In this article we will discuss about the social responsibility of business. Learn about:- 1. Meaning and Definitions of Social Responsibility of Business 2. Justification for Social Responsibility 3. Evolution of the Concept 4. Nature 5. Need 6. Concept 7. Scope of Corporate Social Responsibility 8. Reasons for the Growing Concern of CSR 9. Perspectives 10. Arguments against Social Responsibility and Other Details.
- Meaning and Definitions of Social Responsibility of Business
- Justification for Social Responsibility
- Evolution of the Concept of Social Responsibility
- Nature of Social Responsibility
- Need for Social Responsibility
- Concept of Social Responsibility
- Scope of Corporate Social Responsibility
- Reasons for the Growing Concern of CSR
- Perspectives of Social Responsibility
- Arguments against Social Responsibility
- Arguments for Social Responsibility
- Social Responsibility of Business towards Society
- Role of Business in Environmental Protection
- Importance of Social Responsibility
- Barriers to Social Responsibility
- Voluntary Guidelines for Corporate Social Responsibility
1. Social Responsibility of Business: Meaning and Definitions:
The concept of social responsibility in relation to business means that the firm functions to accomplish its financial objectives and serves the society as well. No business exists in isolation. Every organ of the society contributes towards the success of a business. Thus it becomes imperative that business too does something for the society in return. This responsibility of business towards the society is called social responsibility.
A socially responsible firm should not work solely for profit maximization but should also seek the welfare of different sections of the society. Social responsibility of business refers to its obligations to take those decisions and perform those actions which are acceptable in terms of the objectives and values of the society.
“Social responsibility of business refers to the obligations of businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic and technical interest.” —Keith Davis
“Social responsibility is to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.” —Howard D. Bowen
“Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.” —United Nations Industrial Development Organisation (UNIDO)
“Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.” —The World Business Council for Sustainable Development (WBCSD).
2. Social Responsibility of Business: Justification for Social Responsibility:
Every business organisation operates in an environment with which it interacts. No organisation can survive in the absence of environment. It has to draw its inputs like manpower, money, machines, material, etc., from its environment. After converting the inputs into output, the organisation sells it to the various segments of society that are the important components of the environment.
Thus, for its very existence, a business organisation depends on the society both for the procurement of required input and disposal of its output. When this is the case, it becomes obligatory on the part of business also to do its best for the welfare of the various sections of the society.
There are no two opinions that making reasonable amount of profits is necessary for the survival and growth of business. There is also no controversy over the fact that the business should take care of the interests of customers. But along with these two basic objectives, the business should pay due attention to the long-term welfare of the society.
Today, it is expected of the business to take on itself the responsibility for serving and safeguarding the social interests as one of its important objectives.
Business can significantly assist the development of backward areas, agriculture, weaker sections of the society, social welfare and can also lead towards community development. With enormous resources at their disposal, the business organisations, specially the bigger ones, can decidedly play an important role towards social welfare and thus can be the pace-setters.
3. Social Responsibility of Business: Evolution of the Concept of Social Responsibility:
The evolution of the concept of social responsibility of business has passed through different stages of struggle. Business began merely as an institution for the purpose of making money. As long as a man made money and kept out of jail, he was considered successful. He felt no particular obligation and acknowledged no responsibility to the public. As an owner of his business, he thought that he had a perfect right to do with it what he pleased. Social norms and attitudes had very little influence on the practice of business.
The concept of social responsibility is that the business should take into account the welfare of all groups in society affected by it in conducting its affairs. As stated by Louis W .Cabot, President of Cabot Corporation it is “……………….. The making of ……………… business decisions, not with expediency done in mind, but with a real effort to judge- rightness and wrongness and using the same standards in business as. . In all other personal relations”.
Henry H. Albers has explained the concept of social responsibility of business as:
(i) Justice and fair play in all its dealings;
(ii) Making of serious attempts at growth and development of all the factors of constituents of business from owners to consumers;
(iii) Utilization of surplus primarily for the purposes adumbrated above in (i) and (ii);
(iv) Utilization of surplus, if at all left over, for any other social purpose deemed fit for assistance such as education and health. The surplus may further be utilized for purposes which should not be controversial and for which no new values should be setup by the business community. The values stand already set by the society itself, though there might be slight difference of opinion here and there in regard to the emphasis to be placed on certain values.
The following may be some such non- controversial purposes: elimination of poverty in certain, areas, providing employment, control of pollution and population, establishment of industrial peace, disposal of waste, provision of housing and transport facilities, making good water, food and power shortages, contribution to defense effort and many such others.
4. Social Responsibility of Business: Nature:
The term Social Responsibility of Business reflects the impact of a corporation’s activities on society. This embodies the performance of its economic function and other actions taken to contribute to the quality of life. These activities may extend beyond meeting the letter of law due to the pressures of competition or the requirements of contracts.
‘Corporate Social Responsibility of a business is operating in a manner which meets or excels the ethical, legal, commercial and public expectations that a society has from the business.’
The term corporate social responsibility refers to the concept of business being accountable to how it manages the impact of its processes on stakeholders on a voluntary basis.
