1 social responsibility of business

8/9/2019 1 Social Responsibility of Business

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Social Responsibility of Business

Trimester I

2008


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Social responsibilitySocial responsibility is anis an ethicalethical oror ideologicalideological theory that antheory that anentityentity whether it is awhether it is a governmentgovernment,, corporationcorporation,, organizationorganization ororindividualindividual has a responsibility to society.has a responsibility to society.

While primarily associated with business and governmentalWhile primarily associated with business and governmentalpractices, activist groups and local communities can also bepractices, activist groups and local communities can also beassociated with social responsibility, not only business orassociated with social responsibility, not only business orgovernmental entities.governmental entities.

Corporate social responsibility (CSR, also called corporateCorporate social responsibility (CSR, also called corporateresponsibility, corporate citizenship, and responsible business)responsibility, corporate citizenship, and responsible business) is ais aconcept wherebyconcept whereby organizationsorganizations consider the interests ofconsider the interests ofsocietysociety

bybytaking responsibility for the impact of their activities ontaking responsibility for the impact of their activities on customerscustomers,,suppl

iers,suppliers, employeesemployees, shareholders,, shareholders, communitiescommunities and otherand otherstak

eholdersstakeholders, as well as the, as well as the environmentenvironment..

ThisThis obligationobligation is seen to extend beyond theis seen to extend beyond the statutorystatutory obligation toobligation tocomply withcomply with legislationlegislation and sees organizations voluntarily takingand sees organizations voluntarily takingfurther steps to improve the quality of life for employees and theirfurther steps to improve the quality of life for employees and theirfamilies as well as for the local community and society at large.families as well as for the local community and society at large.


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Social responsibility is voluntary; it is about going above and beyondSocial responsibility is voluntary; it is about going above and beyondwh

at is called for by the lawwhat is called for by the law ((legal responsibilitylegal responsibility).).

Social responsibility means eliminating corrupt, irresponsible orSocial responsibility means eliminating corrupt, irresponsible orunethical behavior that might bring harm to the community, itsunethical behavior that might bring harm to the community, itspeople, or the environment before the behavior happens.people, or the environment before the behavior happens.

The shareholders, suppliers of resources, the consumers, the localThe shareholders, suppliers of resources, the consumers, the local

community and society at large are affected by the way ancommunity and society at large are affected by the way anenterprise functions. Thus a business enterprise should be able toenterprise functions. Thus a business enterprise should be able tostrike a balance between these divergent groups.strike a balance between these divergent groups.

There has been greater consensus around the fact that the businessThere has been greater consensus around the fact that the businessenterprise which makes use of the resources of society and dependsenterprise which makes use of the resources of society and depends

on society for its functioning, should discharge its duties byon society for its functioning, should discharge its duties byenhancing the overall welfare of society.enhancing the overall welfare of society.

The nature of social responsibility can be classified into:The nature of social responsibility can be classified into: Manner in which a business carries out its own activity.Manner in which a business carries out its own activity. Welfare activity that it takes upon itself as an additional functionWelfare activity that it takes upon itself as an additional function..


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Businesses can use ethical decision making toBusinesses can use ethical decision making tostrengthen their businesses in three main waysstrengthen their businesses in three main ways

To use their ethical decision making to increaseTo use their ethical decision making to increaseproductivityproductivity. This can be done through programs. This can be done through programsthat employees feel directly enhance theirthat employees feel directly enhance their

benefits given by the corporation, like betterbenefits given by the corporation, like betterhealth care or a better pension program. Onehealth care or a better pension program. Onething that all companies must keep in mind isthing that all companies must keep in mind isthat employees are stakeholders in the business.that employees are stakeholders in the business.They have a vested interest in what theThey have a vested interest in what the

company does and how it is run. When thecompany does and how it is run. When thecompany is perceived to feel that theircompany is perceived to feel that theiremployees are a valuable asset and theemployees are a valuable asset and theemployees feel they are being treated and such,employees feel they are being treated and such,productivity increases.productivity increases.


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By making decisions that affect its health as seen to thoseBy making decisions that affect its health as seen to thosestakeholdersstakeholders that are outside of the business environment.that are outside of the business environment.

Customers and Suppliers are two examples of such stakeholders. If weCustomers and Suppliers are two examples of such stakeholders. If wewere to look at companies like Johnson & Johnson, their strong sensewere to look at companies like Johnson & Johnson, their strong senseof responsibility to the public is well known. In particular, take forof responsibility to the public is well known. In particular, take forinstance Johnson & Johnson and the Tylenol scare of 1982. Wheninstance Johnson & Johnson and the Tylenol scare of 1982. Whenpeople realized that some bottles ofpeople realized that some bottles ofTylenolTylenol containedcontained cyanidecyanide they quitthey quitbuying Tylenol, stocks dropped and Johnson & Johnson lost a lot ofbuying Tylenol, stocks dropped and Johnson & Johnson lost a lot ofmoney. But they chose to lose even more money and invest in newmoney. But they chose to lose even more money and invest in newtamper resistant seals and announce a major recall of their product. Intamper resistant seals and announce a major recall of their product. In

the long run they gained the trust of their customers.the long run they gained the trust of their customers.

