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LESSON
2
SOCIAL RESPONSIBILITY OF BUSINESS
CONTENTS 2.0 2.1 2.2 Aims and Objectives Introduction Social Responsibility 2.2.1 2.2.2 2.2.3 2.2.4 2.3 2.4 2.5 2.6 2.7 2.8 Responsibilities to Shareholders Responsibility to Employees Responsibility to Consumer Responsibility to Community
Major Social Responsibilities of Business Let us Sum up Lesson End Activities Keywords Questions for Discussion Suggested Readings
Understand the concept of social responsibility Know the responsibility of business towards various stake holders Explain that how investment in the social responsibility can even increase the profits of the business
2.1 INTRODUCTION
By Social Responsibility we mean the intelligent and objective concern for the welfare of society that restrains individuals and corporate behavior from ultimately destructive activities of positive contributions to human betterment, variously as the latter may be defined. - Kenneth R. Andrews, (The Concept of Corporate Strategy [Burr Ridge, IL: Irwin Co. 1971] P.120) Does corporate social responsibility translates into fiscal responsibility? A landmark study by Professors Stephen Erfle and Michael Frantantuono found that firms that were ranked highest in terms of their records on a variety of social issues (including charitable contributions, community outreach programs, environmental performance, advancement of women, and promotion of minorities) had greater financial performance as well. Financial performance is better in terms of operating income growth, sales-to-asset ratio, sale growth, return on equity, earning to asset growth,
return on investment, return on assets, and asset growth. (Joel Makeover, Beyond the Bottom Line (New York: Simon& Schuster, 1994, pp.70-71) Look at well-run company and you will see the needs of its stockholders, its employees and the community at large being served simultaneously. Arnold Hiatt, Former CEO Stride Rite Corp. Business is not only an economic function but also a social function. It is the only activity, which influences every aspect of society and nation. Business innovates, it develops new products and services to serve human, it produces goods and service for the nation and society, it invent new molecules to cure human ailments it gives employment, it generates earning, it exports, it gives taxes for the smooth functioning of government it utilizes the resources of society and nation. But it is one side of picture, other side is all about exploitation of natural resources, exploitation of human resource, sexual harassments at work place, political funding for business interest, spreading pollution, spreading materialism, abetting terrorism to increase sale of arms and ammunition, selling smoke and liquor, global warming, acid rain and many other surfing of human kind is only because of business. All this raise questions do business has some social responsibility? Do business can be performed while performing social responsibility? Do business is accountable to society?
Proposition 3: The social costs and benefits of an activity, product or service shall be thoroughly calculated and considered in deciding whether to proceed with it: This proposition stresses that business should consider both the long term and short term societal consequences of all business activities before undertaking them. Proposition 4: The social costs and benefits of an activity, product or service shall be passed on to the consumer: The cost of socially desirable activities with in the business should be passed on to consumer through higher prices for the goods or service related to these activities. Proposition 5: Business institutions as citizens have the responsibility to become involved in certain social problems that are outside their normal areas of operations: David reasons that because business eventually will reap an increased profit form a generally improved society; business should share in the responsibility of all citizens to generally improve society. There are four important groups which influences and are influenced by business and business is suppose to accept its responsibilities towards these groups they are: 1. The owner of the business i.e. shareholders 2. The employees 3. The customer 4. The society at large Interest of this diverse group is not identical rather they are conflicting. Every group wants lions share of the pie. Customer crave for value added but economical product, employees claim for better remuneration and working conditions, society expects philanthropy and healthy environment and owner demand for higher and higher ROI. Management has to bring effective synthesis and secure good relation among these four diverse interests.
Shareholder
Society at Large
Social Responsibility
Employees
Customer
Figure 2.1
Check Your Progress 1 What do you understand by the social responsibility of business? .. ..
8.
towards its employees by not meeting better HR standards. As most of the PSUs which are had make losses and are making losses but are kept alive in the name of socialism and employment are basically a burden on society. There losses are met by taxing the society. So we can say that society is paying higher tax to subsidies the inefficiency of PSUs question arises why should they. 3. Improved Quality of Life: Any organization should prove to be a reason to the development of standard of the quality of life in both terms that is in terms of standard of living which is based on financial power and material growth and in terms of ones internal growth, the growth of ones character, growth of mind and soul. 4. Responsibility of Employment and Income: Every business should make provision for the payment of fair wages, satisfactory working conditions, steady employment and job security, prospects for promotion, growth and development of workers and also take adequate measures for employee welfare. Not only this, it should also ensure. 5. Offering Quality Product at Fair Prices: Business is all about creating customer, and customer can be created only when customers are satisfied. Customer can be satisfied when they will be provided with value added products, at fair prices, providing after sales service giving correct and timely information, ensuring that product is reaching to the customer etc. 6. Environmental Protection: Business has done and is doing so much irreparable harm to the environment that it becomes an obligation for them, not only morally but also legally to undo the damage by taking serious and responsible steps to protect the environment and keep it in healthy condition. They should adopt all the modern technology which are there to ensure that their operation doesnt harm the environment. With the protective action business should also take corrective action that is to grow more and more trees, to educate its employees and people in general about environment. 7. Fair Trade Practices Fair trade practices of business constitutes of: (a) Avoidance of formation of cartel or following monopolistic practices. (b) By creating shortages, for the purpose of black marketing and speculation. (c) By exaggerating and making false statements about the claims. (d) Not buying political favors to sway decisions it its favour. (e) Following healthy competition with competitors by not indulging in industrial espionage or other unethical means. (f) Not deliberately make organization sick to avoid obligations or to escape from responsibilities. (g) Not to involve in insider trading or to take undue advantage of inside information. (h) Not bribing public servants and corrupting democratic structure of country. (i) Paying taxes, duties and other dues timely and honestly. (j) To give required information to shareholders and all other stake holders. (k) Making timely payment of borrowing and interest. (l) While dealing with suppliers instead of using bargain power corporation should use reward and cooperation power that is establishing good relation with supplier and helping supplier in maintaining quality and developing new
product for the organization but it may look costly affair initially but ultimately it pays Japanese usually believes in establishing good rapport with their suppliers. (m) Not making any communication strategy is which is not compliant with social norms. (n) Law of the land should abide business. 8. Local development: As business uses the resources of society so business is also responsible of local development. Business can perform various function to develop local area. In fact, if every business house take responsibility of some villages then miracle can happen in India. Business houses like TATA Chemicals, ITC, HLL are doing so. Cooperative as IFFCO is following this concept. Here business house adopt some village and then he construct road in village, spread education in village, ensure health programmes, promotes family planning, and other social reform programmes, helps farmers in agriculture and marketing of their product, promoting handicraft and cottage industry in villages. HLL is giving employment and empowerment to the women of villages through its Operation SHAKTI and ITC is revolutionizing the village distribution system through its e- choupal system. Check Your Progress 2 Fill in the blanks: 1. ________________claims that the ethical mandate of business is to increase the shareholders profit. 2. _______________analysis is effective tool to measure the increment in shareholders wealth. 3. _____________ has won UNESCOs world population award. 4. HLL is giving employment and empowerment to the women of villages through its Operation ______________. 5. M&M is doing research in developing alternative _________________.
2.6 KEYWORDS
EVA: Economic Value Added, it is an increment in shareholders wealth beyond its expected return. FMCG: Fast Moving Consumer Goods. BPO: Business Process Outsourcing. JRD: Jahangir Ratan DadaBhai TATA. NGO: Non Govt. Organization, the organizations that work for social welfare. PSUs: Public Sector Units.