The NAA Committee (1977) has identified four major areas of social performance- community development, human resources, physical resources and environmental contribution, and product or service contributions. The responsibility of business itself indicates the desire to ensure the optimum use of resources, development and expansion, operation and management, promotion of research environment, and environmental management etc.
Since corporates have to draw on the community in which they operate for all resources, they also have obligations to their multiple stakeholders. Stakeholders are defined as those who get affected by corporate policies and practices. It is acknowledged fact that business has not just financial accountability but also has the social and environmental responsibility. It is generally known as the triple bottom-line of good governance.
The licenses to operate in the societies trust that an organisation will work in the best interest of the society. Society itself is increasingly being critical about the operating norms in the industry. Business cannot be seen as aggravating the problems of the merger, poverty, and depletion of natural resources or inequities.
Entry barriers, adverse judgment from judiciaries or earlier, business was expected to serve the purpose of its stockholders as a creator of financial wealth. But now business is assigned to fulfill the expectations of different stakeholders like consumers, employees, shareholders, society, community, environment and government etc.
5. Social Responsibility of Business: Need:
Are business owners supposed to work only for profit-making or they should also see to it that different interest groups such as investors, consumers, employees, government and society are also benefited from them? An aspect of social responsibility is that it is voluntary in nature because some business persons may or may not choose to discharge their social obligations.
They may also choose to decide the extent to which they would prefer serving the interest groups. However, if a business aims for all-round growth, there is no escape from assuming social responsibilities.
In such a case, the following reasons have been laid down to explain the significance of social responsibility for a business enterprise:
1. Long-Term Interest:
It is in the long-term interest of the business to discharge its social obligations by serving different interest groups such as employees, consumers, government and citizens. Wise business persons know that unless they serve the society by fulfilling its needs, they will not be able to climb the success ladder. Working for the society, stakeholders and government helps an organization in establishing a strong public image. On the other hand, a business organization with vested selfish interests may get ignored by the society.
2. Indebted to Society:
A business uses the resources of the society for its functioning. Hence, it becomes obligatory for it to pay back its dues by serving the society. Businessmen should tend to the needs of the society and use its resources for community welfare. This practice ultimately helps the organization in establishing itself on the strong foundation of a pleased society and a cooperative labour force.
3. Social Power:
Business persons are endowed with a lot of social power. They have the potential to change the destiny of the population by collectively deciding for the country on crucial issues such as rate of economic progress, distribution of income among different income groups etc. Ideally, business persons should take up social responsibilities in proportion to their social power.
If the business enterprise misuses its social powers for selfish motives, the society can intervene via government controls and other laws. Therefore, it is morally right for a business to embrace its social obligations and discharge them loyally.
4. Public Image:
A business devoted towards fulfilling its social responsibilities is regarded highly by the society. Good rapport with employees, suppliers, customers and government helps in building a favourable public image of the business enterprise. Moreover, a socially responsible organization is considered trustworthy by the shareholders and investors.
5. Social Awareness:
These days, employees and customers are more informed about their rights. While consumers expect the seller to abide by the fair trade practices, workers want fair wages and other employee benefits. If the expectations of these interest groups are not met, they may resort to either anti-social activities or seek help from trade unions and consumer courts. This will lead to industrial turmoil and unrest within the society which is harmful for proper functioning of the business.
6. To Avoid Government Intervention:
If a business organization fails to acknowledge and perform its social duties, it is bound to lose its freedom and flexibility in the long-run. The Consumer Protection Act and other legislations passed by the government safeguard the interest of the customers against business persons indulging in black-marketing, adulteration, hoarding and many other illegal trade practices. Since, government intervention is not welcomed by business enterprises, social duties should be voluntarily carried out by all the organizations to avoid such situations.
7. Law and Order:
A peaceful society is congenial to the expansion of business. Unable to withstand exploitation by the business enterprises, the weaker sections can rebel and take the law and order in their hands. As a result, the survival of the business can be threatened.
8. Moral Justification:
A business possesses resources such as finance and talent pool to help bail out troubled masses out of social issues like poverty, dowry, unemployment and illiteracy by organizing special campaigns and programs. Additionally, business houses can assist the government in solving many other issues like lack of foreign exchange etc. Moreover, business organizations increase pollution by releasing untreated sewage into the environment. Thus, it is a moral obligation of the business to render its services in tackling these issues.
9. Socio-Cultural Norms:
India has a rich legacy of business values passed down by the legendary and morally upright business owners like Ratan Tata, Azim Premji, etc. Only those business persons who sincerely abide by the canon of business will get the privilege of being honored by the citizens and the government. Hence, the business should aim to promote equal opportunity and maintain healthy inter-personal relations with all the stakeholders such as customers, employees to carve a niche for itself as a honest enterprise.
The great socio-political leader Mahatma Gandhi propounded the philosophy that owners of wealth and property should hold and use the wealth for the welfare of the society. Therefore, company owners should operate the business not only for their own benefit, but also for the prosperity of the society. According to Keith Davis, since business has the resources to resolve the mounting social problems, it should try and assume the social responsibilities.