By making decisions that allow for government agencies to minimizeBy making decisions that allow for government agencies to minimizetheir involvement with the corporation. For instance if a company istheir involvement with the corporation. For instance if a company isproactive and follows the pollution guidelines for admissions onproactive and follows the pollution guidelines for admissions on

dangerous pollutants and even goes an extra step to get involved indangerous pollutants and even goes an extra step to get involved inthe community and address those concerns that the public mightthe community and address those concerns that the public mighthave; they would be less likely to have the authorities investigatehave; they would be less likely to have the authorities investigatethem for environmental concerns.them for environmental concerns.


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Can a business be socially responsible?Can a business be socially responsible?If it can be then what criteria does it need to ensure? The measurements areIf it can be then what criteria does it need to ensure? The measurements are

Economic function, Quality of life, Social investment and Problem solving.Economic function, Quality of life, Social investment and Problem solving.

In economic function, the goal that is trying to be achieved should beIn economic function, the goal that is trying to be achieved should bemeasured to see if it meets with the cost guidelines that the business ismeasured to see if it meets with the cost guidelines that the business iswilling to contribute. For instance if the business were to try to better thewilling to contribute. For instance if the business were to try to better theplant by reducing itsplant by reducing its carbon footprintcarbon footprint; how would it go about doing this?; how would it go about doing this?

In the quality of life measurement should focus on whether theIn the quality of life measurement should focus on whether theorganization is improving or degrading the general quality of life in society.organization is improving or degrading the general quality of life in society.

Social investmentSocial investmentlooks at what the business is doing for the community.looks at what the business is doing for the community.Does the business work with the community to fix outstanding issues andDoes the business work with the community to fix outstanding issues andsocial problems? How much of an investment does it make? What issuessocial problems? How much of an investment does it make? What issuesare they addressing?are they addressing?

Problem solving looks at to what extent the business will work to fix theProblem solving looks at to what extent the business will work to fix theproblem. Will the business simply contribute money to an organizationproblem. Will the business simply contribute money to an organizationworking on the issue? Will they allow company employees to volunteer onworking on the issue? Will they allow company employees to volunteer oncompany time to fix the problem?company time to fix the problem?


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While the classical view propounded that business has only economicWhile the classical view propounded that business has only economicobjectives and no other responsibility beyond that, theobjectives and no other responsibility beyond that, thecontemporary view of business is an ecological one which statedcontemporary view of business is an ecological one which statedthat business is an integral part of society to serve a social purpose.that business is an integral part of society to serve a social purpose.

According to Steiner and Steiner, a reasonable approach is:According to Steiner and Steiner, a reasonable approach is: Each business must take into account the situation in which it findsEach business must take into account the situation in which it finds

itself in meeting stakeholder expectations.itself in meeting stakeholder expectations. Business is an economic entity and cannot jeopardize its profitabilityBusiness is an economic entity and cannot jeopardize its profitability

in meeting social needs.in meeting social needs. However, business should recognize that in the long run, theHowever, business should recognize that in the long run, the

general social goods benefit everyone.general social goods benefit everyone. The social responsibility expected of a business is directly related toThe social responsibility expected of a business is directly related to

its social power to influence outcomes.its social power to influence outcomes. Social responsibility is related to the size of the company and to theSocial responsibility is related to the size of the company and to the

industry it is operating in.industry it is operating in. A business should tackle only those social problems in which it hasA business should tackle only those social problems in which it has

competence.competence. Business must assume its share of the social burden and be willingBusiness must assume its share of the social burden and be willing

to absorb social costs.to absorb social costs.


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Social Responsibility ModelsSocial Responsibility ModelsCarrolls model:Carrolls model:

Carroll has proposed a three dimensional conceptual model ofCarroll has proposed a three dimensional conceptual model ofcorporate performance. A firm has the following four categories ofcorporate performance. A firm has the following four categories ofobligations of corporate performance:obligations of corporate performance:

EconomicEconomic LegalLegal EthicalEthical DiscretionaryDiscretionary Firm being an economic activity, the main responsibility is economicFirm being an economic activity, the main responsibility is economic

alongwith complying with the legal responsibilities.alongwith complying with the legal responsibilities.

