Social Responsibility of Business: Definitions, Concept, Objectives, Benefits and Kinds

The obligation of any business to protect and serve public interest is known as social responsibility of business. Social responsibility is an ethical or theory that an entity, be it an organization or individual, has an obligation to act to benefit society at large. Social responsibility is a duty of every individual or organization has to perform so as to maintain a balance between the economy and the ecosystem.

Social responsibility means sustaining the equilibrium between the two. It pertains not only to business organizations but also to everyone who’s any action impacts the environment. This responsibility can be passive, by avoiding engaging in socially harmful acts, or active, by performing activities that directly advance social goals.

Learn about:- 1. Introduction to Social Responsibility of Business 2. Meaning and Definitions of Social Responsibility 3. Arguments for and Against 4. Concept 5. Role 6. Principles 7. Objectives 8. Reality. 9. Benefits 10. Kinds 11. Opposing Views 12. Limitations.

Social Responsibility of Business: Meaning, Concept, Objectives,Role, Opposing Views, Arguments for and Against and Limitations

Social Responsibility of Business – Introduction, Definitions, Arguments, Social Audit, Measurement and Conclusion

Introduction:

Business is normally conducted within a social network. Many groups outside and inside the business firm want “a piece of action”, such as- customers seek fair prices and satisfaction from their purchases: minorities insist that a fair share of those jobs should go to them, while women also demand equal opportunities at work; employees want jobs wages, healthy work place, some security after retirement and want to be treated humanely and with dignity.

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Thus, business cannot escape from society and society cannot exist without business. The relationships between business and society stands eternally established. No one can engage himself in business by his own unaided efforts. Society provides requisite aids; it is, in fact, the area in which business operates. This concept involves the whole of business actions and the entire social structure.

Meaning and Definitions of Social Responsibility of Business:

There is no definition of the concept of social responsibility, which is valid for all business concerns and for all times. This is because responsibilities of business should be related to the changing social expectations, which is dependent upon the social, political and other environmental factors, which are dynamic too. However, a review of some definitions would be useful to understand the concept of social responsibility.

According to Raymond Bauter, “Social responsibility is seriously considering the impact of the company’s actions on society”. This definition is quite broad and provides a frame of reference which suggests that -business responsibility to the society goes beyond simply assuming the profit-making role.

In the words of Keith Davis and Robert Blomstrom, “Social responsibility refers to a person’s obligation to evaluate in the decision making process the effects of both his personal and institutional decisions and actions on the whole social system.” According to them, corporate social responsibilities mean the obligation of decision-makers to take actions which protect and improve the welfare of society as a whole along with their own interest.

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According to Joseph McGuire, the idea of social responsibilities supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society, which extend beyond these obligations.

Archie B. Carrol is of the view that “the social responsibility business encompasses the economic, legal, ethical and discretionary expectations placed on organizations by society at a given point time”.

In simple words social responsibility means an intelligent and objective concern for the welfare of society that limits or prevents individual and corporate behaviour from ultimately destructive activities, no matter how immediately profitable and leads in the direction of positive contributions, wherever feasible, to the betterment human resources in different ways as desired by society.

Social responsibility indicates personal obligation of people, as they act in their own interest, to ensure that the rights and legitimate interests of other are not sacrificed by their behavior and action. Basically, it means that managers should consider the effects of their business decisions (in business planning and developing corporate strategies) upon all stakeholders interested in the enterprise directly or indirectly and who may be adversely affected by those corporate decisions.

Argument for Social Responsibility:

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The arguments in support of business assumption or social responsibilities are based on two key facts:

(a) Business operation causes serious social problems and so business has a moral responsibility to solve them or at least ameliorate them.

(b) Even in problem areas where business is not guilty of causing them directly, business should do something in its own enlightened self-interest to promote social welfare.

Changing Public Needs and Expectations:

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One of the important arguments for social involvement is that changing public needs have led to changing expectations of business. Society gives business its charter to exist, that charter can be amended or revoked at any time that business fails to live up to society’s expectations. Therefore, if business wishes to remain viable in the long run, it must respond to society’s needs and give society what it wants.

As Drucker has observed the first responsibility which management owes to the enterprise…………. it to consider such demands made by society on the enterprise (or is likely to be made in the near future) as may affect attainment of its business objectives. It is management’s job to find a way to convert these demands from threats to or restrictions on, the enterprises freedom of action into opportunities for sound growth, or at least to satisfy them with least damage to the enterprise.

Balance of Responsibility with Power:

Another argument for social responsibility that business responsibility should be related to its power. “It is reasoned that business has large amounts of social power. It affects the environment, consumers, community conditions and many other areas of society, In turn; an equal amount of responsibility is required to match its power, because any other arrangement would invite irresponsible behavior that would reduce the public good”.

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Public Image:

Each individual firm seeks an enhanced public image so that it can gain more customers, better employees and other benefits. It can be possible by assuming social responsibilities beyond the commercial and legal obligations.

Business has the Resources:

Business has the managerial talent, functional expertise and financial resources to take up social obligations, besides fulfilling its economic obligations. The efforts of government and social organizations have to be supplemented by business concerns so that social problems can be more effectively solved. Business has the innovative ability and with its productivity-oriented approach to problems, it can confidently assume social role.