6. Social Responsibility of Business: Concept:
Every business must conduct its operations so as to produce an overall positive impact on society. Corporate social responsibility (CSR) requires every business to behave ethically and improve the quality of life of society. Every business must decide voluntarily to contribute to a better society and a cleaner environment. CSR is a concept that strikes a happy balance between economic, social, ethical and societal concerns of a business. It forces every business to conduct the show in the best interests of society.
The essential elements of CSR may be presented thus:
i. CSR is a moral obligation to conduct operations ethically
ii. It strikes a happy balance between economic, ethical and social issues
iii. It demands every business to conduct the show in the best interests of society at large
iv. Businesses must make profits, but that cannot be at the cost of customers.
v. It is a voluntary effort undertaken by every business that goes beyond what has been dictated by law.
vi. It is, in short, a company’s sense of responsibility towards the community and environment in which it operates. Now-a-days, the term is extended to include philanthropy (love of humanity) and volunteering (actions undertaken without seeking any gain).
7. Social Responsibility of Business: Scope of Corporate Social Responsibility:
Ernst and Ernst have identified six areas in which corporate social responsibility is expected:
(iii) Fair business practices
(iv) Human resources
(v) Community involvement, and
This area involves the environmental aspects of production, covering pollution control in the conduct of business operations, prevention or repair of damage to the environment resulting from processing of natural resources and the conservation of natural resources. Corporate social objectives are to found in the abatement of the negative external social effects of industrial production, and in adopting more efficient technologies to minimize the use of irreplaceable resources and the reduction of waste.
This area covers conservation of energy in the conduct of business operations and increasing the energy efficiency of the company’s products.
(iii) Fair Business Practices:
This area concerns the relationship of the company to special interest groups.
In particular it deals with:
(a) Employment of minorities,
(b) Advancement of minorities,
(c) Employment of women,
(d) Advancement of women,
(e) Employment of other special interest groups,
(f) Support for minority business, and
(g) Socially responsible practices abroad.
(iv) Human Resources:
This area concerns the impact of organizational activities on the people who constitute the human resources of the organization.
These activities include:
(a) Recruiting practices,
(b) Training programmes,
(c) Experience building-job rotation,
(d) Job enrichment,
(e) Wage and salary levels,
(f) Fringe benefit plans,
(g) Congruence of employee and organizational goals,
(h) Mutual trust and confidence,
(i) Job security, stability of workforce, layoff and recall practices,
(j) Transfer and promotion policies, and
(k) Occupational health.
(v) Community Involvement:
This area involves community activities, health-related activities, education and the arts and other community activity disclosures.
This area concerns the qualitative aspects of the products, for example their utility, life-durability, safety and serviceability, as well as their effect on pollution. Moreover, it includes customer satisfaction, truthfulness in advertising, completeness and clarity of labeling and packaging. Many of these considerations are already important from a marketing point of view. It is clear, however, that the social responsibility aspect of the product contribution extends beyond what is advantageous from a marketing angle.
8. Social Responsibility of Business: Reasons for the Growing Concern of CSR:
There are several reasons why CSR has become a matter of debate and discussion in recent times.
Let us summarize the arguments thus:
i. Awareness and Education:
Education has empowered citizens to seek a better quality of life. They have started comparing products, prices, quality and almost everything. Erring companies are punished. The adverse publicity that any profit making business is also another reason why CSR investments from companies have grown in recent times.
Businesses therefore are made to offer better quality products at affordable prices. If businesses run the show only to make money, they surely miss the bus. Rivals will fill the gap and eat the market space. So the overall quality of life has improved. We have, therefore, affordable cars, user-friendly mobiles, less expensive air conditioners etc.
ii. Regulation and Interference:
If any business makes money through fraudulent or deceitful ways, the enlightened public might press the panic button. The angry public may want the government to interfere and come forward with restrictive regulatory measures. The greedy businessmen, therefore, have no choice but to fall in line and conduct the show without resorting to dubious means to make extra profits.
iii. Employees and Trade Unions:
Profit making companies are forced by employees and trade unions to share the profits with the community and society at large, apart from sharing the same with employees.
iv. Reputation and Image:
Building up a better public image is necessary for every business to survive and grow. Companies have realized the need to create wealth, taking every stakeholder into confidence. They are forced to build their public image by committing huge sums of money (Law also requires companies to earmark 5 per cent of profits towards CSR initiatives now), even if it means lesser and lesser profits.
v. Competition and Competition:
CSR creates competitive immunity and makes your business more sustainable in the long run. According to Harvard Business Review “Strategy… is about choosing a unique position – doing things differently from competitors… These principles apply to a company’s relationship to society as readily as to its relationship to its customers and rivals”.
Furthermore “CSR can be much more than a cost, a constraint, or a charitable deed—it can be a source of opportunity, innovation, and competitive advantage.” In addition to helping companies differentiate themselves in an already crowded marketplace, social responsibility also inspires innovation within corporations thereby developing longer-term immunity and business sustainability.
9. Social Responsibility of Business: Perspectives:
Historical Perspectives of Social Responsibility:
Expectations of society from business firms as regards corporate social responsibility have gone through three phases:
1. Profit Maximisation:
Historically, public viewed business enterprises as institutions which mainly looked after the interests of their owners. Social responsibility was discharged to the extent of maximising profits within the legal framework of the country.
