Social Responsibility of Business

-Compiled by: Dr.Parul Sharda

 Social responsibility is an ethical or ideological theory that an
entity whether it is a government, corporation, organization
or individual has a responsibility to society.

 While primarily associated with business and governmental

practices, activist groups and local communities can also be
associated with social responsibility, not only business or
governmental entities.

 Corporate social responsibility (CSR, also called corporate

responsibility, corporate citizenship, and responsible
business) is a concept whereby organizations consider the
interests of society by taking responsibility for the impact of
their activities on customers, suppliers, employees,
shareholders, communities and other stakeholders, as well as
the environment.

 This obligation is seen to extend beyond the statutory

obligation to comply with legislation and sees organizations
voluntarily taking further steps to improve the quality of life
for employees and their families as well as for the local
community and society at large.
 Social responsibility is voluntary; it is about going above and
beyond what is called for by the law (legal responsibility).

 Social responsibility means eliminating corrupt, irresponsible or

unethical behavior that might bring harm to the community, its
people, or the environment before the behavior happens.

 The shareholders, suppliers of resources, the consumers, the

local community and society at large are affected by the way an
enterprise functions. Thus a business enterprise should be able
to strike a balance between these divergent groups.

 There has been greater consensus around the fact that the
business enterprise which makes use of the resources of society
and depends on society for its functioning, should discharge its
duties by enhancing the overall welfare of society.

The nature of social responsibility can be classified into:

 Manner in which a business carries out its own activity.
 Welfare activity that it takes upon itself as an additional function.
Businesses can use ethical decision making to
strengthen their businesses in three main
ways
 To use their ethical decision making to
increase productivity. This can be done
through programs that employees feel directly
enhance their benefits given by the
corporation, like better health care or a better
pension program. One thing that all
companies must keep in mind is that
employees are stakeholders in the business.
They have a vested interest in what the
company does and how it is run. When the
company is perceived to feel that their
employees are a valuable asset and the
employees feel they are being treated and
such, productivity increases.
 By making decisions that affect its health as seen to those
stakeholders that are outside of the business environment.
◦ Customers and Suppliers are two examples of such
stakeholders. If we were to look at companies like Johnson &
Johnson, their strong sense of responsibility to the public is
well known. In particular, take for instance Johnson &
Johnson and the Tylenol scare of 1982. When people realized
that some bottles of Tylenol contained cyanide they quit
buying Tylenol, stocks dropped and Johnson & Johnson lost a
lot of money. But they chose to lose even more money and
invest in new tamper resistant seals and announce a major
recall of their product. In the long run they gained the trust
of their customers.