Arguments against Social Responsibility:

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The argument against and for assumption of social responsibilities by business represent basically the classical and neo-classical school of economic thought respectively, Adam Smith and Milton Friedman belong to the classical school of thought. The thoughts of John Meynard Keynes, Elton Mayo, Adolf Berle, George Goyder and Mahatma Gandhi provide support to the neoclassical idea of social responsibility of business.

An outline of the pros and cons’ of social responsibility of business follows:

The most powerful argument against social responsibility is that business has profit maximization as its main objective. Since business operates in a world of scarce resources, the economic efficiency of business is a matter of top priority and should be the sole mission of business.

Business’s function is economic, not social and economic values should be the criteria used to measure success. In this kind of system, it is assumed that managers are agents of the stockholders and all their decisions are controlled by their desire and obligation to maximize profits for the stockholders and to safeguard the company, while complying with law and’ social custom.

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Another point of view is that business has no direct lines of social accountability to the people; therefore, it is unwise to allow business activities in areas where business is not accountable. Accountability should always apply when action is taken and it is poor social control to allow any other kind of arrangement. Until society can develop mechanisms, that establish direct lines of social accountability from business to the public, business must stand clear of social activities and pursue only its goal of profit, where it is directly accountable through the market system.

Social Responsiveness and Social Audit:

Business enterprises have realised that they should assume responsibility towards the society. The idea of organisational social responsiveness is “the development of organisational decision processes whereby managers anticipate, respond to and manage areas of social responsibility.”

Elements of Social Responsiveness:

Five important elements of social responsiveness are:

(a) Social goals should be planned and incorporated into the company’s planning process.

(b) Firms should examine the desires of society and assess how other companies are meeting the social desires.

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(c) Shareholders being owners of the firm must be informed about its social goals. Social goals should be disclosed in the annual reports.

(d) As managers have knowledge, skill and competence to carry out the social programme they should try different approaches to solve social problems and implement the best approach in terms of cost-benefit analysis.

(e) Managers should compute the cost of social programmes in terms of financial investments to assess their viability.

Measurement of Social Responsiveness:

Since social programmes form part of the organizational planning process, managers measure the effectiveness of these programmes to ensure they are consistent with the planned goals. Though it is difficult to measure the effectiveness of social programmes, a specific management tool available for measuring social responsiveness is social audit.

Meaning:

It is the assessment of the performance of an industry as a whole i. e., checking to the social responsibilities of an industry. In other words, the assessment of social performance of an organization.

Definition:

“Social Audit is a scientific and sophisticated technique of testing the truth of the social performance of a company with reference to its means and motives by an independent authority with a view to detect and prevent abuse of power”.

Thus, with the above definition one can understand that this social audit concentrates on the social responsibilities of a business and its degree of fulfillment for the sake of welfare of the people who are directly or indirectly depend on that business.

Role of Social Auditor:

His role concentrates on the following points:

(a) It requires an auditor to play a positive part in the service of the society.

(b) He measures the social performance of an enterprise.

(d) He measures contribution to human resources, improvement in environments, the quality of the products and contribution to the welfare of the people.

Objectives:

The following are the main objectives of social Audit:

i. It concentrates on social performance of an organization

ii. Its objective is to check fairness and accuracy of social accounts of an organization.

iii. To evaluate the socio-economic contribution made by an organization.

iv. It brings to the society about the discharge of social responsibility of an organization.

v. It advices to the management in preparation of social accounts.

vi. To verify the assets shown in the social balance sheet and check their values.

vii. To examine the correctness of amount shown as social equity in the liability side of the social balance sheet.

Steps Involved in Social Audit:

A social audit involves the following steps:

(a) Framing the social programmes.

(b) Monitoring organization’s activities in carrying out these programmes.

(d) Evaluating the performance of company’s socially responsive activities.

(e) Framing strategies to set future goals.

Importance:

The importance of social audit can be stated in the following way:

(a) Social audit assesses the social performance of a business enterprise.

(b) The social auditors may guide the management in the measurement of social performance, proper keeping of social accounting records and presentation of social statements.

(c) Social audit has also an important role to play in relation to an industry, as it can successfully assess the overall contribution made by an industry to the society and the national economy.

(d) To ensure effective allocation of scare resources, evaluation of different social projects should be done from the view point of their social costs and social benefits. This evaluation is done through social audit.

Conclusion:

Business by itself cannot be excepted to be socially responsible. Unless the shareholders show a restraint on their greed for dividends. Unless laborers develop a helpful and friendly attitude towards the management, unless consumers take interest in discriminating between good and bad among the business concerns, and unless the government follows policies conducive for healthy business practices.

Business has to play a role of a responsible citizen and every other section of the society should also prepare a smooth ground. The problem of reconciling the interests of the conflicting interest groups should find a solution. Developments in social accounting and social audit methods are the immediate needs for making the social responsibility concept a really meaningful and an effective philosophy for business world to follow.

Social Responsibility of Business – Concept, Definitions, Principles, Role, Arguments and Benefits

In 1960, Keith Davis suggested that social responsibility refers to businesses’ “decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest.”

Eells and Walton- “CSR refers to the problems that arise when corporate enterprise casts its shadow on the social scene, and the ethical principles that ought to govern the relationship between the corporation and society.”