2. Trusteeship Management:
During later years, the concept of social responsibility widened from mere satisfaction of owners’ interest to interests of other stakeholders also, like employees, consumers, creditors etc. Providing good working conditions, goods of the right quality and quantity, timely repayment of loans to creditors etc., were viewed as essential aspects of social responsibility. Business managers were trustees of business property, holding it in trust for the welfare of society.
3. Quality of Life Management:
A still wider perspective of social responsibility developed in 1960s. It viewed business enterprises as institutions to remove social ills and uplift the society. Business managers were supposed to change the quality of society.
Philosophical Perspectives of Social Responsibility:
Similar to historical perspectives, there are three phases of philosophical perspectives of social responsibility:
1. Traditional Philosophy:
Similar to the profit maximisation phase, the traditional philosophy defines social responsibility as producing goods and services for society at low cost. Economist, Milton Friedman is a pronounced advocate of this philosophy. According to him, since business enterprises use shareholders’ money, they should optimally utilise it to give them fair return on their capital.
Looking after the interests of shareholders is the main responsibility of business according to traditional philosophy. Social problems have to be dealt by the Government rather than business enterprises.
2. Stakeholder Philosophy:
It is an extension of traditional philosophy. According to this philosophy, similar to trusteeship management, business enterprises should broaden their scope of social responsibility to look after the interests of shareholders along with other sections of society such as, consumers, Government, labour unions, suppliers etc. This is important for long-run survival of the firms even if it results in losses in the short-run.
3. Affirmative Philosophy:
Similar to third phase of historical perspective (quality of life management), the affirmative philosophy aims at broadest spectrum of social responsibility. It holds that managers are responsible to promote mutual interests of the firm and its stakeholders, including the general public. Not only should managers cater to present needs of the society, they should also anticipate their future needs and integrate needs of the society with needs (goals) of the organisation.
10. Social Responsibility of Business: Arguments against Social Responsibility:
Business objectives may broadly be divided into two categories: economic and social. Economic objectives are goals with respect to the marketplace. Social objectives refer to the company’s intentions toward its employees, shareholders and the public at large. Traditionally, the primary responsibility of the business firm was to produce and distribute goods and services in return for a profit.
Businesses have performed this function effectively, contributing in a large measure to a tremendous improvement in standards of living everywhere. Despite significant improvements in standards of living in the recent years, society has begun expecting, even demanding, more out of all its institutions. Goals, values, and attitudes in the society are changing to reflect a greater concern for improvements in the quality of life. As business firms operate by public consent, they must satisfy the needs of the society.
Business should bury the old values and outdated profit maximization policies in its archives and try to put an end to all evils in the world between sunrise and sunset. The inevitable conflict between economic and social objectives, thus has led to an ageless controversy and a focal point of discussion among academicians and practitioners everywhere. Profits are absolutely essential for the survival of the business. Attainment of the profit objective is essential for the health and growth of a business concern.
Only a profitable business can expand, modernize, and even replace its capital equipment to continue its operations. If the firm cannot show profits in its operations, investors are highly reluctant to invest additional funds in the enterprises. If the business were to experience financial losses over a period of time, the firm would eventually become bankrupt. An unprofitable firm is also a poor employer.
Profit, thus, is a measure of the success of a business. If profits are growing, the business is generally regarded as healthy. If they are declining, a question exists as to the trend or future of the firm. It is profits which constitute the acid test of managerial performance.
Profit implies socially preferred behaviour. There is nothing unworthy about profits. It means placement of funds to the best advantage, loss means impoverishment of society. Profit, further, is the dynamic element and motivating force behind economic development and all-round progress.
According to Milton Friedman, there is one and only one social responsibility of business and that is to generate profits, so long as it stays within the rules of the game, by engaging in open and free competition without deception and fraud.
The principal arguments against social responsibility are as follows:
1. CSR Means Wasteful Spending:
A competitive business cannot be genuinely selfless. Management cannot commit funds irrationally just to satisfy public expectations in areas where there are no direct or indirect benefits. If you spend money on CSR and your rivals do not, then you are at the receiving end. You lose the competitive edge. Because you have wasted crucial resources entrusted to you by your shareholders.
2. Business is an Economic Institution:
By definition, a business is there to make money on its investments. Business cannot be run like a charitable agency. You have to allocate funds on activities that bring rich returns. Instead, if you divert funds on activities that do not generate income, then you are killing the goose that lays the golden eggs.
3. CSR is Government’s Responsibility:
CSR activities need to be handled by the government. Government should take care of social amenities and societal welfare, rather than business institutions.
4. Managers are not Trained to Invest in CSR:
Managers are given the responsibility to commit funds to best advantage. They are not trained to invest money on social welfare and social amenities. They do not know which CSR activity will actually benefit a company. If managers play to the gallery and misuse funds this way, they may lose their job as well.
