Social Responsibilities of Business and Business Ethics Chapter Notes | Business Studies (BST) Class 11 - Commerce PDF Download

Introduction

A business should prioritize the well-being of people and consider itself an integral part of society. Since it relies on society for essential resources, it has a responsibility towards society. It should avoid actions that are detrimental to the interests of the community and refrain from using unethical practices to maximize profits. Let's explore some ethical principles that businesses should adhere to.

Social Responsibility

The social responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of our society.

• It involves respecting society's aspirations and making efforts to contribute to their achievement, alongside pursuing profit.
• Social responsibility goes beyond legal responsibility, as it includes voluntary actions that benefit society even if not required by law.
• It requires businesses to consider the impact of their actions on the lives of others.

Need for Social Responsibility

Should a business prioritize its owners' desire for maximum profit or the interests of other stakeholders such as customers, employees, suppliers, government, and community?

• Social responsibility is an ethical issue that involves determining what is morally right or wrong in relation to a firm's responsibilities.
• Social responsibility is voluntary and business people have the freedom to decide the extent to which they want to serve society.
• Not all business people feel equally responsible towards society.
• There is a debate about whether businesses should assume social responsibilities.
• Some argue that a firm's only social responsibility is towards its owners, while others believe the firm should serve all sections of society affected by its decisions and actions.

Arguments for Social Responsibility

• Justification for existence and growth: The ultimate motive of business is profit, as only profit can help the business grow and expand. Profit should be made as an outcome of service to society by means of producing goods and services to satisfy human needs.
• The long-term interest of the firm: A firm and its image stand to gain maximum profits in the long run when it has its highest goal as ‘service to society. When an increasing number of members of society feel that a business enterprise is not serving its best interest, they will tend to withdraw their cooperation with the enterprise concerned. Therefore, it is in its own interest if a firm fulfills its social responsibility.
• Avoidance of government regulations: When a particular business is not socially responsible, government regulations tend to limit its freedom. Therefore, it is believed that if businessmen are socially responsible, they can avoid government regulations.
• Maintenance of Society: Law alone can’t help out people with all the difficulties they face. When businesses turn socially responsible they take care of society’s needs, the society is at peace. That means business houses also have some responsibility to contribute something to social peace & harmony.
• Availability of Resources with Business: Business enterprises have huge financial resources, and very efficient managers & contacts and thereby they can ensure that a social problem can be solved easily, in the best way possible.
• Converting problems with opportunities: Business with its glorious history of making risky situations into profitable deals can not only solve social problems but also make them effectively useful.
• Better environment for doing business: If the business is to run in a society with diverse problems, the success of the business is limited. Therefore, if the business takes measures to resolve the social problems, the business can create a better environment for its functioning and thereby earn more profits.
• Holding businesses responsible for social problems: It is argued that many problems are created by the existence of business enterprises themselves – like environmental pollution, discriminated employment, corruption, etc. Therefore it is the duty of businesses to set right the problems caused by them.

Arguments Against Social Responsibility

• Violation of maximization of profit motive: This statement argues that businesses exist only for maximizing profits and businesses fulfill their social responsibility best by maximizing profits by increasing efficiency and reducing costs. They need not take up any additional obligations.
• Burden on Consumers: Taking social care and tackling social problems require huge financial investments and businesses tend to increase their costs and put the burden on the consumer for their charitable expenses. 
• Lack of social skills: Businessmen lack understanding of social problems and can’t solve them efficiently. 
• People’s resistance: People tend to dislike interference from businesses in their problems. 

Reality of Social Responsibility

Whatever may be the argument, either in favor of or against social responsibility, the reality is in favor of social responsibility. Let us discuss some of them below.

• The threat of Public Regulations: Democratically elected governments, through their law enforcing agencies, continuously try to ensure the welfare of society and thus they have a watchful eye on overall business operations. So to avoid government action business organizations should behave in a socially responsible manner.
• Pressure of labor movement: Labour, is not only the active factor but also activates other factors of production. Nowadays, they are more educated and their movement becomes more powerful in the world. No more ‘hire and fire’ policy will work; this made the businessmen take up social responsibility towards their employees.
• Impact of Consumer Consciousness:  Consumers are more conscious about the quality, price, etc. of the product and services. Even for small discrepancies, nowadays they prefer to file a suit in the consumer court.
• Development of Social Standard for Business: New social standards consider business enterprises as legitimate but with a condition they must also serve social needs.
• Development of Business Education: Business education created much awareness about social responsibility in the minds of investors, consumers, employees, etc. and they became more sensitive towards social issues.
• Relationship between social interest and business interest: Now people realize that social interest and business interest are complementary. This ensures the long-term benefit of the business.
• Development of professional, managerial class: Earlier managers of business houses aimed at only profit maximization but professional management educational institutions created a new class of managers who gives equal importance to social responsibility too. 

Conclusion: From the above-seen ‘Realities of Social Responsibility’ it is clear that business houses must assume social responsibility for their survival and growth.

Kinds of Social Responsibility

• Economic Responsibility: Maximizing profit by producing and selling goods and services is required for society. 
• Legal Responsibility: Every business needs to operate within the laws of the land. A law-abiding enterprise is a socially responsible enterprise as well.
• Ethical Responsibility: This includes the behavior of the firm that is expected by society but not included in the law.
  Example: should respect religious sentiment and dignity of people while advertising.
• Discretionary Responsibility: This refers to the voluntary obligations that an enterprise assumes.
  Examples: Charitable contributions, providing relief during natural calamities etc.