Social responsibility entails developing businesses with a positive relationship to the society which they operate in.

Concept of Social Responsibility:

These days the scale of measurement or evaluation of business is not as it used to be about fifty years ago. At that time only that business organisation was considered good which was earning profit for its owner but today the situation is absolutely changed. Today the responsibility of business is not limited to its owner but it has assumed large dimensions. Business has to look towards the interests of many other parties along with the interests of the owner.

The employees, consumers, suppliers, competitors, government, community and even the world happen to be the other parties. Today only that business is considered good which keeps in mind the interests of these parties along with the interests of the owner. This responsibility of business, which includes the satisfaction of these parties along with the owner, is called the social responsibility of business.

Definitions of Social Responsibility:

According to International Seminar, New Delhi 1955, ”Social responsibility of business means responsibilities of business towards customers, workers, shareholders and the community.”

According to, H.R. Bowen, “Social Responsibility of Business is to pursue those policies, to make those decisions or to follow those lines of action which are desirable in term of the objectives and values of our society”.

Role:

When we think of role of business firm, the economic role of business is usually the first thing we think of. When we explore why business is important, we should look beyond its economic role, but it is what we do with the wealth created by business that enables us to increase our quality of life. Nature of business is such that it goes beyond only economic role and profit maximization.

1. Entrepreneurship – Business provides the opportunity for individuals with ideas to develop them and gain rewards.

2. Innovation – Business provides the incentive and the resources needed to maintain continuous R&D programs.

3. Employment – Business provides almost 80% of the opportunities for employment.

4. Provider of goods and services – Business combines labour and other resources to produce goods and services beyond the ability of most individuals to produce.

5. Source of government revenue – Business provides the government with revenue from taxation.

6. Wealth creation – Business provides an avenue for investment and the potential to make a profit.

7. Quality of life – Business enables the production of an enormous range of goods and services that improve our standard of living.

8. Choice – Through competition and trade consumers have access to a wide range of goods and services.

Apart from above mentioned points social role of business has gained immense importance and popularity and has come to be known as corporate social responsibility.

Principles:

Some of the key principals are:

Principle 1 – Ethics, Transparency and Accountability:

i. Ethical conduct in functions and processes.

ii. Decisions and actions should be amenable to disclosure.

iii. Inform all the stakeholders of the operating risks involved.

iv. Establishment of a culture of integrity and ethics throughout the enterprise.

v. Ethical conduct at all levels by developing proper governance structures, practices and procedures.

vi. Transparent communication.

vii. Should not engage in practices that are abusive, corrupt or anti competition.

viii. Truthful discharging of the responsibility on financial and other mandatory disclosures.

ix. Avoid complicity with the actions of any third party that violates any of the principles.

Principle 2 – Providing Goods and Services that are Sustainable over Entire Life Cycle:

i. To function effectively and profitable the businesses should work to improve the quality of life of people.

ii. Engineer value in goods and services by keeping the impact of a product on the society through all stages of the product life cycle.

iii. Assure safety and optimal resource use over the life cycle of the product.

iv. Recognize the rights of its consumers through education, product labeling, appropriate and helpful communication, full details of the contents and safe usage.

v. Ensure that the manufacturing processes and technologies are resource efficient and sustainable.

vi. Regularly review and improve upon the process of new technology development, deployment and commercialization, incorporating social, ethical and environmental considerations.

vii. Recognize and respect the intellectual property rights.

viii. Promote sustainable consumption.

Principle 3 – Well-Being of Employees:

i. The principle encompasses all policies and practices relating to dignity and wellbeing of employees engaged within a business or in its value chain.

ii. The principle extends to all categories of employees within and outside its boundaries and covers work performed by individuals, including subcontracted and home based.

iii. Respect the right to freedom of association, participation, collective bargaining and access to proper grievance redressal mechanism.

iv. Equal opportunities to all caste, creed, gender, religion, race, disability or sex.

v. No child labor, forced labor or any form of involuntary labor (paid or unpaid).

vi. Cognizance of work life balance of employees especially women.

vii. Provide facilities for the wellbeing.

viii. Safe, hygienic and humane work place environment.

ix. Ensure continuous skill and competence up gradation of all employees.

x. Harassment free work place.

Principle 4 – Being Responsive towards Stakeholders, Especially the Disadvantaged:

i. Responsibility to think and act beyond the interests of its shareholders to include all their stakeholders.

ii. Proactively engage with and respond to those that are disadvantaged, vulnerable and marginalized.

iii. Systematically identify their stakeholders, understand their concerns, define purpose and scope of engagement, and commit to engaging with them.

iv. Acknowledge, assume responsibility and be transparent about the impact of their policies, decisions, product and services and associated operations on the stakeholders.

v. Give special attention to stakeholders in areas that are underdeveloped.

vi. Resolve differences with stakeholders in a just, fair and equitable manner.

Principle 5 – Respecting and Promoting Human Rights:

i. Recognizes that human rights are the codification and agreement of what it means to treat others with dignity and respect.

ii. Imbibes its spirit from the Constitution of India.

iii. Takes into account the Corporate Responsibility to Respect Human Right.

iv. Understand the human rights content of the Constitution of India, national laws and policies and content of International Bill of Human rights.

v. Integrate respect for human rights in management systems through assessing and managing human rights impacts of the business operation.

vi. Recognize and respect all human rights of all relevant stakeholders and groups within and beyond workplace.

vii. Promote the awareness and realization of rights across its value chain.

viii. Should not be complicit with human rights abuses by third party.