5. CSR Cannot be Measured:
CSR is a vague concept. The list of CSR activities is ever-expanding. You do not know which activity should be picked up for boosting the image of a company. If you pick the wrong ones, you end up wasting scarce corporate resources. Even if you spend on the right ones, there is no way to measure whether it has benefited the business or not. CSR, thus, is a confusing concept where you do not need managerial skills but social skills. Managers, unfortunately, do not possess those skills.
6. CSR is a Costly Affair:
CSR will add to the cost of doing business. Because you are spending on activities without any return. This will over-burden the consumer in the form of higher prices. If the business has not spent on CSR, the benefits would have been passed on to consumers in the form of low prices, higher quality, better returns etc.
7. Anti-Business Rhetoric:
In the case of a firm, it has neither the necessary freedom nor the appropriate standards of selection for pursuing many of the socially desirable activities blessed by society. Social responsibility is clearly anti-business rhetoric smuggled into the economic scene just to mollify an angry public.
8. Business Managers are not Magicians:
Society cannot expect the corporation managers to perform miracles. They cannot offer goods at fair prices, satisfy the demands of workers, offer dividends to shareholders, pay taxes and also undertake social projects seeking no return at all. If revenue generating and profit enhancing opportunities are missed, it will sink the business altogether. If a business does not make profits, it will spread misery, poverty and unemployment.
11. Social Responsibility of Business: Arguments for Social Responsibility:
The issue of social responsibility is a complex one since it deals with an institution that is at the heart of society. Businesses employ a vast majority of the workforce in India and are in control of vast human and financial resources. Any modification or decision about how these resources are put to use has obvious consequences for the balance of society.
It is this resource power base that generates many of the arguments favouring greater social involvement of business:
1. Create Wealth, but do not Ignore Society:
CSR does not mean that businesses have to stop creating wealth. CSR simply wants the business to grow. It wants every business to conduct the show in sync with societal expectations. It simply requires every business to hold the hand of every member of society in one way or the other. This can be started with by not polluting the environment, by not indulging in black marketing, by not doing anything unethically etc.
2. A Healthy Business Cannot Exist in a Sick Society:
Businesses impact social life significantly. Simply because you have the money or better technology you cannot go on making money ignoring societal interests. Business is an integral part of society. You cannot measure every action through the profit calculus. You need to do things that uplift society, empower workers, benefit community and bring smiles to consumers.
3. Managerial Decisions Impact Social Life:
Every decision taken by managers affects social life. If they increase product prices, consumers suffer. If they pay poor wages, employees are deprived of better quality of life. If they pollute air or rivers, the community at large will be at the receiving end. So, managers cannot escape by saying that they are not trained to serve societal needs. Business is stuck with society.
It has to do everything keeping the larger interests of society. Managers are responsible for social impacts. It is too late to claim incompetence and inexperience. A healthy organisation should visualize these impacts realistically and deal with them firmly, by converting these social problems into opportunities for ‘successful performance and positive contribution’. After all, business cannot survive for long in a sick and impoverished society.
4. Business has Surplus to Distribute:
Businesses have enormous funds at their disposal. They have enormous economic power. The managers who run these giant corporations are viewed as role models. Society has lot of expectations from every business. Apart from affordable prices, society also wants every business to distribute the profits for social well-being. Corporations will have to pay a heavy price, if social expectations are neglected or dismissed as ‘trivial issues’. They can function successfully only by public consent. Social power and social responsibility form an equation that must be rationally balanced.
5. CSR is Inexpensive Insurance:
For many firms, social responsibility provides an extremely inexpensive insurance package. If business firms fail to learn the new language of accountability, the government with its potential for inefficiency and insensitive bureaucratic methods will step into the arena, usurp the power and place restraints on corporate performance. Social pressures generate legal measures; it is in the best interests of the business of pursue socially responsible programmes.
6. Profit Motive is the Villain:
CSR does not put an accusing finger against businesses making profits. It only seeks rationalization of profits. It only wants companies to spend the surplus in an optimal way, sharing wealth with all key stakeholders and not necessarily with shareholders alone. If the business is focused only on making money, then it is an open invitation to trouble from different sections of society and the government as well.
7. Conflicting Interests:
CSR demands managers to behave responsibly. It does not want managers to meet every requirement of society. A business can still seek to make profits. It can put its focus on market share. It can commit funds on innovation and product development. CSR only requires managers to balance all these objectives in a fair and equitable manner. There is no conflict in between these goals. Businesses can create wealth, conquer new markets, expand their reach and scale and do many other things. But, at the end, they need to conduct operations in a way that benefits society.
12. Social Responsibility of Business towards Society:
There are various interest groups in the society which may affect the functioning of a business organisation.
Such interest groups may be identified as: 1. Shareholders 2. Customers 3. Employees 4. Government 5. Suppliers, creditors and others 6. Society in general.
The shareholders take great risk in making investment in a business. Therefore, a business organisation is responsible to safeguard the interest of shareholders who are its owners.
This can be done by:
i. Ensuring a fair return on the investment made by shareholders, which is possible when the enterprise earns adequate profit;
ii. Keeping the shareholders informed about the functioning of the organisation;
iii. Strengthening and consolidating the position of enterprise;
iv. Generating adequate funds and reserves for re-investment and also for declaring reasonal by dividend during a lean period;
v. Building up the company’s financial independence;
vi. Keeping up the prices of shares; and
vii. Improving the public image of the company.
