated.
7. Development of professional, managerial class: Professional management is also educated for the benefits it can get by fulfilling its social responsibility.

Social Responsibility towards different Interest Groups

Businessmen must assume social responsibilities towards:

            Shareholders

• Fair return on investment,
• True and fair information,
• Ensuring safety of their investment.

            Workers

• Fair wages,
• Good working conditions,
• Fair deal from the management.

           Consumers

• Supply of right quality and quantity of goods and services at reasonable price,
• Right to information about the product,
• Goods after sale service,
• Proper precaution against adulteration.

            Government

• Respect laws of the country,
• Pay taxes on time.

            Community

• Protect environment.
• Follow the norms of the society.
• Behave as a good citizen and act as per well accepted values of the society.

Business and Environmental Protection

The quality of environment is deteriorating at a very fast pace due to various business activities. Pollution exists because the environment can absorb waste only to a limit. Pollution causes risks to:

• Environment quality,
• Human health,
• Damage to natural and man-made resources.

             Causes of Pollution

• Industrial activities,
• Transportation,
• Use of fertilizers and pesticides in agriculture
• Consumption of goods and services.

            Types of Pollution

• Air pollution,
• Water pollution,
• Noise pollution,
• Land degradation.

             Need for Pollution Control

• Reduction of health hazards: Many diseases like cancer, hypertension, heart attacks can be controlled if pollution is controlled.
• Reduced risk of liability: It is responsibility of the business to compensate people who are affected by the toxic elements in the environment.
• Cost savings: Eco friendly techniques lead to cost saving especially when cost of waste disposal is very high.
• Improved public image: It improves social image of business.
• Better quality of life: It improves quality of life.

              Business ethics

            It refers to the moral principles or rules of behaviour which should govern moral conduct of businessmen.

              Elements of Business ethics

           The essential elements of business ethics are as under:

• Top management commitment,
• Publication of a code,
• Establishing of compliance mechanisms,
• Involving employees at all levels,
• Measuring results.

Words That Matter

• Social Responsibility: Social responsibility refers to the businessman's decisions and actions taken for reasons at least partially beyond the firm's direct economic or technical interest.
• Business Ethics: Business ethics refers to the moral principles or rules of behavior which should govern moral conduct of businessmen.
• Law: It is the system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties.
• Code of Conduct: It is a set of conventional principles and expectations that are considered binding on any person who is a member of a particular group.
• Legal Responsibility: Some responsibilities are upheld by law. It is against the law not to take responsibility in some cases. There are different types of legal responsibility. Some laws only apply in this country while others are international.
• Moral Responsibility: Sometimes we feel responsible for people or things because we believe it is the right thing to do. We feel that we are morally responsible because it would be wrong.
• Social Responsibility: The people have some responsibilities towards their society because they are of gregarious nature and they help each others at the time of weal and woe.
• Personal Responsibility: We often believe that we are personally responsible for things, not because it is the law but because it is very personal to us or our friends and family.
• Pollution: Pollution is change in the physical, chemical and biological characteristics of all, land and water.
• Corporate Social Responsibility: Corporate social responsibility is a comprehensive set of policies, practices and programmes which are integrated into business operations, supply claims, and decision-making process throughout the company, wherever the company does business and includes responsibility for current actions as well as past and future actions.
• Environment: It is the totality of man's surroundings which includes biotic as well as abiotic resources.