CBSE Class 11 Business Studies Social Responsibilities Of Business And Business Ethics Notes

Social Responsibilities of Business and Business Ethics

· Introduction

A business enterprise should always do business keeping the people in mind, business is a part & parcel of the society and it draws all the necessary resources from the society only so it should have some social responsibilities. It should not do anything which is harmful to interest of the society. It must not resort unethical means to increase profits. Here we shall see a few ethics to be followed by businesses.

Concept Mapping

- Concept of social responsibility

- Need for social responsibility

- Arguments for social responsibility

- Arguments against social responsibility

- Reality of Social responsibility

- Kinds of Social Responsibility

- Social Responsibility towards different interest groups

- Business and Environmental Protection

- Types of Pollution

- Causes of Protection

- Need for Pollution Control

- Role of Business in Environmental Protection

- Business Ethics

- Concepts of Business Ethics

- Elements of Business Ethics

· Key Terms

Social Responsibility Social Responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of objectives and values of our society.

Environment

The environment is defined as a totality of natural & man-made things existing around us. It is from the environment that the business draws its resources.

Business Environment

It is a totality of all external forces with which the business interacts constantly but over which it does not have any control. The environment influences the business directly to a great extent.

Environmental Protection

It is the deliberate process of protecting the environment from existing or potential threats of any nature.

Pollution

It is the process of emission or release of harmful substances into the environment which harms human life, the life of other species and wasting or depleting scarce sources.

Ethics

Ethics is concerned with what is wrong & what is right in a society based on its moral values & beliefs.

Business Ethics

It refers to the socially determined moral principles which should govern the business activities.

Legal Responsibility

It is the obligation of the business to abide by the laws governing the place at which it exists.

Code of Ethics

Enterprises with effective ethics programs do define their principles of conduct for the whole organization which is called the ‘Code of Ethics’.

CONCEPT OF SOCIAL RESPONSIBILITY

A business is a part of society. So, a business enterprise should do business and earn money in ways that fulfil the aspirations of the society. Thus social responsibility relates to the voluntary efforts on the part of the businessmen to contribute to the social well being. The businessmen make use of resources of society and earn money from the members of society so they must do something for the society. Social Responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of objectives and values of our society.

Need for Social Responsibility

Opinions are divided over this issue, for some - Business is responsible only to its owners & for others - It needs to be responsible for social welfare also. Anyhow a better business can survive & grow only in a better society because it takes all resources from the society and serve to the society. So businesses become integral part of the society, therefore they should assume social responsibility.

Arguments in favor of Social Responsibility :

There is a need for Social Responsibility of business for Existence and Growth :-

1. Justification for Existence and Growth :- Business is the creation of society therefore it should respond according to the demands of the society. To survive and grow in society for long run the business must provide continuous services to the society. The ultimate motive of business is profit, as only profit can help the business grow and expand. Profit should be made as an outcome of service to the society by means of producing goods and services to satisfy human needs.

2. Long term Interest of the firm : A firm can improve its image and builds goodwill in the long run when its highest goal is to serve the society . If it indulges in unfair Trade Practices e.g., adulteration, hoarding, black-marketing it may not be able to exist for long. A firm and its image stand to gain maximum profits in the long run when it has its highest goal as ‘service to society’. When increasing number of members of society feel that business enterprise is not serving its best interest, they will tend to withdraw their cooperation to the enterprise concerned. Therefore, it is in its own interest if a firm fulfills its social responsibility.

3. Avoidance of government regulations : Business can avoid the problem of government regulations by voluntarily  assuming social responsibilities. When a particular business is not socially responsible, government regulations tend to limit its freedom. Therefore, it is believed that if businessmen are socially responsible, they can avoid government regulations. The business enterprises have huge financial resources, very efficient managers & contacts and thereby they can ensure that a social problem can be solved easily, in the best way possible.

4. Availability of resources with business :- Business has valuable financial and human resources which can be effectively used for solving problems of the society.

5. Better environment for doing business : Social responsibility creates better environment for business operations as it improves Quality of life and standard of living of people. So, business will get better community to conduct business. If the business is to run in a society with diverse problems, the success of the business is limited. Therefore, if the business takes measures to resolve the social problems, the business can create a better environment for its functioning and thereby earn more profits.

6. Contribution to social problems : Some of the social problems have been created by business firms themselves such as pollution, creation of unsafe work places, discrimination etc, Therefore, it is the moral obligation of business to solve such social problems.