Customers are the foundation of business. It is they who keep a business organisation in existence. It is basically to meet the wants of consumers that the society entrusts wealth-producing resources to business organisation.
It, therefore, becomes obligatory on the part of a business organisation to create and serve customers through:
i. Supplying goods and services at fair and reasonable prices;
ii. Ensuring good quality of such goods and services;
iii. Ensuring after-sales services;
iv. Ensuring only genuine advertisements, and that too in accordance to public morals and culture;
v. Redressing the grievances of customers, if there are any;
vi. Ensuring adequate research and development to improve quality and reduce cost of production of goods and services; and
vii. Informing about adverse effects, if any, of the goods and services being sold by the organisation.
Responsibility towards customers assumes added significance in case of ‘Shortage economies’ like India.
3. Responsibility Towards Employees:
A business organisation can run effectively only when the morale of its employees is high and their needs are fully met.
Hence, the management owes responsibility towards its employees which it can discharge in the following manner:
i. Fair wages to employees.
ii. Adequate training and development facilities.
iii. Reasonable opportunities for promotion.
iv. Good working and living conditions.
v. Adequate welfare facilities and amenities.
vi. Adequate social security measures.
vii. Worker’s participation in management.
viii. Recognition of their personality.
ix. Appreciation for good work and conduct.
x. Progressive and healthy personnel policies and conduct.
Needless to mention that contented labour force is a real asset of an organisation.
4. Responsibility towards Government:
Government provides a number of infrastructure facilities and a conducive environment to business organisation for their proper functioning.
Therefore, the management of a business organisation can also discharge its responsibility towards the government in the following manner:
i. By abiding with all relevant government legislation;
ii. By maintaining fair trade policies and practices;
iii. By paying all duties and taxes due from it;
iv. By avoiding political favours; and
v. By not giving any bribe, etc., to any government official, etc.
5. Suppliers, Creditors and Others:
The functioning of a business enterprise is also affected by the suppliers, creditors and other interest groups with whom the business has to interact. Hence, management owes a responsibility towards such interest groups.
This can be performed in the following manner:
1. Prompt payment to suppliers.
2. Prompt payment of interest to lenders.
3. Furnishing of accurate information to creditors, financial institutions and suppliers.
4. Proper liaison with all interest groups.
Discharging of the responsibility towards suppliers and creditors, etc., boosts the public image of the enterprise.
6. Responsibility towards the Society in General:
A business enterprise exists and functions in the society. It is an integral part of our social system which facilitates its functioning.
Hence, it owes a special responsibility towards the society in general which can be discharged in the following way:
1. By extending general amenities to society;
2. By assisting in improving the standard of living of the people of the community;
3. By avoiding pollution of the environment;
4. By avoiding wasteful expenditure;
5. By establishing socially desirable standards;
6. By keeping in view the social norms, conventions, traditions and customs while forming its policies and programmes; and
7. By adopting some village(s) for its/their social and economic development.
Thus, no business enterprise, specially the big ones, should ignore its social responsibility, if it has to function effectively. The enterprise should be so managed as to make possible everything likely to strengthen the society and lead to its betterment and prosperity.
It is indeed difficult to make a categorical statement on the question whether Indian business managers are discharging their social responsibilities properly. As a matter of fact, the Indian business sector presents a mixed picture in this regard. There are a number of leading business organisations in India which have recognised their social responsibility.
They have set up a large number of dispensaries, health centers, hospitals, libraries, schools and colleges, professional institutions, workers, clubs, temples, research institutes, etc., making them available to the people of adjoining localities and villages, etc. Some of them have taken due care of their employees, customers, shareholders, government rules and regulations, suppliers, creditors, banking institutions and society in general.
However, most of the Indian managers and business organisations, especially in the private sector, have been showing a totally indifferent attitude towards their social responsibility. Their record of discharging social responsibility has often been poor and, in some respect, dismal, judged by the extent of profiteering, black marketing, corruption, pollution of environment, poor quality of goods and services and what not.
Most of the organisations have failed to ensure that their goods reach the consumer at fair prices. They hardly think in terms of welfare of the society. They believe only in maximisation of profits and in their pursuit to achieve this end they do not bother for means they make use of. Thus, Indian managers, in general, are insensitive to the social priorities.
They lack a general understanding of the socio-economic problems, needs and aspirations of common man. They are more prone to serve the interest of privileged classes, forgetting the masses altogether. Not only this, a large number of Indian managers are also prone to accepting bribes, giving and receiving personal favour, nepotism, taking under personal benefits, dishonesty, unhealthy competition, profiteering, black-marketing, hoarding, evading taxes and duties, adulteration, and so on.
They have shown little interest to various elements, nor could protect the interest of customers or the society in general.