Principle 6 – Protecting and Restoring the Environment:

i. Recognizes the environmental responsibility is a pre requisite for sustainable economic growth and wellbeing of society.

ii. Emphasizes that environmental issues are interconnected at the local, regional and global levels.

iii. Encourages businesses to understand and be accountable for direct and indirect environmental impacts of their operations, products and services.

iv. Urges businesses to follow the precautionary principle.

v. Utilize natural and manmade resources in and optimal and responsible manner.

vi. Take measures to check and prevent pollution.

vii. Ensure that benefits are shared equitably.

viii. Continuously seek to improve environmental performance.

ix. Develop Environment Management Systems and contingency plans.

x. Report environment performance.

xi. Proactively persuade and support its value chain for adoption of this principle.

Principle 7 – Responsible Policy Advocacy that Enhances Public Good:

i. Recognizes that business operate within the specified legislative and policy frameworks prescribed by the Government.

ii. Acknowledges that in a democratic set up, such as – legal frameworks are developed in a collaborative manner with participation of all the stakeholders including businesses.

iii. Recognizes the right of businesses to engage with Government for redressal of a grievance or for influencing public policy and public opinion.

iv. Emphasizes that policy advocacy must expand public good.

v. Businesses, while pursuing policy advocacy must ensure that their advocacy positions are consistent with the Principles and Core Elements contained in these Guidelines.

vi. Businesses should utilize the trade and industry chambers and associations and other such collective platforms to undertake such policy advocacy.

Principle 8 – Supporting Inclusive Growth and Development:

i. Recognizes the challenges of social and economic development faced by India and builds upon the development agenda.

ii. Recognizes the value of energy and enterprise of businesses and encourages them to innovate and contribute to the overall development of the country.

iii. Emphasizes the need for collaboration amongst businesses, government agencies and civil society in furthering this development agenda.

iv. Reiterates that business prosperity and inclusive growth and equitable development are interdependent.

v. Understand their impact on social and economic development.

vi. Innovate and invest in products, technologies and processes that promote the wellbeing of society and mitigate any negative impacts.

vii. Make efforts to complement and support the development priorities at local and national levels.

viii. Businesses operating in regions that are underdeveloped should be especially sensitive to local concerns.

Principle 9 – Providing Value to Customers Responsibly:

i. Basic aim of a business entity is to provide goods and services to its customers in a manner that generates value for both.

ii. Acknowledges that no business entity can exist or survive in the absence of its customers.

iii. Recognizes that customers have the freedom of choice in the selection and use of goods.

iv. Recognizes that businesses have an obligation to mitigating the long term adverse impacts that excessive consumption may have on the overall well- being of individuals, society and our planet.

v. Take into account the overall well-being of the customers and that of society.

vi. Ensure that they do not restrict the freedom of choice and free competition in any manner.

vii. Disclose all information truthfully and factually, through labeling and other means.

viii. Promote and advertise their products in ways that do not mislead, confuse the consumers or violate any of the principles in these guidelines.

ix. Exercise due care and caution while providing goods and services that result in over-exploitation of natural resources or lead to excessive conspicuous consumption.

Provide adequate grievance handling mechanisms to address customer concerns and feedback.

Arguments against Social Responsibility:

The opponents of the concept of social responsibility of management argue that business is an economic organisation and money or profit alone should be the criteria of success of a business organisation. A manager is an employee of the owner of the business organisation and an employee is responsible only towards his employer. So according to this concept a manager is only a money-making machine for the owner.

This concept becomes clear after studying the following facts:

(1) Contrary to the Objective of Business:

Just as the primary objective of players in the play-ground is to achieve victory, in the same way the chief objective of business is to enhance its profits by utilising its resources. On the other hand, in the social and business circles, a manager is given recognition (or prominence) only because of his ability to earn maximum profits.

(2) Inefficiency in the System:

There is no power other than self-interest which can get work out of people. If owners of business, by ignoring self-interest, start thinking of social responsibility the whole work-system will turn inefficient and when they have a feeling that they will not get the whole profit of their business their interest in work will dwindle. Therefore, managers should work only for the profits of the owners or the shareholders and the decision about the manner of utilisation of their property will be made by them.

(3) Effect of Business Values:

Business should not have any social responsibility otherwise social values will come to be dominated by business values, which in itself is a painful dilemma. It means that when business is alive to its social responsibility, the people in the beginning will be so thoroughly impressed by it that in future business will come to occupy a position of predominance. In such a situation it can ignore society and make efforts to earn undue profits.

It is undoubted that whenever any big organisation, may it be religious, business, army or some other organisation, came to establish its supremacy over society, the results have not been pleasant. This thought has been presented by Theodore Levitt.

Arguments for Social Responsibility:

Various scholars have expressed their ideas in favour of the concept of social responsibility on the basis of following facts:

(1) Business is a Part of Society:

Since business organisations are a part of society they must have a positive attitude towards the needs of society. Business is only a sub-system of society and this sub-system must contribute to the welfare of the main system.

