Social Responsibility of Business

Social responsibility is the obligation of

the decision makers to take decisions
which protect and improve the welfare of
the society as a whole along with their own
interests.
Social responsibility means the intelligent
& objective concern for the welfare of
society and leads in the direction of
human welfare.

Carrolls model:

Carroll has proposed a three dimensional conceptual model of

corporate performance. A firm has the following four
categories of obligations of corporate performance:
a) Economic
b) Legal
c) Ethical
d) Discretionary
Firm being an economic activity, the main responsibility is
economic along with complying with the legal responsibilities.
Ethical responsibilities are norms which the society
expects the business concern to observe even though they
are not mandated by law.
While discretionary responsibilities refer to the voluntary
contribution of the business to the social cause like
involvement in community development etc. Carroll points
out that these four categories are not mutually exclusive and
presented them as a pyramid of CSR.

The Pyramid of Social Responsibility

DISCRETIONARY
Responsibilities
Be a good Corporate Citizen.
Contribute resources to the
community; improve quality of life.

ETHICAL
Responsibilities
Be ethical.
Obligation to do what is right,
just and fair; Avoid harm.

LEGAL
Responsibilities
Obey the Law
Law is societys codification of right and wrong;
Play by the rules

ECONOMIC
Responsibilities
Be Profitable

The foundation upon which all others rest

Carrolls Model

Halals model:
Halals return on resources model of corporate performance
points out that a firm can only attempt to unite the diverse
interests of various social groups to form a workable
coalition engaged in creating value for distribution among
members of the coalition. Beyond a certain level of
economic activity the social issues at stake become
conflicting.
Ackermans model:There are three phases.
The first phase is one when top management recognizes
the existence of a social problem and acknowledges the
companys policy by making it an oral or written statement.
The second phase is characterized by the company
appointing staff specialists to study the problem and
provide recommendations.
The third phase involves the implementation of the social
responsibility programmes.

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 governments 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.
Friedmans 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.

To abide by the laws of the land.

To pay taxes honestly.
To avoid corrupting.
To encourage fair trade.
To avoid monopoly.

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 firms 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.