A.D. Moddie has rightly observed about the Indian manager that “his style is Western, bureaucratic, affluent and aloof. He is a plutocrat in a poor country, a high class man in a class conscious society seeking to be egalitarian. Socially and educationally he has hardly any links with his workforce, with the trade with the farmer. . . . The Indian manager seems to suffer from the social responsibilities of a citizen, and he takes the political environment for granted.
This isolation is perhaps his biggest weakness and may well reduce rather than enhance his future influence in a society where he has an island of ‘haves’ in an ocean of have-nots”
Thus, we can conclude that although, of late, Indian managers are gradually becoming conscious of their social responsibility and that there are managers who are lagging far behind in discharging their social responsibility for certain reasons mentioned under the next head.
13. Social Responsibility of Business: Role of Business in Environmental Protection:
Business firms owe their existence to a number of resources. Basic resources such as labour and raw material needed by any business organization for its proper functioning come from the Mother Nature and the society.
Therefore, it becomes their moral and social obligation to protect the environment by taking the following measures:
1. The top management of the business organization should be committed to create and uphold the work culture for environmental protection.
2. The leaders and supervisors should communicate the ideals of environmental protection to all the employees of the organization. Regular assessments should be carried out to ensure that the ideals are being properly followed.
3. The business enterprise should draft policies and programs to control pollution. For example, buying good quality raw material, encouraging employees to car- pool for commuting to the workplace, conducting tree plantation drives, installing waste disposal plants etc.
4. It should adhere to the laws and regulations framed by the government for pollution control.
5. An organization devoted to the cause of preventing pollution should participate in government programs regarding cleaning polluted water bodies, checking deforestation, tree plantation, treatment of poisonous industrial waste etc.
6. Periodical cost-benefit analysis of pollution control programs is a good practice. This will help the business organization to implement the anti-pollution programs more effectively.
7. Organize awareness drives and workshops to engage the suppliers, dealers and customers in pollution control programs.
8. Financially assist government and non-government organizations (NGOs) in carrying out activities to protect the environment.
9. Introduce awards and prizes to recognize achievers in the domain of environmental protection and also motivate others.
14. Social Responsibility of Business: Importance:
A growing body of evidence has identified a company’s role in its community as a factor in increasing profitability, promoting company image, reducing costs, and elevating employee morale and customer loyalty, among other benefits.
Interesting aspect of social responsibility in the modern era is that, being socially responsible is not a matter of choice to a very large extent. It has become a business compulsion. Behaving in a socially responsible manner gives business benefits to organizations. It may involve costs in short run but has proved beneficial in the long run.
For companies operating on a multinational basis, community involvement can be helpful in supporting efforts to enter new markets, attract potential employees, and establish or strengthen the reputation of the company, its brand and products.
Specifically, corporate community involvement can:
1. Increase Employee Morale, Retention, Attendance and Performance:
A company’s community involvement activities directly influence employees’ feelings about their job. The more an employee knows about the company’s programs, the more likely he or she will be loyal and positive about the company.
2. Develop Employee Skills:
Many company programs in the community can help foster employee skills. Volunteering and other forms of employee involvement help developing a variety of competencies, including teamwork, planning and implementation, communication, project management, listening skills and customer focus.
3. Enhance Company Reputation:
Active involvement in community activities builds a positive reputation with stakeholders in the company.
4. Attract Investors:
Companies noted for their corporate citizenship may experience an advantage in attracting investors, business partners, and new employees and in establishing customer preference.
5. Increase Customer Goodwill and Loyalty:
As the price and quality of products and services become increasingly standardized throughout many industries, community involvement may help differentiate a company from its competitors and increase brand loyalty.
6. Improve Relationships with The Community:
Many companies find that community involvement does not require sacrificing profits and, in fact, can open new markets, reduce local regulatory obstacles, provide access to the local political process, generate positive media coverage and increase company or brand awareness within the community. Research has shown that the public expects companies to “give back” more to their communities, and often views negatively the companies that are not perceived as doing their fair share.
15. Barriers to Social Responsibility:
Social responsibility is affected by the following barriers:
1. Managerial Perceptions:
If employees of the organisation want to assume social responsibility, their superiors may not allow them to do so. In such situations, they may be forced to choose between personal growth (and through it, organisational growth) and social growth. The inevitable choice is personal growth even if it is at the cost of social values.
2. Comparison of Divisional Performance:
Overall performance of the organisation is judged by the performance of its various departments. A department which discharges social responsibility may report lower profits than its counterparts. This may not be acceptable to top managers unless the social programmes are approved by them.
3. Overall Organisational Barriers:
Low profits on account of social responsibility may not be acceptable to owners (shareholders) or employees of the organisation if they lower dividends or wages. Catering to values of one section of society at the cost of another is not justified.
4. International Barriers:
If a multinational corporation is buying supplies from the home industry and domestic companies are selling their supplies at a higher price (because of social costs) vis-a-vis other countries, they may lose sales in the international market. International business may, thus, be a barrier to social responsiveness of business enterprises.
In view of the above discussion, it is advisable for business enterprises to take up social only if their benefits are more than the costs.
16. Social Responsibility of Business: Voluntary Guidelines for Corporate Social Responsibility:
The Ministry of Corporate Affairs has issued voluntary guidelines for the corporate social responsibility in 2009.
