Chapter 6 Social Responsibilities of Business and Business Ethics - BST class 11th

Meaning of Social Responsibility of business

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.

Case studies tata Group – Jamshedpur – JRD TATA.

A business enterprise should do business and earn money in ways that fulfill the expectations of the society. Every individual living in society has certain obligations towards society. He has to respect social values and norms of behaviour. A business enterprise is permitted by society to carry on industrial or commercial activities and thereby earn profits. But it is obligatory on part of the business enterprise not to do anything, that is undesirable from society’s point of view. Manufacture and sale of adulterated goods, making deceptive advertisements, not paying taxes which are due, polluting the environment and exploiting workers are some examples of socially undesirable practices which may increase the profit of enterprises but which have adverse effect on society at large. On the other hand, supplying good quality goods, creating healthy working conditions, honestly paying taxes prevention/installing pollution devices in the factory, and sincerely attending to customer complaints are examples of socially desirable practices which improve the image of enterprises and also make them profitable. In fact, it is through socially responsible and ethically upright behaviour that business enterprises can get durable success.

Socially desirable practices of business

Supplying good quality goods to consumers, creating healthy working conditions to employee, honestly paying taxes to government, prevention of pollution with installation of pollution devices in the factory, and sincerely attending to customer complaints are examples of socially desirable practices undesirable practices of business

Following Activities of any business man is undesirable practices.

• sale of adulterated goods,
• making deceptive advertisements,
• not paying taxes which are due,
• polluting the environment and
• exploiting workers.

The assumption of social responsibilities by business enterprises implies that they respect the aspirations of society and would try their best to contribute to the achievement of these aspirations along with their profit interests.

This idea is in contrast to the common notion that business exists only for maximising profits for its owners and it is irrelevant to talk of public good.

Law relating to Corporate Social Responsibility

In India, the concept of CSR is governed by Clause 135 of the Companies Act, 2013, which was passed by both the Houses of the Parliament, and had received the assent of the President of India on 23 August 2013. The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more.

1. The new rules, which are applicable from the fiscal year 2014-15 onwards, also require companies to setup a CSR committee consisting of their board members, including at least one independent director.
2. The Act encourages companies to spend at 2% of their average net profit in the previous three years on CSR activities.
3. Only CSR activities undertaken in India will be taken into consideration.
4. Activities meant exclusively for employees and their families will not qualify under CSR.

The European Commission defines CSR as “the responsibility of enterprises for their impacts on society”.

The World Business Council for Sustainable Development defines CSR as “the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, as well as, of the community and society at large”.

The united Nations industrial Development organization define ‘corporate social responsibility’ as a management concept whereby companies integrate social and environmental concerns in their business operations interactions with their stakeholders. 

Social Responsibility of business Towards Different Interest Groups

A business organization must bear social responsibilities towards following different groups :

CWG-Share Holder (Common Wealth Game shareholder)

1	Consumers:
2	Workers
3	Government and community:
4	Shareholders or owners:

Detailed:

1	consumers:	Supply of right quality and quantity of goods and services to consumers at reasonable prices constitutes the responsibility of an enterprise toward its customers. The enterprise must take proper precaution against adulteration, poor quality, lack of desired service and courtesy to customers, misleading and dishonest advertising, and so on. They must also have the right of information about the product, the company and other matters having a bearing on their purchasing decision.
2	Workers	Management is also responsible for providing opportunities to the workers for meaningful work. It should try to create the right kind of working conditions so that it can win the cooperation of workers. The enterprise must respect the democratic rights of the workers to form unions. The worker must also be ensured of a fair wage and a fair deal from the management.
3	Government and community:	An enterprise must respect the laws of the country and pay taxes regularly and honestly. It must behave as a good citizen and act according to the well accepted values of the society. It must protect the natural environment and should avoid bad, effluent, smoky chimneys, ugly buildings dirty working conditions. It must also develop a proper image in society through continuous interaction with various groups of people.
4	Shareholders or owners:	A business enterprise has the responsibility to provide a fair return to the shareholders or owners on their capital investment and to ensure the safety of such investment. The corporate enterprise on a company form of organisation must also provide the shareholders with regular, accurate and full information about its working as well as schemes of future growth.