Social Responsibility Towards Different Interest Groups 

Businesses interact with several interest groups such as shareholders, workers, consumers, government, and community business is responsible to all these groups.

A business unit has to decide in which areas it should carry out social good. A few areas are explained below.

• Responsibility towards shareholders or owners: To provide a fair return on their investment, ensure the safety of their investment and provide regular, accurate, and full information about the business.
• Responsibility towards the workers: To provide opportunities for meaningful work, create the right kind of working conditions, respect the democratic rights of the workers, and ensure a fair wage deal from the management.
• Responsibility towards the consumer: To provide the right quality and quantity of goods and services at reasonable prices and to avoid adulteration, hoarding, dishonest and misleading advertisements.
• Responsibility towards the government & community: To respect the laws of the country and pay taxes regularly and honestly and act according to well-accepted values of the society and to protect the environment.

Business and Environment Protection

• Protection of the environment is a serious concern for business managers and decision makers.
• The environment includes both natural and man-made surroundings, which are valuable resources for human life.
• Industrial activity is a major contributor to environmental deterioration and pollution.
• Pollution changes the characteristics of air, land, and water, harming human and animal life and degrading living conditions.
• Limited absorption capacity of the environment leads to the accumulation of hazardous pollutants.
• Protection of the environment is essential for maintaining environmental quality, human health, and preserving resources.

Causes of Pollution

• Industry: Major generator of waste in terms of quantity and toxicity.
• Business activities (production, distribution, transport, storage, consumption) contribute to environmental pollution.
• Air pollution: Mainly caused by carbon monoxide emissions from automobiles and smoke/chemicals from manufacturing plants.
• Water pollution: Primarily caused by chemical and waste dumping into rivers, streams, and lakes.
• Land pollution: Toxic waste dumping damages land quality, making it unfit for agriculture or plantation.
• Noise pollution: Noise from factories and vehicles not only annoys but also poses serious health hazards (e.g. hearing loss, heart problems, mental disorders).

Environmental Problems

Pollution results in the following environmental problems identified by UNO  

• Ozone Depletion
• Land Degradation  
• Solid & Hazardous Wastes  
• Danger to biological diversity  
• Deforestation
• Global Warming
• Water Pollution
• Freshwater quality and quantity

Need for Pollution Control

To preserve precious environmental resources & improve the quality of human life pollution control becomes essential. Let us list some reasons for pollution control.

• Reduction of health hazards: Pollution control measures can cause diseases like cancer, heart attack & lung complications and support a healthy life on earth. 
• Reduced Risk of Liability: When people are affected by toxicity released by any business, the business is liable to pay compensation. If the business installs pollution control devices, it can escape from such liability.
• Cost Saving: Pollution control needs improved production technology which automatically reduces costs.
• Improved Public Image: A firm that promotes the cause for the environment will enjoy public confidence and a good reputation.
• Other social benefits: Cleaner buildings, cleaner roads, clearer visibility, better quality of life, and availability of natural products in a purer form are some of the other social benefits the society can get through a proper pollution control system.  

Role of Business in Environment Protection

Most of the pollution is caused by business enterprises and therefore they should take the lead in providing their own solutions to environmental problems.
Some of the specific steps that can be taken by a business are as follows:

• A definite commitment by top management to systematically protect the environment.  
• Involving all divisions and sections of employees in environmental protection.  
• Developing clear-cut policies and programs with regard to quality, method, and process of production and disposal of waste.  
• Complying with laws of the land in relation to environmental protection.  
• Participation in government programs such as management of waste, forestation, etc.  
• Periodical assessment of pollution control programs of their own, with a view to improving them.  
• Arranging educational workshops and training materials to share technical information with everyone involved in pollution control.  

Business Ethics

Business ethics refers to the socially determined moral principles which should govern business activities. Ethics define what is right and what is wrong. By ethics, we mean business practices that are desirable from society's point of view. The purpose of business ethics is to guild managers and employees in performing their job.  

Examples of Business Ethics  

• Charging fair prices  
• Using correct/accurate weights  
• Giving fair treatment to all employees  
• Avoiding adulteration, hoarding, etc.  
• Not engaging in any illegal methods of operation and not doing anything which is considered undesirable by society.  
• Using environmentally friendly products, methods, and processes.  

Benefits of doing Ethical Business  

• Ethical business is good business  
• It improves public image and support  
• Earns people’s confidence and trust  
• Leads to greater success  
• Helps in long-term standing  

Elements of Business Ethics

• Top Management commitment: Higher-level managers need to be openly and strongly committed to ethical conduct. They should continuously try and uphold the values of the organization and the society. 
• Publication of a ‘code’: ‘Code’ refers to the written ethical programs followed by a particular business or industry – which normally covers the areas of honesty, adherence to laws, product safety and quality, and fairness in all dealings.
• Establishment of Compliance Mechanism: Simply having a written ‘Code of Ethics’ is not sufficient, the business needs to ensure its effective implementation at all levels & throughout the life of the business. 
• Involving employees at all levels: To make the ethical business a reality, employees at all levels must be involved. 
• Measuring Results: Measuring the results of ethics programs may be difficult but can have an audit at regular intervals to monitor compliance with ethical standards and decide about further course of action.