7. Maintenance of Society : Law alone can’t help out people with all the difficulties they face. When businesses turn socially responsible they take care of the society’s need, the society is at peace. That means business houses also have some responsibility to contribute something for social peace & harmony.

8. Converting problems with opportunities: Business with its glorious history of making risky situations into profitable deals can not only solve social problems but also make them effectively useful.

9. Holding business responsible for social problems: It is argued that many problems are created by the existence of business enterprise themselves – like environmental pollution, discriminated employment, corruption etc. Therefore it is the duty of business to set right the problems caused by them.

Arguments Against Social Responsibility : major arguments against social responsibility are :

1. Profit Motive - A business is an economic entity that is guided by profit motive. It should not waste its energies and resources in fulfilling social responsibility.

2. Burden on consumers - Involvement of business in social responsibilities involve a lot of expenditure which will ultimately be borne by the customers. Taking social care and tackling social problems require huge financial investments and businesses tend to increase their cost and put the burden on the consumer for their charitable expenses.

3. Lack of Social Skills - The business firms and managers have the skills to handle business operation. They are not expert to tackle the social problems like poverty, over population etc. Therefore, social problems must be tackled by social experts. Businessmen lack understanding of social problems and can’t solve them efficiently.

4. Lack of public support - Generally public does not like business involvement in social problems. Therefore, business cannot fulfil social responsibility because of lack of public confidence & cooperation.

5. Violation of maximization of profit motive: This statement argues that business exist only for maximizing profits and businesses fulfill their social responsibility best by maximizing profits by increasing efficiency and reducing costs. They need not take up any additional obligations.

6. People’s resistance: People tend to dislike interference from businesses in their problems.

7. Reality of Social Responsibility: Whatever maybe the argument, either in favour of or against social responsibility, the reality is in favour of social responsibility. Let us discuss some of them below.

8. Threat of Public Regulations: Democratically elected governments, through their law enforcing agencies continuously trying to ensure the welfare of the society and thus they have a watchful eye over all business operations. So to avoid government action business organizations should behave in a socially responsible manner.

9. Pressure of labour movement: Labour, is not only the active factor but also activates other factors of production. Nowadays, they are more educated and their movement becomes more powerful in the world. No more ‘hire and fire’ policy will work; this made the businessmen to take up social responsibility towards their employees.

Impact of Consumer Consciousness
Consumers are more conscious about quality, price etc. of the product and services. Even for small discrepancies, nowadays they prefer to file a suit in the consumer court.

Development of Social Standard for business
New social standards consider business enterprises as legitimate but with a condition they must also serve social needs.

Development of Business Education
Business education created much awareness about the social responsibility in the minds of investors, consumers, employees etc. and they became more sensitive towards social issues. Relationship between social interest and business interest Now people come to realize that social interest and business interest are complementary. This ensures long term benefit of the business.

Development of professional, managerial class
Earlier managers of business houses aimed at only profit maximization but professional management educational institutions created a new class of managers who gives equal importance to social responsibility too.

Conclusion
From the above seen ‘Realities of Social Responsibility’ it is clear that business houses must assume social responsibility for their survival and growth.

• Kinds of Social Responsibility

Economic Responsibility
Maximizing profit by producing and selling goods and services required for the society.

Legal Responsibility
Every business needs to operate within the laws of the land. A law abiding enterprise is a socially responsible enterprise as well.

Ethical Responsibility
This includes the behavior of the firm that is expected by the society but not included in law. Eg. Should respect religious sentiment and dignity of people while advertizing

Discretionary Responsibility
This refers to the voluntary obligations that an enterprise assumes. E.g. Charitable contributions, providing relief during natural calamities etc.,

SOCIAL RESPONSIBILITY TOWARDS DIFFERENT INTEREST GROUPS

Business has Interaction with several interest groups such a shareholders, workers, consumers, government and  community Business is responsible to all these groups.

1. Responsibility towards share holders :-

i) To ensure a fair and regular return on the investment of shareholders.

ii) To ensure the safety of their investment

iii) To strengthen financial position of the company.

iv) To safeguard the assets of the business.

v) To protect the interest of all types of investors in the business.

2. Responsibility Towards workers :-

i) Providing fair compensation and benefits.

ii) Providing good and safe working conditions

iii) To develop a sense of belongingness.

3. Responsibility toward consumers :-
i) To supply right quality of goods & services at reasonable prices.
ii) To ensure regular and adequate supply of products.
iii) To inform them about new products and new uses of existing products.
iv) To handle the customers grievance promptly.

4. Responsibility Towards Government -
i) To pay taxes honestly
ii) To observe rules laid down by the government.
iii) to avoid corrupting government employees.