Arguments for Social Responsibility

JALABH

1	Justification for existence and growth:
2	Avoidance of government regulation
3	Long-term interest of the firm:
4	Availability of resources with business
5	Better environment for doing business
6	Holding business responsible for social problems

 

1	Justification for existence and growth:	TATA EXAMPLE in Jamshedpur Business exists for providing goods and services to satisfy human needs. Though, profit motive is an important justification for undertaking business activity, it should be looked upon as an outcome of service to the people. In fact, the prosperity and growth of business is possible only through continuous service to society. Thus, assumption of social responsibility by business provides justifications for its existence and growth.
2	Avoidance of government regulation:	NGO From the point of view of a business, government regulations are undesirable because they limit freedom. Therefore, it is believed that businessmen can avoid the problem of government regulations by voluntarily assuming social responsibilities.
3	Long-term interest of the firm:	TATA A firm and its image stands to gain maximum profits in the long run when it has its highest goal as ‘service to society’. When increasing number of members of society — including workers, consumers, shareholders, government officials, feel that business enterprise is not serving its best interest, they will tend to withdraw their cooperation to the enterprise concerned. Therefore, it is in its own interest if a firm fulfills its social responsibility. The public image of any firm would also be improved when it supports social goals.
4	Availability of resources with business:	This argument holds that business institutions have valuable financial and human resources which can be effectively used for solving problems of the society.
5	Better environment for doing business	If business is to operate in a society which is full of diverse and complicated problems, it may have little chance of success. A society with fewer problems provides better environment for a firm to conduct its business
6	Holding business responsible for social problems:	It is argued that some of the social problems have either been created or perpetuated by business enterprises themselves. Environmental pollution, unsafe workplaces, corruption in public institutions, and discriminatory practices in employment are some of these problems. Therefore, it is the moral obligation of business to get involved in solving these problems, instead of merely expecting that other social agencies will deal with them on their own.

Major arguments against social responsibility are:

Followings are the points against social Responsibilities of Business:

BPL-

1	Burden on consumers	Involvement of business in social responsibilities involve a lot of expenditure which will ultimately be borne by the customers
2	Profit Motive	BILL GATES VS WAREN BUFFET A business is an economic entity that is guided by profit motive. It should ‘not waste its energies and resources in fulfilling social responsibility
3	Lack of Social Skills	MUKESH AMBANI BUSINESS SKILL The business firms and managers have the skills to handle business operation. They are not expert to tackle the social problems like poverty, over population etc. ‘Therefore, social problems must be tackled by social experts.
4	Lack of public support	Generally public does not like business involvement in social problems. Therefore, business cannot fulfill social responsibility because of lack of public confidence & cooperation.

Meaning of Environment:

The environment is defined as the totality of man’s surroundings both natural and man-made. Natural Resources-all land, water, air and man-made - cultural heritage, socio economic institutions and the people.

Meaning of Environmental pollution –

It means injection of harmful substances into the environment. The greatest problem that industries and businessmen are creating is that of pollution - which is the result of industrial production. So, protection of environment is must.

Causes of Pollution: Many industrial organizations have been responsible for causing air, water, land and noise pollution.

1	Air Pollution	Due to smoke, chemical emitted by factories, vehicle. It has created a hole in the ozone layer leading to global warming.
2	Water pollution -	Due to chemicals and waste dumped into the rivers, streams & lakes. It has led to the death of several aquatic animals and posed a serious problem to human life.
3	Land Pollution	- Due to dumping of garbage and toxic wastes which affect the fertility of land and makes it unfit for agriculture.
4	Noise Pollution:	Caused by the running factories and vehicles. Noise pollution can be responsible for many diseases like loss of hearing, violent behaviour and mental disorder

NEED EOR POLLUTION CONTROL

HE IS

1	To ensure healthy life -
2	Economic Losses:
3	Improved Public Image
4	To ensure safety

Detail :

1	To ensure healthy life -	Many diseases like cancer, heart attack and lung complications all caused by pollutants in the environment. Pollution control is must to keep a check on these diseases.
2	Economic Losses:	Pollutants in the environment bringing heavy economic losses for the country, for example Taj Mahal is losing its beauty due to pollution.
3	Improved Public Image	A firm that adopts pollution control measures enjoys a good reputation as a socially responsible enterprise
4	To ensure safety	Due to environmental pollution and smoke, the visibility is reducing due to which chances of accidents have been increasing. To reduce the number of accidents there must be a check on pollution

Role of Business in Environmental Protection

Since the quality of the environment is important for all of us, we have a collective responsibility to protect it from being spoiled. Whether it is government, business enterprises, consumers, workers, or other members of society, each one can do something to stop polluting the environment. Government can enact laws to ban hazardous products. Consumers, workers and the members of society can avoid using certain products and doing things that are not environment friendly. The business enterprises should, however, take the lead in providing their own solutions to environmental problems. It is the social responsibility of every business to take steps not only to check all sorts of pollution but also to protect environmental resources. Business enterprises are leading creators of wealth, employment, trade and technology. They also command huge financial, physical and human resources. They also have the knowhow to solve environmental pollution problems with a preventive approach by controlling pollutants at the source. In most cases, a modification or change in the process of production, redesign of equipment, substituting poor quality materials with better ones or other innovative approaches could greatly reduce or even eliminate pollution entirely.

