Module 4

Corporate Social Responsibility

Meaning:

Social responsibility of business refers to the obligations of business to make decisions and follow in
lines of action which are desirable in terms of objectives and values of society. These decisions may
affect environment, customer and the community.

Social responsibility is thus an obligation of the decision makers to take appropriate actions which
protect and improve the welfare of the society as a whole along with protection of their own
interests.

There has been a growing acceptance of the plea that business should be socially responsible in the
sense that the business enterprise, which make use of the resources of the society and depends on
society for its functioning, should discharge its duties and responsibilities in enhancing the welfare of
the society of which it is an integral part. The company must accept its obligation to be socially
responsible and to work for the larger benefit of the community.

Definition:

Holme and Watts have defined corporate social responsibility as “a continuing commitment by
business to behave ethically and contribute to economic development while improving the quality of
life of the work force and their families as of the local community at large”.

Caroll and Buchholtz offer the following definition of” corporate social responsibility: Corporate
Social Responsibility encompasses the economic, legal, ethical and philanthropic expectations placed
on organizations by society at a given point of time”.

Approaches to corporate social responsibility:

The approaches to the concept of corporate social responsibility may be distinguished as:

1. The first approach originating in classical economic theory (advocated by Milton Freedman
in 1962) is that the firm has one and only one objective, which is to maximize profit. By
extension the objective of a corporation should be to maximize shareholders wealth. It is
asserted that in striving this objective within the constraint of the existing legal and ethical
framework, business corporations are acting in the best interest of the society at large.
2. The second approach developed in the 1970s recognizes the significance of social objective
in relation to maximization of profit. In this case Corporate Managers should make a
decision which maintains an equitable balance between the claims of shareholders,
employees, customers, suppliers, and the general public.
3. The third approach views as a means to an end, and not an end in itself. In this view, the
chief executive of a large corporation has the problem of reconciling the demands, of
employees for more wages and improved benefit plans, customers for lower prices and
 greater values, shareholders for higher dividends and grater capital appropriations, all within
a frame work that will be constructive and acceptable society.
Corporate Social Responsibility Strategy:
Corporate social responsibility strategy refers to conceptualization of corporate social
responsiveness. This delineates and explains how corporations actively respond to social concerns
and expectations. The four strategies or action phase of corporate responsiveness are:
I. Reaction: At the first instance the corporation denies its responsibility toward society
arguing that this is the responsibility of the government to take care of social issues. The
purpose of the corporation is essentially to maximize its profit and profit only benefits
society.
II. Defense: Corporation may admit its responsibility for social issues but tries to avoid as much
as possible or tries to discharge the minimum social responsibility till it does not adversely
affect it, also called enlightened self-interest.
III. Accommodation: Corporation admits and accepts its responsibility toward society and
discharges the same as demanded by different stakeholders.
IV. Proaction: This is the enlightened stage when corporation seeks to discharge social
responsibility by going beyond normal rules and norms set in this regard.
Dimensions of Corporate Social Responsibility:
The responsibilities of business to various interest groups one by one. They are:
1. Responsibility to shareholders: It is the duty of the business to safeguard the capital of the
shareholders and to provide a reasonable dividend to them.
2. Responsibility to the employees: The employees are the most important asset of the
enterprise. The various responsibilities of the organization towards the workers includes:
 The payment of fair wages.
 Offering better working conditions.
 Establishment of fair work standards and norms.
 Provisions for sufficient labour welfare facilities.
 Reasonable chance for promotions.
 Proper training and education for workers.
 Proper recognition, appreciation and encouragement of workers
 Sufficient grievance handling system. Opportunity for participation in managerial
decisions.
 Equal chance and justice to all.
3. Responsibility to consumers: Important responsibilities of business towards customers are:
 To supply quality goods at reasonable prices.
 To provide the required after sales service.
 To ensure that the product supplied has no adverse effect on the consumer.
 To provide sufficient information about the products.
 Products produced must meet the needs of consumers.
 No hoarding.
 Following the quality and standards.
4. Responsibility to the community: These responsibilities include:
 Development of backward area.
 Contributing to the national effort to build up a better society.
  Making possible contribution to social causes like the promotion of education and
population control.
 Contributing to research and development.
 Assisting in the overall development of the locality.
 Taking appropriate steps to prevent environmental pollution.
 To preserve the ecological balance.
 Improving the efficiency of the business operation.
 Taking steps to conserve scarce resources and developing alternatives.
5. Obligation to society at large: the main obligation of business towards society are:
 National interest.
 Legal compliance.
 Honest and ethical conduct.
 Corporate citizenship.
 Ethical behaviour.
 Social concern.
 Healthy and safe working environment.
 Competition.
 Accountability.
Arguments for social responsibility: The business exist in the society and depend on the society
and the environment for inputs like men and their skills, money, material, machinery and methods
and for the marketing of products on the one hand and for existence and sustenance on the other.
All these call foe increased responsibility of business towards the society. The important arguments
for business to discharge social responsibility are as under:
 Changed public expectation of business: It is reasoned that the institution of business
exists only if it satisfies the valuable needs of society.
 Better environment for business: This concept rationalises that a better society will create
more favourable environmental conditions for business operations.
 Public image: Another argument in favour of social responsibility is that it improves public
image.
 Avoidance of governmental regulations: The Government is responsible for passing laws
whenever necessary. If the corporate is not performing according to the interest of the
society.
 Business has the resources: Another argument for social responsibility is that business has
a vast pool of resources in terms of men, talents, functional expertise and money. With
these resources at its command, business is in a better position to work for social goals.
 Citizenship argument: Corporations are citizens and citizens have civic duties and
responsibilities.
Arguments against social responsibility: Now the business enterprises are not supporting the
concept of social responsibility on account of the following grounds. They are:
 Profit maximization: Function of business is economic, not social and the economic values
should be the only criteria used to measure success.
 Society has to pay the cost: Another argument is that the costs of social responsibility are
passed on to the society and it is the society which must bear them.
 Lack of social skills: Business managers are best at managing matters relating to business
and they are not equally good at solving social problems.
 Business has enough power: The process of combining social activities with the established
economic activities of business would give business an excessive concentration of power.
 Social overhead cost: Cost on social responsibility is considered to be a social cost which
will not immediately benefit the business.
 Lack of accountability: The businessmen have no direct accountability to the people,
therefore, it is unwise to give businessmen responsibility for areas where there are not
accountable.

Ackerman’s Model of Social Responsibility:

According to Ackerman, Corporate social responsiveness is the management task of doing

what one has decided to do so as to become socially responsible. Corporate social
responsiveness refers to the capacity of a corporate to respond to social pressures. According
to Ackerman’s Responsiveness should be the goal of corporate endeavour. He describes three
stages through which companies pass in developing response to social issues. They are:

 Awareness stage as first in which the top management learn the social problems.
 Planning stage as second in which plan is prepared for leading it.
 Third stage is implementation stage in which there is integration of policy into on-
going operations.