Social Responsibility of Business

Introduction

Traditionally, the primary objective of a business was seen as profit maximisation for its owners. However, with growing awareness and societal expectations, the role and responsibilities of businesses have expanded. Businesses operate within society, use resources from society, and impact the environment and the lives of people around them.

This interdependence between business and society has led to the concept of the social responsibility of business. It implies that businesses have obligations not just towards their owners but also towards various other groups in society, known as stakeholders.

Concept Of Social Responsibility

Social Responsibility of Business refers to the obligation of a business enterprise to act in a manner which will serve the best interests of society as a whole. It means making decisions and taking actions that are desirable in terms of the objectives and values of the society within which the business functions.

It extends beyond legal obligations and encompasses ethical considerations and a commitment to contributing to the well-being of the community and environment.

There are different views on the concept of social responsibility:

Narrow View (Profit Maximisation): This view, associated with economists like Milton Friedman, holds that the sole social responsibility of business is to use its resources and engage in activities designed to increase its profits, within the rules of the game (i.e., open and free competition without deception or fraud).
Broad View (Stakeholder Approach): This modern view suggests that businesses have responsibilities towards all their stakeholders, including shareholders, employees, customers, suppliers, government, and the community at large. This view recognises the interconnectedness of business and society.

In contemporary business practice, the broad view of social responsibility, often integrated into Corporate Social Responsibility (CSR) initiatives, is widely accepted and increasingly mandated or encouraged by governments and society.

Need For Social Responsibility

The question of whether businesses should engage in social responsibility has been a subject of debate. However, there are strong arguments supporting the need for businesses to be socially responsible.

Arguments For Social Responsibility

1. Justification for Existence and Growth

Business exists and grows by using resources from society. Therefore, it has an obligation to fulfil its responsibility towards society for its continued existence and prosperity.

2. Long-term Interest of the Firm

A business can earn profits in the long run only when it is accepted by society. Socially responsible behaviour enhances the company's image and reputation, leading to increased sales, attracting better talent, and avoiding negative publicity or government intervention.

3. Avoidance of Government Regulation

If businesses voluntarily assume social responsibilities, they can avoid strict government laws and regulations which might be undesirable for them. Self-regulation is often preferred over external control.

4. Maintenance of Society

Businesses can contribute to maintaining a stable and healthy society by providing employment, preventing pollution, and engaging in community welfare activities. A stable society is essential for business operations.

5. Availability of Resources with Business

Businesses have financial, human, and technical resources that can be effectively used to solve social problems (e.g., poverty, illiteracy, environmental pollution).

6. Converting Problems into Opportunities

Businesses can solve social problems and convert them into opportunities. For example, developing pollution control technology can open up a new market.

7. Better Environment for Business

Social responsibility creates a better environment for business operations, free from social unrest, labour disputes, and public resentment.

8. Holding Business Responsible for Social Problems

Some social problems (like pollution, congestion in cities, exploitation of workers) are created or aggravated by businesses. Therefore, businesses have a moral obligation to help solve these problems.

Arguments Against Social Responsibility

Those who argue against social responsibility often raise the following points:

1. Violation of Profit Maximisation Objective

Involving in social activities diverts resources away from the core business objective of profit maximisation, which is considered the primary responsibility towards shareholders.

2. Burden on Consumers

The costs incurred on social responsibility activities might be passed on to consumers in the form of higher prices, which is unfair.

3. Lack of Social Skills

Business managers are experts in running a business, not in solving social problems. They may lack the necessary understanding and skills to effectively address complex social issues.

4. Lack of Broad Public Support

There might be a lack of consensus or clear guidelines from society regarding what is socially desirable. Businesses may be hesitant to undertake social initiatives without clear public support and acceptance.

Reality Of Social Responsibility

Despite the arguments against it, social responsibility is becoming a significant aspect of business reality in India and globally due to several factors:

Public Opinion: Growing awareness and expectations from the public and consumers are pressuring businesses to be more socially responsible.
Government Regulation: Governments are increasingly enacting laws and regulations (like mandatory CSR spending under the Companies Act, 2013 in India) to enforce social responsibility.
Development of the Labour Movement: Labour unions are demanding better treatment and welfare for workers, leading to businesses focusing on employee well-being.
Consumer Consciousness: Informed consumers are increasingly preferring products from socially responsible companies.
Relationship with Social Groups: Businesses need to maintain good relations with various social groups for smooth operations.
Business Education: Business schools are incorporating social responsibility into their curriculum, shaping the mindset of future managers.
Professional Managerial Class: Professional managers often have a broader outlook and are willing to consider social obligations beyond profit.

The reality is that businesses can no longer operate in isolation from society; social responsibility is increasingly viewed as essential for long-term success and sustainability.

Kinds Of Social Responsibility

Social responsibility can be categorised into different levels or types, reflecting the varying expectations society has from businesses:

1. Economic Responsibility

The basic economic responsibility of a business is to produce goods and services that society needs and wants and to sell them at a profit. This is the foundation upon which all other responsibilities rest. Without economic viability, a business cannot fulfil other obligations.

2. Legal Responsibility

Businesses are expected to operate within the bounds of the law. This includes complying with all relevant laws and regulations related to taxation, consumer protection, environmental standards, labour practices, competition, etc. Legal responsibility is the minimum expected standard of conduct.

3. Ethical Responsibility

This goes beyond legal requirements and involves conducting business in a fair and moral manner, even if not legally mandated. Examples include paying fair wages, avoiding misleading advertising, not exploiting customers or employees, and adhering to ethical sourcing practices.