5. Responsibility towards community -
i) To make available opportunities for employment.
ii) To avoid polluting the environment.
iii) To uplift the weaker sections of society.

Responsibility towards shareholders or owners
To provide fair return on their investment, ensure safety of their investment and to provide regular, accurate and full information about the business.

Responsibility towards the workers
To provide opportunities for meaningful work, create the right kind of working conditions, respect the democratic rights of the workers and ensure a fair wage deal from the management.

Responsibility towards the consumer
To provide right quality and quantity of goods and services at reasonable prices and to avoid adulteration, hoarding, dishonest and misleading advertisements.

Responsibility towards the government & community
To respect the laws of the country and pay taxes regularly and honestly and act according to well accepted values of the society and to protect environment. 

BUSINESS AND ENVIRONMENTAL PROTECTION :-

Meaning of Envronment : - The environment is defined as the totality of man s

surroundings - both natural and man made. Natural Resources all land, water,

air and man made - cultural heritage, socio economic institutions and the people.

Meaning of Environmental pollution - It means injection of harmful substances into the environment. The greatest problem that industries and businessmen are

creating is that of pollution - which is the result of industrial production. So, protection of environment is must.

Causes of Pollution :- Many industrial organisations have been responsible for causing air, water, land and noise pollution.

1. Air Pollution - Due to smoke, chemical emitted by factories, vehicle. It has created a hole in the ozone layer leading to global warming.

2. Water pollution - Due to chemicals and waste dumped into the rivers, streams & lakes. It has led to the death of several animals and posed a serious problem to human life.

3. Land Pollution - Due to dumping of garbage and toxic wastes which affect the fertility of land and makes it unfit for agriculture.

4. Noise Pollution : Caused by the running factories and vehicles. Noise pollution can be responsible for many diseases like loss of hearing, violent behaviour and mental disoder.

NEED FOR POLLUTION CONTROL :-

1. To ensure healthy life - Many diseases like cancer, heart attack and lung complications all caused by pollutants in the environment. Pollution control is must to keep a check on these diseases.

2. To ensure safety - Due to environmental pollution and smoke the visibility is reducing due to which chances of accidents have been increasing. To reduce the number of accidents there must be a check on pollution.

3. Economic Losses : Pollutants in the environment bringing heavy economic losses for the country, for example Taj Mahal is losing its beauty due to pollution.

4. Improved Public Image : A firm that adopts pollution control measures enjoys a good reputation as a socially responsible enterprise.

ROLE OF BUSINESS ENVIRONMENTAL PROTECTION :

1. Eco-friendly and clean or low waste technology should be used by industrial organisation.

2. Industrial wastes should be recycled as far as possible.

3. Plant and machinery should be modernised to minimise pollution.

4. The business houses should comply with the laws and regulations enacted for prevention of pollution.

5. Positive steps should be taken to save environment. These include plantation of trees, cleaning of rivers, ponds etc.

Causes of Pollution
Waste generated by various industries, agriculture, mining, construction, energy production, transportation etc., cause pollution.

Environmental Problems
Pollutions results in following environmental problems identified by UNO
1. Ozone Depletion 5. Deforestation
2. Land Degradation 6. Global Warming
3. Solid & Hazardous Wastes 7. Water Pollution
4. Danger to biological diversity 8. Fresh water quality and quantity

· Types of Pollution

Air Pollution
Carbon monoxide emitted by automobiles, smoke and other chemicals from manufacture and pollutes the air & lowers its quality. It also created a hole in the ozone layer leading to global warming.

Water Pollution
This is primarily from chemical and waste dumping into water bodies. This lead to death of several animals and posed a serious threat to human life.

Land Pollution
Dumping of toxic wastes reduces the quality of land and making it unfit for agriculture or plantation.

Noise Pollution
Noise caused by the running of factories and vehicles create a serious health hazard such as loss of hearing, malfunctioning of the heart and mental disorders.

· Need for Pollution Control
To preserve precious environmental resources & improve the quality of human life pollution control becomes essential. Let us list out some reasons for pollution control.

Reduction of health hazard
Pollution control measures can check diseases like cancer, heart attack & lung complications and support a healthy life on earth.

Reduced Risk of Liability
When people are affected by toxicity released by any business, the business is liable to pay compensation. If the business installs pollution control devices, it can escape from such a liability.

Cost Saving
Pollution control needs improved production technology which automatically reduces cost.

Improved Public Image
A firm that promotes the cause for environment will enjoy public confidence and good reputation.