These guidelines are as follows:
The 21st century is characterized by unprecedented challenges and opportunities, arising from globalization, the desire for inclusive development and the imperatives of climate change. Indian business, which is today viewed globally as a responsible component of the ascendancy of India, is poised now to take on a leadership role in the challenges of our times.
It is recognized the world over that integrating social, environmental and ethical responsibilities into the governance of businesses ensures their long term success, competitiveness and sustainability. This approach also reaffirms the view that businesses are an integral part of society, and have a critical and active role to play in the sustenance and improvement of healthy ecosystems, in fostering social inclusiveness and equity, and in upholding the essentials of ethical practices and good governance.
This also makes business sense as companies with effective CSR, have image of socially responsible companies, achieve sustainable growth in their operations in the long run and their products and services are preferred by the customers. Indian entrepreneurs and business enterprises have a long tradition of working within the values that have defined our nation’s character for millennia.
India’s ancient wisdom, which is still relevant today, inspires people to work for the larger objective of the well-being of all stakeholders. These sound and all-encompassing values are even more relevant in current times, as organizations grapple with the challenges of modern-day enterprise, the aspirations of stakeholders and of citizens eager to be active participants in economic growth and development.
CSR is not philanthropy and CSR activities are purely voluntary – what companies will like to do beyond any statutory requirement of obligation. To provide companies with guidance in dealing with the above mentioned expectations, while working closely within the framework of national aspirations and policies, following Voluntary Guidelines for Corporate Social Responsibility have been developed.
While the guidelines have been prepared for the Indian context, enterprises that have a trans-national presence would benefit from using these guidelines for their overseas operations as well. Since the guidelines are voluntary and not prepared in the nature of a prescriptive road-map, they are not intended for regulatory or contractual use.
While it is expected that more and more companies would make sincere efforts to consider compliance with these Guidelines, there may be genuine reasons for some companies in not being able to adopt them completely. In such a case, it is expected that such companies may inform their stakeholders about the guidelines which the companies have not been able to follow either fully or partially. It is hoped that “India Inc.” would respond to these Guidelines with keen interest.
After considering the experience of adoption of these guidelines by Indian Corporate Sector and consideration of relevant feedback and other related issues, the Government may initiate the exercise for review of these Guidelines for further improvement after one year.
Each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals. The policy should be framed with the participation of various level executives and should be approved by the Board.
The CSR Policy should normally cover following core elements:
1. Care for All Stakeholders:
The companies should respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large etc. and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.
2. Ethical Functioning:
Their governance systems should be underpinned by Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.
3. Respect for Workers’ Rights and Welfare:
Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis.
They should uphold the freedom of association and the effective recognition of the right to collective bargaining of labour, have an effective grievance redressal system, should not employ child or forced labour and provide and maintain equality of opportunities without any discrimination on any grounds in recruitment and during employment.
4. Respect for Human Rights:
Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party.
5. Respect for Environment:
Companies should take measures to check and prevent pollution; recycle, manage and reduce waste, should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water, should proactively respond to the challenges of climate change by adopting cleaner production methods, promoting efficient use of energy and environment friendly technologies.
6. Activities for Social and Inclusive Development:
Depending upon their core competency and business interest, companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include – education, skill building for livelihood of people, health, cultural and social welfare etc., particularly targeting at disadvantaged sections of society.
1. The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organizational mechanism and responsibilities, time schedules and monitoring. Companies may partner with local authorities, business associations and civil society/non-government organizations.
They may influence the supply chain for CSR initiative and motivate employees for voluntary effort for social development. They may evolve a system of need assessment and impact assessment while undertaking CSR activities in a particular area. Independent evaluation may also be undertaken for selected projects/activities from time to time.
2. Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter.
3. To share experiences and network with other organizations the company should engage with well-established and recognized programmes/platforms which encourage responsible business practices and CSR activities. This would help companies to improve on their CSR strategies and effectively project the image of being socially responsible.
4. The companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports, and other communication media.
The standing committee of Parliament on finance which has thoroughly examined the Companies Bill, 2009 on the extent which of Corporate Social Responsibility (CSR) being undertaken by corporates and the need for a comprehensive CSR policy, the Ministry of Corporate Affairs have agreed that the Bill may now include provisions to mandate that every company having [(net worth of Rs. 500 crore or more, or turnover of Rs. 1000 crore or more)] or [a net profit of Rs. 5 crore or more during a year] shall be required to formulate a CSR Policy to ensure that every year at least 2% of its average net profits during the three immediately preceding financial years shall be spent on CSR activities as may be approved and specified by the company.
The Directors shall be required to make suitable disclosures in this regard in their report to members. In case any such company does not have adequate profits or is not in a position to spend prescribed amount on CSR activities, the directors would be required to give suitable disclosure/reasons in their report to the members.
While welcoming the Ministry’s acceptance of the Committee’s suggestion to bring Corporate Social Responsibility (CSR) in the statute itself, the Committee feels that separate disclosures required to be made by companies in their Annual Report by way of CSR statement indicating the company policy as well as the specific steps taken thereunder will be a sufficient check on non-compliance.