4. Discretionary Responsibility (Philanthropic)

This refers to purely voluntary activities undertaken by businesses for the welfare of society. These are actions that society desires but does not necessarily require or expect in an ethical sense. Examples include charitable donations, setting up schools or hospitals, engaging in community development projects, and employee volunteering programs.

These four kinds of responsibility can be viewed as layers, with economic responsibility forming the base, followed by legal, ethical, and finally discretionary responsibilities. A truly responsible business strives to fulfil all these obligations.

Social Responsibility Towards Different Interest Groups

A business interacts with various stakeholders, and it has specific responsibilities towards each of these groups:

1. Towards Shareholders or Owners

To provide a fair return on their investment (profits/dividends).
To ensure the safety of their investment.
To provide accurate and timely information about the company's performance and financial position.
To ensure efficient management of the business.
To protect their interests and rights as owners.

2. Towards Employees

To provide fair wages and salaries and timely payment.
To ensure safe and healthy working conditions.
To provide opportunities for training and development.
To ensure fair treatment and respect for employees.
To provide mechanisms for grievance redressal.
To recognise and respect their right to form unions.
To provide for their welfare and social security (e.g., provident fund, gratuity, medical benefits).

3. Towards Consumers

To provide goods and services of desired quality at reasonable prices.
To ensure safety of the products.
To provide accurate and complete information about products and services.
To handle consumer complaints promptly and fairly.
To avoid unfair trade practices like black marketing, hoarding, misleading advertising.
To ensure availability of goods and services.

4. Towards Government

To pay taxes and duties honestly and on time.
To comply with all laws and regulations.
To cooperate with the government in promoting economic development.
To avoid corrupt practices and not seek undue favours.

5. Towards Suppliers

To ensure fair terms and conditions of business.
To make timely payments for goods and services received.
To maintain long-term, healthy relationships.

6. Towards the Community and Society

To protect the environment and avoid pollution.
To contribute to the socio-economic development of the community (e.g., through CSR initiatives, providing employment to local residents).
To avoid anti-social activities.
To conserve natural resources.
To respect local culture and values.

By fulfilling these responsibilities towards all stakeholders, businesses can build trust, enhance their reputation, and contribute to a sustainable and equitable society.

Business And Environmental Protection

Environmental protection is a significant aspect of the social responsibility of business. Business activities, particularly industrial operations, often have a direct impact on the environment, leading to pollution and depletion of natural resources.

Protecting the environment means protecting the natural resources (land, water, air, forests, etc.) and maintaining the ecological balance. It involves controlling pollution and conserving resources.

Causes Of Pollution

Businesses contribute to various types of environmental pollution:

Air Pollution: Caused by emissions from factories, vehicles, and power plants (smoke, dust, chemicals, greenhouse gases). Affects air quality, human health, and contributes to climate change.
Water Pollution: Caused by discharging industrial effluents, sewage, and chemical waste into rivers, lakes, and oceans. Harms aquatic life and makes water sources unsafe for human use.
Land Pollution (Soil Pollution): Caused by dumping of industrial waste, improper disposal of solid waste, and use of harmful chemicals. Degrades soil quality and affects agriculture.
Noise Pollution: Caused by loud machinery, vehicles, and industrial operations. Can lead to hearing problems, stress, and other health issues.
Electronic Waste (E-waste): Improper disposal of discarded electronic devices.

These pollutants not only harm the environment but also pose serious health risks to the population.

Need For Pollution Control

Controlling pollution is essential for several reasons:

Health Protection: Pollution causes various diseases and health problems. Controlling pollution helps protect human health.
Reducing Risk of Liability: Businesses causing pollution can face legal action, fines, and damage claims. Pollution control helps avoid these liabilities.
Cost Savings: Reducing pollution can lead to lower costs in the long run (e.g., reduced healthcare expenses, less need for clean-up). Proper waste management can also lead to resource recovery.
Improved Public Image: Businesses that are seen as environmentally responsible enjoy a better reputation and public goodwill.
Conservation of Natural Resources: Pollution often leads to the degradation or depletion of natural resources (e.g., polluted water sources become unusable). Pollution control helps conserve these resources.
Meeting Legal Requirements: Environmental laws and regulations mandate pollution control measures.
Ensuring Long-term Sustainability: Environmental degradation threatens the planet's capacity to support life and economic activity in the future. Pollution control is vital for sustainable development.

Role Of Business In Environmental Protection

Businesses have a significant responsibility and can play a proactive role in environmental protection:

Adhering to Environmental Laws: Complying strictly with government regulations on pollution control.
Adopting Environment-Friendly Production Processes: Using cleaner technologies that generate less waste and emissions.
Recycling and Waste Management: Implementing systems for recycling waste materials and disposing of hazardous waste safely.
Using Eco-Friendly Materials: Opting for sustainable and renewable resources and materials.
Green Design: Designing products and packaging to be environmentally friendly throughout their lifecycle.
Installing Pollution Control Devices: Setting up effluent treatment plants, air scrubbers, etc., to treat emissions before discharge.
Adopting Environmental Management Systems: Implementing standards like ISO 14001 to systematically manage environmental impacts.
Creating Environmental Awareness: Educating employees, suppliers, and customers about environmental issues and promoting environmentally responsible behaviour.
Investing in R&D for Green Technologies: Developing and adopting technologies that help in pollution reduction and resource conservation.
Participating in Community Environmental Projects: Engaging in initiatives like tree plantation drives, clean-up campaigns.

By integrating environmental responsibility into their operations and strategy, businesses can not only comply with regulations but also contribute to a healthier planet and build a positive legacy.