Other social benefits
Cleaner buildings, cleaner roads, clearer visibility, better quality of life, availability of natural products in a purer form are some of the other social benefits the society can get through
proper pollution control system.

BUSINESS ETHICS :
Refers to the moral values or standards or norms which govern the activities of a businessman. Ethics define what is right and what is wrong By ethic we mean the business practices which are desirable from the point of view of Society. The purpose of business ethics is to guide the managers and employees in performing their jobs. Examples of business ethics are charging fair prices from customers, giving fair treatment to workers, earning reasonable profits and paying taxes to the government honestly.

ELEMENTS OF BUSINESS ETHICS

1. Top management commitment - The CEO and higher level mangers must be committed to ethical norms of behaviour. This would set an example for all employers and encourage them to follow ethical practice.

2. Publication of Code - Code of ethics is a formal written document of the principles, values and standards that guide a firm s actions. It may cover areas like honesty, Quality, safety, health care etc.

3. Establishment of Compliance Mechanism - A suitable mechanism should be developed to comply with the ethical standards of the enterprise, This mechanism should be properly communicated to all in the organisation.

4. Employees Involvement - It is the employees at the lower levels who implement ethical principles, so they must be involved in the process of developing ethical code

5. Measuring Results - Although it is difficult to measure the ethical results but it must be verified and audited that how far work is being carried according to ethical standards.

Business & Environmental Protection 
Protection of the environment is a serious issue that confronts business managers and decision makers. Business organizations are major pollutants so they have to do something to control pollution.

· Role of business in environmental protection
Most of the pollution is caused by business enterprises and therefore they should take the lead in providing their own solutions to environmental problems. Some of the specific steps
that can be taken by a business are as follows.
1. A definite commitment by top management to systematically protect environment.
2. Involving all divisions and sections of employees in environmental protection.
3. Developing clear cut policies and programs with regards to quality, method and process of production and disposal of waste.
4. Complying with laws of the land in relation to environmental protection.
5. Participation in government programs such as management of waste, forestation etc.
6. Periodical assessment of pollution control programs of their own, with a view to improve them.
7. Arranging educational workshops and training materials to share technical information with everyone involved in pollution control.

· Business Ethics
Business ethics refers to the socially determined moral principles which should govern business activities.

Examples of Business Ethics
- Charging fair prices
- Using correct/accurate weights
- Giving fair treatment to all employees
- Avoiding adulteration, hoarding etc.
- Not engaging in any illegal methods of operation and not doing anything which is being considered as undesirable by the society.

Using environmentally friendly products, methods and processes.

Which businesses need to behave ethically?
All businesses irrespective of size (big or small), nature and location should behave ethically.

Why should businessmen behave ethically?
The businessman gets access to all resources such as finance, human capital, land etc. from the society and makes profits by selling the same to the society. Therefore he needs to be
ethical and shouldn’t make profit at the cost of society.

Benefits of doing Ethical Business
- Ethical business is good business
- It improves public image and support
- Earns people’s confidence and trust
- Leads to greater success
- Helps in long-term standing
· Elements of Business Ethics

Top Management commitment
Higher level managers need to be openly and strongly committed to ethical conduct. They should continuously try and uphold the values of the organization and the society.

Publication of a ‘code’
‘Code’ refers to the written ethical programs followed by a particular business or industry – which normally covers the areas of honesty, adherence to laws, product’s safety and quality
and fairness in all dealings.

Establishment of Compliance Mechanism
Simply having a written ‘Code of Ethics’ is not sufficient, the business needs to ensure its effective implementation at all levels & throughout the life of the business.

Involving employees at all levels
To make ethical business a reality, employees at all levels must be involved.

Measuring Results
Measuring the results of ethics programs maybe difficult but can have an audit at regular intervals to monitor compliance with ethical standards and decide about further course of action.

· Gist of the Lesson:
Business draws all the required resources & facilities from the society and therefore it is obliged to show its responsibility by the means of acting in the society’s best values.
Societal interest & Business interest are not contradictory but complimentary so the long run interest of the business lies in the societal interest only therefore apart from profit maximization business must take into consideration social well being also.
A socially responsible business is one which is not only ensuring higher return to the owners by the way of profit maximization but also one which is - Using environment friendly production process
- Paying fair salary to employees
- Producing and selling quality goods and services
- Paying tax properly to the government
Socially responsible business unit should have its own ‘Code of Business Ethics’ to respect and fulfill the values of the society and seriously pursue business ethics at all levels and among all employees in the organization.
A better business can be established only in a peaceful & harmonious society.

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