UDGAM SCHOOL FOR CHILDREN

y Subject- Business Studies Notes

CH-6 Social Responsibility of Business and Business Ethics

Name _______________________ Std /Sec: XI______ Roll No._____

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SOCIAL RESPONSIBILITY

Social responsibility of business refers to its obligation to pursue those policies, to make
those decisions, or follow those lines of action, which are desirable in terms of objectives
and values of our society.

Concept of Social Responsibility:

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. It follows that a responsible business, and indeed
any responsible member of society, must act with due concern for the effects on
the lives of other people.

❖ Comparison between Social Responsibility and Legal Responsibility:

Basis Social Responsibility Legal Responsibility
Meaning It is firm’s realisation of social Legal responsibility
obligations even though not means mere compliance
covered by law. of law.
Scope It is a broader term as it It is narrow term and has
includes legal responsibilities a narrow scope as it is a
also. part of social
responsibility.
Effect It involves an element of It doesn’t involve any
voluntary action on the part of voluntary action. It is
business. It is not forced. legal duty of the
business.
Violation There is no provision for There is punishment for
punishment for violation of violation of legal
social responsibility responsibility

ARGUMENTS FOR SOCIAL RESPONSIBILITY

1. JUSTIFICATION FOR EXISTENCE AND GROWTH. The main aim of any business is
earning profit. Business provides goods and services to satisfy human needs. Profit is the
outcome of providing goods and services to the people. The existence, prosperity and
growth of business is possible only through continuous service to society.
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2. LONG TERM INTEREST OF THE FIRM. Firms, having main aim of service to society
have good image and earn maximum profits in the long run. Fulfillment of demand and
aspirations of the society is in long term interest of the firm. By adopting unfair means,
reputation of business is tarnished and workers, consumers, shareholders, government
officials will withdraw their co-operation to enterprise. Public image of any firm would
improve when it supports social goals.

3. AVOIDANCE OF GOVERNMENT REGULATION. Government interference and

regulations restricts freedom and flexibility of making decisions in business. Voluntary
fulfilment of social obligations helps business in avoiding unnecessary government
intervention by reducing the need for new laws.

4. MAINTENANCE OF SOCIETY. Government cannot enact laws covering all aspects of

social responsibility. So, people may resort to antisocial activities, which may harm interest
of business. Public image of business will improve, and it avoids conflict if it follows social
obligations. Business should morally undertake to perform social responsibility in those
areas which are not regulated by government. E.g. Eradication of poverty, giving up
cutthroat competition, holding price line etc.

5. AVAILABILITY OF RESOURCES WITH BUSINESS. Business uses capital, managerial

talent, physical and financial resources of the society. Business can assist government with
these resources in solving problems. E.g. problem of unemployment and regional disparity.
Business makes use of various facilities or infrastructure like roads, power and water
supply. So, it is moral responsibility of business to pursue its social obligation.

6. CONVERTING PROBLEMS INTO OPPORTUNITIES. Business with its glorious history

of converting risky situations into profitable deals cannot only solve social problems but it
can also make them effectively useful by accepting the challenge.

7. BETTER ENVIRONMENT. Business operating in a society with complicated problems

may have little chance of success. Social responsibility creates better environment for
business as it improves quality of life resulting in improving standard of living. So, business
should do something to meet needs before it has to face a situation when its survival is
endangered.

8. HOLDING BUSINESS RESPONSIBLE FOR SOCIAL PROBLEMS. Business has

created some social problems like environmental pollution, unsafe work places, corruption
in public institutions, discrimination in employment, etc. It is the moral responsibility of
business to help in solving these problems.

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❖ Social Responsibility towards different Interest Groups
There are various interest groups in a society. When a business assumes a social
responsibility, it undertakes to look after all these interest groups forming the part of the
society.