Therefore, the decisions taken by the manager should take into consideration the welfare of not only his organisation but also the welfare of other sub-systems (different parts of society like customers, shareholders, employees, etc.) so that the entire society or the complete system is benefitted. When one sub-system thinks of the welfare of the other sub-systems, the others also come to its help which finally results in the welfare of all.

(2) Avoidance of Govt. Regulations:

If business does not take care of its social responsibility, the Govt., has to interfere increasingly in the business-system which adversely affects the progress of business. Therefore, the manager should give priority to the social responsibility of business to avoid excessive Govt., interference.

(3) Long-Term Self-Interest of Business:

The social responsibility of business, if taken care of in the present, ensures the success of the organisation in future. It is possible that in the beginning an organisation may have to bear the financial burden resulting from its social responsibility but the future of the organisation becomes secured.

Benefits of Social Responsibility:

Social responsibility is a voluntary effort on the part of business to take various steps to satisfy the expectation of the different interest groups. As you have already learnt, the interest groups may be owners, investors, employees, consumers, government and society or community.

1. Public Image:

The activities of business towards the welfare of the society earn goodwill and reputation for the business. The earnings of business also depend upon the public image of its activities. People prefer to buy products of a company that engages itself in various social welfare programmes. Again, good public image also attracts honest and competent employees to work with such employers.

2. Government Regulation:

To avoid government regulations businessmen should discharge their duties voluntarily. For example, if any business firm pollutes the environment it will naturally come under strict government regulation, which may ultimately force the firm to close down its business. Instead, the business firm should engage itself in maintaining a pollution free environment.

3. Survival and Growth:

Every business is a part of the society. So for its survival and growth, support from the society is very much essential. Business utilizes the available resources like power, water, land, roads, etc. of the society. So it should be the responsibility of every business to spend a part of its profit for the welfare of the society.

4. Employee Satisfaction:

Besides getting good salary and working in a healthy atmosphere, employees also expect other facilities like proper accommodation, transportation, education and training. The employers should try to fulfill all the expectation of the employees because employee satisfaction is directly related to productivity and it is also required for the long-term prosperity of the organization.

For example, if business spends money on training of the employees, it will have more efficient people to work and thus, earn more profit.

5. Consumer Awareness:

Now-a-days consumers have become very conscious about their rights. They protest against the supply of inferior and harmful products by forming different groups. This has made it obligatory for the business to protect the interest of the consumers by providing quality products at the most competitive price.

Social Responsibility of Business – Meaning, Concept, Objectives, Arguments, Reality and Kinds

Business is an indispensible part of the society and gets its manpower and other resources from society. It is permitted by the society to carry on industrial or commercial activities and thereby earn profits. When the very existence of a business organisation depends on society, it should not ignore its responsibility towards the society.

It should conduct the activities in a manner that fulfill its obligations towards the society. It should not indulge in any socially undesirable practices (like black marketing, adulteration, etc.). Business can get success in the long run only when it is socially responsible and follows ethical behaviour. It must be noted that now business enterprise is considered not only an economic institution but also a social institution.

Concept and Meaning of Social Responsibility:

Social responsibility is the obligation of business to act in a manner which will serve in the best interests of the society. Social responsibility of business to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of our society.

In the words of Keith Davis, “Social responsibility refers to the businessman’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest”.

The concept of social responsibility with respect to business implies that the firm operates in a manner that it will accomplish social gains along with economic gains, in which the business firm is interested. A socially responsible business must act with due concern for the effects on the lives of other people.

It should not keep ‘profit maximization’ as the sole objective. Social responsibility is broader than legal responsibility as the latter may be fulfilled by mere compliance with law, whereas the former involves voluntary efforts of business for the benefit of society. A debate often arises whether business should assume social responsibilities or not.

Objectives:

Apart from earning profits, a business must aim to meet the following objectives, towards its social responsibility:

1. Efficient Utilization of Resources:

Businesses must use the resources available in the society in the most optimal or efficient manner. In other words, the resources of the society must not be wasted. Business must aim to maximize productivity rather than increase production through consumption of more resources.

2. Employment Generation:

Every time a new business is started, it should lead to generation of employment. A kirana store may need just one assistant, while a Small industry may employ about 20 people. A large industrial unit may create an employment opportunity for a few thousands of employees. Thus, generating employment is one of the desirable social responsibilities of business.

3. Maximize Customer Satisfaction:

Customer is the reason for the existence of any business. If there is no customer, there is no business. However, the interests of the customer are often compromised to increase profitability. For example, a restaurant may use cheaper, unrefined oil to keep costs low. It is the social responsibility of business to maximize customer satisfaction by providing high quality goods at reasonable prices.

4. Employee Contentment:

Irrespective of its nature, employees are key resources that contribute to the success of any business. It is often noticed that employee benefits are kept to the minimum to contain costs. This results in unhappy and discontent employees, leading to attrition. Business must consider its employees as assets rather than commodities or resources. Business should not only pay its employees well, but it must also take care of their career aspirations. Not only employees, but their families should also feel happy.

5. Support Government Initiatives:

Business must pay its taxes honestly. It should follow the law in letter and spirit. It must fully comply with the policies framed by the Government in larger national interest.