Some of the specific steps which can be taken by business enterprises for environmental protection are as stated below:

1	Top management commitment	A definite commitment by top management of the enterprise to create, maintain and develop work culture for environmental protection and pollution prevention
2	Shared vision with all about environment	Ensuring that commitment to environmental protection is shared throughout the enterprise by all divisions and employees.
3	Developing clear-cut policies and programmes	Developing clear-cut policies and programmes for purchasing good quality raw materials, employing superior technology, using scientific techniques of disposal and treatment of wastes and developing employee skills for the purpose of pollution control.
4	Complying with the laws	Complying with the laws and regulations enacted by the Government for prevention of pollution
5	Participation in government programmes	Participation in government programmes  relating to management of hazardous substances, clearing up of polluted rivers, plantation of trees, and checking deforestation.
6	Periodical assessment of pollution control programmes	Periodical assessment of pollution control programmes in terms of costs and benefits so as to increase the progress with respect to environmental protection.
7	Arranging educational workshops	Arranging educational workshops and training materials to share technical information and experience with suppliers, dealers and customers to get them actively involved in pollution control programmes

Meaning of Ethics – NITIGAT

The word ‘ethics’ has its origin in the Greek word ‘ethics’ meaning character; norms, ideals or morals prevailing in a group or society.

Ethics is concerned with what is right and what is wrong in human behavior judged on the basis of a standard form of conduct/ behavior of individuals, as approved by society in a particular field of activity. Ethics may be viewed as the entire body of moral values that society attaches to the actions of human beings. Ethics can also refer to codes or other system for controlling means so that they serve human ends.

Ethical standards are often enacted into laws. But ethical behaviour is just and fair conduct which goes beyond observing laws and government regulations. It means adhering to moral principles, being guided by particular values, and behaving in a way people ought to act. The set of principles called ethics may be written or unwritten codes or principles governing a professional or human activity.

The subject matter of ethics is concerned with establishing linkages between individual good and social good.

Ethic is always judged through right or wrong, good or evil. We know that moral is also judged through right or wrong, good or evil. But these both ethic and moral are different from origin of meaning to application and sense of meaning.

The word ‘Ethics’ is derived from the Ancient Greek ēthikos- “ETHOS” In english it means CHARACTER. In Hindi we call it as “CHARITRA”.Character is an individual paradigm. it is an individual way of accepting and interpreting events .it provides a chance to interpret an event as per own wisdom or viveka or buddhi. it talks at micro level.

we know that damage in cell will lead to damage to our body too. judgment of wrong or right at our cell level is ethic but judgment of wrong or right at our body level is moral. where should we correct our self you can understand very well ?.Do you think that you can make perfect body with damaged cells.? it is not possible. I believe ethic is foundation for good moral.

ETHIC is a set of principles to guide our behavior and governs our behaviour on work with accountability  and responsibility. It has many definitions .

Moral has it roots in  Latin "mos," meaning "custom." In hindi we call it as RITI-REWAZ ,,PRATHA,. We know it very well that RITI-RIWAZ and PRATHAS are gift of society as a whole .it has been developed over the time to governs our society.

Character is a personal attribute, while custom is defined by a group over time people has character where as society has moral, riti, riwaz,  pratha. we have heard our society teaching us “always speak truth”.This is nothing but moaral. All standard statement applicable for every member of  society by and large are moral statement.

To violate either can be said to be wrong, within its appropriate frame of reference. Another way to look at the distinction is to say that morals are accepted from an authority (cultural, religious, etc.), while ethics are accepted because they follow from personally accepted principles.

Meaning of Business Ethics

Business ethics refer to the socially determined moral principles which should govern business activities.

A businessperson behaves ethically when her or his actions are upright and serve the interests of society.

There is a growing realisation all over the world that ethics is vitally important for every business and for the progress of any society.

Ethical business is good business. Ethical business behaviour improves  public image,  earns people’s confidence and trust, and  leads to greater success. Ethics and profits go together in the long run. Ethics alone, and not government or laws, can make a society great.

An ethically responsible enterprise develops a culture of caring for people and environment and commands a high degree of integrity in dealing with others.