 By making decisions that allow for government agencies to

minimize their involvement with the corporation. For instance
if a company is proactive and follows the pollution guidelines
for admissions on dangerous pollutants and even goes an extra
step to get involved in the community and address those
concerns that the public might have; they would be less likely
to have the authorities investigate them for environmental
concerns.
 Promoters, Directors and Top Management: The values and
vision of promoters and top management is a key influencing
factor.
 Stakeholders: Attitude of various stakeholders like
shareholders, creditors, employees etc. also affect the social
orientation of a company.
 Societal Factors: Social orientation could also be affected by
the expectation of the society from the Corporation. Eg: A
resourceful firm located in a poor community may be
expected to contribute to the development of education
facilities of the locality etc.
 Industry and Trade Associations: They influence the
behaviour of firms by establishing professional and ethical
codes and norms.
 Government and Laws: Laws to curb corruption, unfair
practices etc. and the government’s view of social
responsibility also acts as an influencing factor.
 Political Influences:
 Competitors
 Resources
 Society and Business are interdependent – There is a clear
conviction within sections of the public that business has an
obligation towards the society
 Better environment for business would be conducive for
future success of the Organization
 Public Image: Socially responsible behavior creates a positive
public image for Business.
 Business has the resources and Power: Business has a
reservoir of capital and expertise that is could leverage
 Let Business try
 Prevention is better than Cure. Social involvement of business
would foster a harmonious and healthy relationship between
society and business to the mutual benefit of both.
 Shareholder interest: Business will prosper from an improved
social environment
 Avoidance of Governmental Regulation: If business is
perceived as meeting its social obligations, costly and
restrictive governmental regulations can be avoided.
 Social responsibility like recycling of waste may have
favorable financial effects
 Profit Maximization: Economic efficiency of business should be the
top priority and the sole mission of business. In this situation
decisions are controlled by their desire to maximize profits for the
shareholders while reasonable complying with law.
 Society has to pay the Cost: Costs of social responsibility will be
passed on to the society and eventually it is the society which has to
bear them.
 Lack of social skills: Business managers are goods at solving matters
relating to business and not very effective at solving social problems
as their outlook is primarily economic.
 Business has enough Power: Business already has enough social
power and the society should not take any steps which give it more
power as it could mould social values.
 Social Overhead Costs: Cost of social responsibility will not
immediately benefit the business. Why spend money on an object,
benefits of which will be realized only in future.
 Lack of accountability: Businessmen have no direct accountability to
the people. Unless the society can develop mechanisms which
establish direct lines of social accountability from the business to
the public, business must not stay away from social activities.
 Friedman’s Views: Friedman asserted that if managers spend
corporate funds on projects not intended to maximise profits, the
efficiency of the market mechanism will be undermined and
resources will be misallocated within the economy.
 Many companies involve themselves in social activities because of
the tax exemptions on the income spent on social purposes.
Businesses response to social responsibility tend to fall within
four categories:
 Social Opposition: View taken by business is that they have
no obligation to the society in which they operate.

 Social obligation: Companies believe that they have an

obligation to obey the law.

 Social response: Position taken by companies which believe

that their social responsibilities are as dictated by law and will
on selective basis go beyond the legal requirements. These
units may volunteer to participate in limited socially
responsible efforts, but not until they are convinced that the
benefits outweigh the costs.

 Social contribution: Position taken by Companies which

believe that they have a deep obligation to serve the society.
 Shareholders: The primary business of a business is to stay in
business. To safeguard the capital of the shareholders and to
provide reasonable dividends and returns to its shareholders.

 Employees : The success of the organization depends largely

on the morale of the employees. Employee morale depends
on employer-employee relationship. The responsibility of the
organization to the workers include:
 Payment of fair wages
 Provision of best possible working conditions
 Establishment of fair work standards
 Provision of labor welfare activities
 Arrangement of proper training of workers.
 Reasonable chances of promotion
 Proper recognition, appreciation etc.
 Installation of an effective grievance handling system
Consumers:
 The consumer is the king and is the foundation of any business venture.
Important responsibilities of the business to the customers are:
 Improve efficiency so as to increase productivity and reduce prices, improve
quality and smoothen the distribution system so as to make the products
easily available.
 To do research and development so as to improve quality
 To supply goods at reasonable prices, even in case of a sellers market
 To provide after sales sevice
 To ensure that the product supplied has no adverse effect.
 To provide sufficient information about the product
 To avoid misleading customers by improper advertising etc.

Community:
 Taking steps to prevent environmental pollution
 Rehabilitating the population displaced by the operation of the business
 Assisting in the overall development of the locality
 Taking steps to conserve scarce resources and develop alternatives
 Improve the fficiency of the business operation
 Contribute to R & D
 Development of backward areas
 Promotion of ancillary and small scale industries
 Contributing to welfare activities like promotion of education etc.
Meaning: Social audit is a tool for evaluating how satisfactorily a
company has discharged its social responsibilities. Social
audit enables the public as well as the company to evaluate
the social performance of the company. Social audit involves:
 Identification of the firm’s activities having potential social
impact
 Assessment and evaluation of the social costs and social
benefits of such activities
 Measurement of the social costs and benefits
 Reporting

Objectives and Benefits of Social Audit:

 Evaluate the social dimension of the performance of the
company.
 Take measures to improve the social performance of the
company on the basis of feedback provided by the social
audit.
 Social audit increases the public visibility of the organization.
 In case the social audit reveals a sociialy commendable
performance, it helps boost the public image of the company.