6. Service to Society:

Business must complement the efforts of the Government in solving social problems. It should fully comply with policies pertaining to environment, /it must participate in initiatives to solve social problems such as unequal distribution of economic resources, unemployment, etc. Business must help society by constructing schools and colleges, running hospitals, places of worship, etc. Business must adopt a village and sponsor all activities to spread health, knowledge and literacy.

Let us discuss the various arguments offered in favour of and against the assumption of social responsibilities by business.

Arguments for Social Responsibility:

The arguments advanced in favour of business assuming social responsibility are as follows:

1. Justification for Existence and Growth:

As business is the creation of society, it is expected to satisfy human needs by providing goods and services. Although, profit is an important objective of any business activity, but it should be looked upon as an outcome of service to the people.

A business with a good public image enjoys the support of society and it can prosper and grow only when it continuously assumes social responsibility. As business is a part and parcel of the society, it must think of social obligations.

2. Long-Term Interest of the Firm:

It is in the long-term self-interest of the business to fulfill its social responsibility towards various groups of society, like workers, consumers, shareholders, government officials, etc. A better social set improves its public image and prospects of growth in the long run. The society may also reject an enterprise if it does not care for the social welfare.

3. Avoidance of Government Regulation:

If the businessmen fail to meet their social responsibilities voluntarily, then the government may intervene and enact suitable legislations to force them to assume social responsibility. However, businessmen do not like government legislation as it restricts their freedom and flexibility. Hence, it is in the interest of businessman to voluntarily fulfill its obligations to the society.

4. Maintenance of Society:

If a business does not meet its social responsibilities, then people related to the business may resort to anti-social activities, if they feel that they are not getting their dues from the business. This may be harmful for the business. So, business enterprises must fulfill social responsibilities.

5. Availability of Resources with Business:

Business enterprises have considerable financial and human resources, which can be effectively used for solving social problems. For example, managerial talent, technical expertise and capital resources of the business can help the society to tackle its problems better.

Business enterprises have tremendous social power because of huge resources in hand. Their decisions and activities considerably affect the economic growth. So, a business must discharge its social responsibilities to strike a balance between ‘responsibility’ and ‘power’.

6. Converting Problems into Opportunities:

It is a common saying that ‘risk is the reward of profit bearing’. Business is capable of converting risky situations into profitable deals. It not only helps in solving social problems but can also be used effectively as an opportunity for growth.

7. Better Environment for Doing Business:

When the society is confronted with diverse and complicated problems, then there are little chances for the success of the business. So, in order to have better environment for doing business, the business should assume social responsibilities to solve problems of the society.

8. Holding Business Responsible for Social Problems:

Every business uses capital, physical and human resources of the society for business purposes. Moreover, a number of social problems like environmental pollution, unsafe workplaces, corruption, etc. arise due to activities of business enterprise. So, it is the moral responsibility of business to help society in solving such problems and devoting some of its resources in the overall development of the society.

Arguments against Social Responsibility:

There are some arguments against the concept of social responsibility by the business organisations.

They are as follows:

1. Violation of Profit Maximisation Objective – Business is an economic institution, which exists with the basic aim of profit maximisation. Profit is necessary for survival and growth of the business. So, assuming social responsibility is against this objective.

If a business maximizes its profits through optimum use of resources, then the social responsibility is automatically assumed (as business is making best possible use of society’s resources).

2. Burden on Consumers – Social responsibilities like pollution control and environmental protection are very costly and often require huge financial investments without proper returns. In such circumstances, businessmen would like to pass the burden of social responsibility to consumers in the form of higher prices. However, it is unfair to impose heavy burden on consumers in the name of social responsibility.

3. Lack of Social Skills – Social problems are not solved in the way business problems are solved. So, businessmen, who are good at managing business, may not have the required skills to solve the complex social problems. Therefore, social problems should be solved by other specialised agencies. For Your Reference: Social problems have been solved to great extent by institutions like Xavier Institute of Social Sciences and Institute of Rural Management, which train students for social work only.

4. Lack of Broad Public Support – Generally, public does not like involvement or interference of business in social programmes. As a result, business is unable to solve social problems due to lack of confidence and cooperation of the people.

Reality of Social Responsibility:

After examining the various arguments for and against the assumption of social responsibility, it can be concluded that the business enterprise should also assume social responsibility in addition to earning profits. Although business is an economic institution, which operates with the basic aim of profit maximisation, but it should give due importance to social problems, in order to survive and to build good public image in the long run.

The various factors, which have forced and persuaded businessmen to consider their social responsibilities, are:

1. Threat of Public Regulation:

In a democratic country like India, government is expected to take care of welfare of all sections of society. If any business enterprise operates in a socially undesirable manner, then appropriate action is taken against such enterprises. Such a threat of public regulation forces businessmen to follow social responsibilities.

2. Pressure of Labour Movement:

Today, labour has become far more educated and organised. Labour movements have become very powerful in taking care of interests and welfare of working class. It has forced the business enterprises to give due regard to the welfare of workers.

3. Impact of Consumer Consciousness:

The consumers of the present day are well informed and educated. The growth of mass media and increasing competition, have made them conscious of their rights and power. The earlier approach of ‘Caveat Emptor’ (Let the buyer beware), has now been changed to ‘Caveat Venditor’ (Let the seller beware).