1. Responsibility towards Owners and Share holders/Investors:

Business gets its funds from the owners and investors in the form of capital and loans.
Both the investors and owners expect a good return from the business.
• To ensure a reasonably good return on their investment.
• To ensure the safety and security of the funds invested in the business.
• To provide regular, accurate and full and fair information about the
performance of the business and future plans for growth.
• To maximise the wealth of the shareholders in terms of appreciation of the
value of shares in the market.
• To provide opportunities for participation of shareholders in the process of
decision making.
• To ensure optimum utilisation of resources at its disposal including,
natural, human and financial resources. This will lead to business growth.

2. Responsibility towards Employees and Workers:

If the business looks after the employees and workers, they will also look after
the interest of the business. If the human resources are efficient, all the resources will
be efficient. As employees devote their time and energy for the growth of the business it
is must for the business to fulfil the obligations towards its employees.
• Pay fair wages and salaries to them.
• Provide safe and healthy working conditions.
• Proper arrangements for cleanliness, lightning, heat and ventilation should
be there.
• Provide proper training to increase their efficiency and for professional
growth.
• Provide regular opportunities for growth and career advancement.
• Provide economic security through insurance and pension plans, free
medical facilities and education to their kids.
• Ensure workers, participation in management decision making and to
create a sense of belonging and concern among them.
• Provide monetary rewards and appreciation for their performance to
encourage them.
• Ensure good cordial industrial relations.

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3. Responsibility towards Consumers:
Consumer is the king of the market. A satisfied customer is an asset for the
business.
• Provide a good quality products and services at a fair price.
• Ensure that there is no artificial shortage of goods and services.
• Avoid unfair trade practices including black marketing, underweighing,
profiteering, hoarding, adulteration and poor quality of goods.
• Provide proper and efficient mechanism for addressing the complaints
and grievances from the customers without any delay.
• Inform them about the product improvement and its new uses.
• Not to mislead the customers by exaggerated advertisements.

4. Responsibility towards Government:

• Pay taxes regularly and honestly.
• Follow the government policies, rules and regulations.
• Encourage fair trade practices in both inland and foreign trade to build the
image of the country.
• Help the government in solving the national problems of unemployment,
poverty and illiteracy.
• Provide liberal help to government in facing natural calamities like floods,
earthquake and others causing mass disaster.

5. RESPONSIBILITY TOWARDS SOCIETY/COMMUNITY

• To protect environment from all types of pollution

• To promote national integration

• To help weaker and backward section of the society

• Providing economic stability

• To preserve social and cultural values and promote sports

• To provide more employment opportunities

• To assist local bodies in providing amenities like water, electricity, dispensaries, etc.

• To preserve social and cultural values

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❖ Environmental protection and Business

Environment means the totality of both man – made and natural surroundings. Natural
surroundings consist of air, water, land or soil, flora and fauna, raw materials from crops
and mines. Man – made surroundings contain socio-economic institutions and cultural
heritage. Due to intensive industrial activity the quality of the environment is
deteriorating fast. Some hazardous pollutants and toxic by-products of industrial
processes are so much in quantity that the environment cannot absorb them. Due to
this the quality of human life and health has suffered. Hence, the environment can be
effectively protected by controlling the pollution.

❖ Role of Business in Environmental Protection:

Realising its social responsibility every business unit must take steps to check all types
of pollution. The business must protect all the environmental resources for its survival
because it uses huge physical, financial and human resources. It can play an active role
in improving the life style and the culture in the society.
The following steps have been taken to control the environmental pollution:
- Definite commitment by top management of the enterprise to create, maintain and
develop work culture for environmental protection and pollution prevention.
- Ensuring that commitment to environmental protection is shared throughout the
enterprise by all divisions and employees.
- Developing clear policies for purchasing good quality raw materials, employing
superior technology, using scientific techniques of disposal and treatment of wastes
and developing employee skills for pollution control.
- Abide by laws and regulations enacted by government for prevention of pollution.
- Participation in government programmes relating to management of hazardous
substances, clearing up of polluted rivers, plantation of trees and checking
deforestation.
- Check pollution control programmes in terms of cost and benefits.
- Arranging educational workshop and training materials to share technical information
and experience with suppliers, dealers and customers to get them actively involved
in pollution control programmes.

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