A few examples of business ethics are:

1	Fair prices	Charging fair prices from customers
2	Fair weights	Using fair weights for measurement of commodities
3	Fair treatment	Giving fair treatment to workers
4	Reasonable profits	Earning reasonable profits

Now the biggest question is should a business be ethical? Many people feel that basic objective of business is to earn profit .then how come a business afford to be ethical. many people feel that there is inverse relation between ethic and profit. long time back I was having my business meeting from a business man from south India. he said to me “I personally feel, north Indian hardly make a big business empire, not is just because they feel that business means cleverness( chalubaji ). they feel dishonest business man prosper a lot I was silent, I could not speak any thing .me my self as from both north India and from east India I could figure out his inner fact of business being ethical and non ethical. Yah the statement was a bit  generalized.

But the matter of fact is in last decades many people has made a big business empire from south India and from west India and the biggest reason for they being successful is their ethical behavior toward stake holder.

A business just can not be made with bricks ,machine, and people. A  success of business largely guided through their behavior .though behaviour is always judged in the individual paradigm  but we should not forget that the behaviour of an individual  of an organization do decides the behavior of that organization.  The CEO of  Hindustan leave r always say that when my representative enter into a show room ,then not a representative enters rather Hindustan leaver enter to that show room. the people will  identify organization with his behavior. In India we always say the behavior of kid speaks about the behavior of the dynasty.

Now it is clear that it is just ethical behavior which creates image in the society.  People do not buy the product rather they buy image associated with the product.  This image is nothing but branding of the organization.

Why RADO, ROLEX. sell their watch worth in lacs .  It is nothing but people association to brand .do you think a person buy Rado to see just  time.  I do not agree with this .now even in India  middle class people too spend three to 4 lakh rupees watch just to keep Rado on wrist.

It is now a well accepted fact that ethical behaviour creates a positive reputation that expands the opportunities for profit. An organisation is not only its buildings, assets , capital or even profit. It is living and creative, evolving over time and having a vision about its future role in society, nation and the world. In the broad sense ethics in business is simply the application of everyday moral or ethical norms to business. Being ethical in business requires acting with an awareness of how the products and services of an organization, and the actions of its employees, can affect its stakeholders and society as a whole and developing codes of conduct for doing business in an ethical manner. While values and moral development are part of personal development, organizational factors can also affect ethical behaviour. The strength of an organization’s culture influences ethical behaviour. An organizational culture most likely to encourage high ethical standards is one that is high in risk tolerance, control, and conflict tolerance. Managers in such cultures are encouraged to be aggressive and innovative, are aware that unethical practices will be discovered, and feel free to openly challenge expectations they consider to be unrealistic or personally undesirable.

ELEMENTS OF BUSINESS ETHICS

Following are elements of business ethics

• TPI-EM
• JSPL CASE STUDIES

1	Top management commitment
2	Publication o f a ‘Code’
3	Involving employees at all levels
4	Establishment of compliance mechanisms
5	Measuring results

 

1	Top management commitment	Top management has a crucial role in guiding the entire organisation towards ethically upright behaviour. To achieve results, the Chief Executive Officer (CEO) and other higher level managers need to be openly and strongly committed to ethical conduct
2	Publication o f a ‘Code’	Enterprises with effective ethics programmes do define the principles of conduct for the whole organisation in the form of written documents which is referred to as the “code”. This generally covers areas such as:
i	Adherence	fundamental honesty and adherence to laws;
II	Safety and quality	product safety and quality;
III	Health and safety	health and safety in the workplace
IV	conflicts of interest	conflicts of interest;
V	Employment practices	employment practices
VI	Fairness	fairness in selling Or marketing practices; and
vii	financial reporting	financial reporting
3	Establishment of compliance mechanisms	In order to ensure that actual decisions and actions comply with the firm’s ethical standards, suitable mechanisms should be established. Some examples of such mechanisms are:
i	ethics in recruiting and hiring;	paying attention to values and ethics in recruiting and hiring;
ii	Corporate ethics in training	Emphasising  corporate ethics in training
III	Auditing performance	auditing performance regularly to analyse the degree of compliance; and
IV	instituting communication systems	instituting communication systems to help employees report incidents of unethical behaviour
4	Involving employees at all levels	It is the employees at different levels who implement ethics policies to make ethical business a reality. Therefore, their involvement in ethics programmes becomes a must. For example, small groups of employees can be formed to discuss the important ethics policies of firms and examine attitudes of employees towards these policies.
5	Measuring results	Although it is difficult to accurately measure the end results of ethics programmes, the firms can certainly audit to monitor compliance with ethical standards. The top management team and other employees should then discuss the results for further course of action.