As a result, even the business enterprises have started following customer-oriented policies. Now, consumers expect better quality products at reasonable prices. They can also organise themselves in case business resorts to undesirable practices.

4. Development of Social Standard for Business:

Today, business enterprises are not allowed to operate just for money. According to new social standards, business should also serve social needs in addition to achieving economic objective of profit. As business is a creation of society, its functioning is ultimately judged on the basis of social standards.

5. Development of Business Education:

With the development of business education, consumers, investors, employees or owners have become more sensitive towards social issues. Educated businessmen have now become more aware of the social purpose of business.

6. Relationship between Social Interest and Business Interest:

Business enterprises have started realising that social and business interests are complementary and not contradictory to each other. They have also realised that long-term benefit of business lies in serving the society well. Similarly, business is now being recognized as an essential element of a modern civilized society.

7. Development of Professional, Managerial Class:

In the present scenario, professional managers have altogether different attitude towards social responsibility as compared to the earlier class of owners. They are more interested in satisfying various interest groups associated with the business than merely following profit goals.

Finally, it can be concluded that business is the part and parcel of society and it must justify its continuance by fulfilling its roles and responsibilities towards society along with fulfilling economic objectives.

Kinds of Social Responsibility:

Social responsibility of business can broadly be divided into following four categories:

1. Economic Responsibility – Business enterprise is basically an economic entity. Therefore, its primary social responsibility is to produce goods and services as per needs of the society and to sell them at a profit. There is little discretion in performing this responsibility.

2. Legal Responsibility – Every business enterprise has a responsibility to operate within the legal framework of the society. Various laws and regulations have been enacted in the interest of the business and society. The businessmen are expected to abide by the rules and regulations and to behave in a socially responsible manner. It must be noted that discharging of legal responsibility is compulsory for all business enterprises.

3. Ethical Responsibility – Ethical responsibility refers to moral obligations of a business enterprise. It is not compulsory for the business to assume ethical responsibility. There is an element of voluntary action in performing this responsibility. For example, respecting the religious sentiments and dignity of people while advertising for a product.

4. Discretionary Responsibility – This is a purely voluntary obligation that an enterprise assumes. A business enterprise assumes this responsibility to show its concern towards problems faced by the society. For example, contributions to charity or helping people affected by natural calamities like floods or earthquakes.

Social Responsibility towards Different Interest Groups:

A business operates in the society and interacts with various groups of the society such as owners, workers, consumers, government and community.

The specific responsibilities of business towards various groups are discussed as follows:

1. Responsibility towards the Shareholders or Owners:

The responsibility of business enterprise to shareholders or owners may be summed up as follows:

(i) To provide fair return on their capital investment.

(ii) To ensure safety of such investment.

(iii) To provide regular, accurate and complete information about the working of the company.

(iv) To provide information regarding schemes of future growth.

(v) To offer reasonable appreciation of capital through optimum use of resources.

2. Responsibility towards the Workers:

The management has following social responsibilities towards workers:

(i) To create and provide proper and safe working conditions.

(ii) To ensure fair wages and a fair deal from the management.

(iii) To provide opportunities for personal growth and development.

(iv) To provide opportunities to the workers for meaningful work.

(v) To respect the democratic rights of the workers to form unions.

3. Responsibility towards the Consumers:

Business enterprise should perform following responsibilities towards the consumers:

(i) To supply right quality and quantity of goods and services at reasonable prices.

(ii) To follow fair trade practices and take proper precautions against malpractices like adulteration, poor quality, misleading advertising, etc.

(iii) To provide full information about the product and the company to the consumers.

(iv) To ensure regular supply of goods and services.

4. Responsibility towards the Government:

The social responsibilities of business towards the government are:

(i) To abide by rules and regulations of the country.

(ii) To pay taxes regularly and honestly.

(iii) To adopt fair trade policies and practices.

(iv) To assist the government in achieving their economic and social objectives.

5. Responsibility towards the Community or Society:

(i) To behave as a good citizen and act according to the well accepted values of the society.

(ii) To protect the natural environment and avoid any type of pollution.

(iii) To develop a good image in the society through continuous interaction with various groups of people.

(iv) To take adequate safety measures in production of hazardous or unsafe products.

(v) To follow social norms, conventions, traditions and customs while framing business policies and programmes.

Social Responsibility of Business – Opposing Views, Arguments for and Against and Limitations

Modern business organizations are no longer merely economic institutions. Society accepts and even encourages business to become involved in its social, political, and legal environment. That might not have been true forty years ago, but it is the reality of today. In fact, a survey of business owners found that 68 per cent of them said they would continue socially responsible practices even if they found out these activities were cutting into profits.

Opposing Views on Social Responsibility:

Generally social programs add costs that can be borne by organizations in four major ways: increased efficiency, higher prices, lowered wages, or reduced profits. The subject of debate is – whether business organizations should undertake these costs or not. Most of the debate has focused on extremes.

On one side, there is the classical – or purely economic view – that management’s only social responsibility is to maximize profits. On the other side stands the socioeconomic position, which hold that the management’s responsibility goes well beyond making profits to include protecting and improving society’s welfare.

Classical view says that the management’s only responsibility is to maximize profits. The most prominent opponent of the concept of broad corporate social responsibilities is Milton Friedman, who won the Nobel Prize in Economics in 1976. He claimed that someone must eventually bear the costs of social responsibility. That is why the managers should focus on what they know best- how to make profit.

Milton Friedman further says “There is one and only one social responsibility of business- to use its resources and energy in activities designed to increase its profits so long as it stays within the rules of the game… engages in open and free competition, without deception and fraud….”

“Managers who devote corporate resources to pursue their own notions of social good, Friedman goes on to say, are unfairly taxing their own shareholders, employees, and customers. In short, businesses should produce goods and services efficiently and leave the solution of social problems to government agencies and concerned individuals.”

Socioeconomic view says that business corporations are intertwined with society and their responsibility goes beyond making profits to include protecting and improving society’s welfare.

Supporters of the socioeconomic view contend that managers should be concerned with maximizing financial returns over the long run. To do that, they must accept some social obligations and the costs that go with them. They must protect society’s welfare by not polluting, not discriminating, not engaging in deceptive advertising, and so on.

They must also play an activist role in improving society by involving themselves in their communities and contributing to charitable organizations.

How Companies Respond?

Major corporations have taken various approaches to social responsibilities. Some provide a variety of social services to their employees; some companies have invited the community to participate in some corporate decisions affecting the region, while others contribute to local urban renewal or antipollution programmes.

But there are still many examples on negative side. For instance, some mining companies routinely submit data to the government to show that implementing safety standards would be too costly and unreasonable.

Arguments For and Against Social Responsibility:

The specific arguments outlining the major points for and against the social responsibility of business are listed below:

Arguments For:

The major arguments supporting businesses being socially responsible are-

1. Public Expectations:

Social expectations of business have increased dramatically since the 1960s. Public opinion now supports business pursuing social as well as economic goals.

2. Long-Run Profits:

Socially responsible businesses tend to have more secure long- run profits. This is the normal result of the better community relations and improved business image that responsible behaviour brings.

3. Ethical Obligation:

A business firm can and should have a social conscience. Businesses should be socially responsible because responsible actions are right for their own sake.

4. Public Image:

Firms seek to enhance their public image to get increased sales, better employees, access to financing, and other benefits. Since the public considers social goals important, business can create a favourable public image by pursuing social goals.

5. Better Environment:

Business involvement can help solve difficult social problems, helping create a better quality of life and a more desirable community in which to attract and keep skilled employees.

6. Discouragement of Further Government Regulation:

Government regulation adds economic costs and restricts management’s decision flexibility. By becoming socially responsible, business can expect less government regulation.

7. Balance of Responsibility and Power:

Business holds a large amount of power in society. An equally large amount of responsibility is required to balance against it. When power is significantly greater than responsibility, the imbalance encourages irresponsible behaviour that works against the public good.

8. Stockholder Interests:

Social responsibility will improve a business’s stock price in the long run. The stock market will view the socially responsible company as less risky and open to public criticism. Therefore, it will award its stock a higher price earnings ratio.

9. Possession of Resources:

Business organizations have the financial resources, technical experts, and managerial talent to support public and charitable projects that need assistance.

10. Superiority of Prevention over Cures:

Social problems must be addressed at some time. Business should act before these problems become more serious and costly to correct, taking management’s energy away from accomplishing its goal of producing goods and services.

Arguments Against:

The major arguments against business assuming social responsibility are:

1. Violation of Profit Maximization:

This is the essence of the classical viewpoint. Business is being socially responsible when it attends strictly to its economic interests and leaves other activities to other institutions.

2. Dilution of Purpose:

The pursuit of social goals dilutes business’s primary purpose- economic productivity. Society may suffer if both economic and social goals are poorly accomplished.

3. Costs:

Many socially responsible activities don’t cover their costs. Someone has to pay these costs. Business must absorb the costs or pass them on to consumers through higher prices.

4. Too Much Power:

Business is already one of the most powerful sectors of our society. If it pursues social goals, it would have even more power. Society has given business enough power.

5. Lack of Skills:

The outlook and abilities of business leaders are oriented primarily economics. Business people are poorly qualified to address social issues.

6. Lack of Accountability:

Political representatives pursue social goals and are held accountable for their actions. Such is not the case with business leaders. There are no direct lines of social accountability from the business sector to the public.

7. Lack of Broad Public Support:

There is no broad mandate or outcry from society for business to become involved in social issues. The public is divided on the issue of business’s social responsibility. In fact, it is a topic that typically generates heated debate. Actions taken under such divided support are likely to fail.

Limitations to Socially Responsible Behaviour of Business:

The concept of corporate social responsibility is now firmly rooted on the global business agenda. But in order to move from theory to concrete action, few obstacles need to be overcome.

1. Attitude:

It is the attitude of the people running the organization, which is first limitation/initiation towards socially responsible behaviour of the organization. If the organization is too much focused towards profits without bothering for the long term implications of its behaviour, it would find it difficult to adopt the norms for improving the society.

2. Finances:

Before an organization can devote resources to socially desirable objectives, it must make enough profits to maintain the confidence and support of its shareholders and creditors. However, the organization may still act in socially responsible manner by maintaining fair dealings.

There may be many other limitations to social contributions of businesses, but given the right attitude and reasonable finances, other barriers can be overcome.