Ethical responsibilities are norms which the society expects theEthical responsibilities are norms which the society expects thebusiness concern to observe even though they are not mandated bybusiness concern to observe even though they are not mandated bylaw. While discretionary responsibilities refer to the voluntarylaw. While discretionary responsibilities refer to the voluntarycontribution of the business to the social cause like involvement incontribution of the business to the social cause like involvement incommunity development etc. Carroll points out that these fourcommunity development etc. Carroll points out that these fourcategories are not mutually exclusive and presented them as acategories are not mutually exclusive and presented them as apyramid of CSR.pyramid of CSR.


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DISCRETIONARY

Responsibilities

Be a good Corporate Citizen.

Contribute resources to the

community; improve quality of life.

ETHICAL

Responsibilities

Be ethical.

Obligation to do what is right,

just and fair; Avoid harm.

LEGAL

Responsibilities

Obey the Law

Law is societys codification of right and wrong;

Play by the rules

ECONOMIC

Responsibilities

Be Profitable

The foundation upon which all others rest

Carrolls Model

The Pyramid of Social Responsibility


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Social Responsibility ModelsSocial Responsibility ModelsHalals model:Halals model: Halals return on resources model of corporate performance pointsHalals return on resources model of corporate performance points

out thatout that a firm can only attempt to unite the diverse interests ofa firm can only attempt to unite the diverse interests ofvarious social groups to form a workable coalition engaged invarious social groups to form a workable coalition engaged increating value for distribution among members of the coalitioncreating value for distribution among members of the coalition..Beyond a certain level of economic activity the social issues at stakeBeyond a certain level of economic activity the social issues at stakebecome conflicting.become conflicting.

Ackermans model:Ackermans model:There are three phases.There are three phases. The first phase is one when top management recognizes theThe first phase is one when top management recognizes the

existence of a social problem and acknowledges the companysexistence of a social problem and acknowledges the companyspolicy by making it an oral or written statement.policy by making it an oral or written statement.

The second phase is characterized by the company appointing staffThe second phase is characterized by the company appointing staffspecialists to study the problem and provide recommendations.specialists to study the problem and provide recommendations.

The third phase involves the implementation of the socialThe third phase involves the implementation of the socialresponsibility programmes.responsibility programmes.


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Factors affecting Social Orientation ofFactors affecting Social Orientation ofand Enterpriseand Enterprise

Promoters, Directors and Top Management:Promoters, Directors and Top Management: The values andThe values and

vision of promoters and top management is a key influencing factor.vision of promoters and top management is a key influencing factor. Stakeholders:Stakeholders:Attitude of various stakeholders like shareholders,Attitude of various stakeholders like shareholders,

creditors, employees etc. also affect the social orientation of acreditors, employees etc. also affect the social orientation of acompany.company.

Societal FactorsSocietal Factors: Social orientation could also be affected by the: Social orientation could also be affected by theexpectation of the society from the Corporation. Eg: A resourcefulexpectation of the society from the Corporation. Eg: A resourceful

firm located in a poor community may be expected to contribute tofirm located in a poor community may be expected to contribute tothe development of education facilities of the locality etc.the development of education facilities of the locality etc. Industry and Trade Associations:Industry and Trade Associations: They influence the behaviourThey influence the behaviour

of firms by establishing professional and ethical codes and norms.of firms by establishing professional and ethical codes and norms. Government and LawsGovernment and Laws: Laws to curb corruption, unfair practices: Laws to curb corruption, unfair practices

etc. and the governments view of social responsibility also acts asetc. and the governments view of social responsibility also acts asan influencing factor.an influencing factor.

Political Influences:Political Influences: CompetitorsCompetitors ResourcesResources


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Five common ethical standards areFive common ethical standards are

"The Golden Rule: Act in a way you would want others to act"The Golden Rule: Act in a way you would want others to acttoward you.toward you.

The utilitarian principle: Act in a way that results in the greatestThe utilitarian principle: Act in a way that results in the greatestgood for the greatest number.good for the greatest number.

Kant's categorical imperative: Act in such a way that the actionKant's categorical imperative: Act in such a way that the actiontaken under the circumstances could be a universal law, or rule, oftaken under the circumstances could be a universal law, or rule, ofbehavior.behavior.

The professional ethic: Take actions that would be viewed as properThe professional ethic: Take actions that would be viewed as properby a disinterested panel of professional peers.by a disinterested panel of professional peers.

The TV test: Always ask, "Would I feel comfortable explaining to aThe TV test: Always ask, "Would I feel comfortable explaining to a

national TV audience why I took this action?"national TV audience why I took this action?" The legal test: Ask whether the proposed action or decision is legal.The legal test: Ask whether the proposed action or decision is legal.

Established laws are generally considered minimum standards forEstablished laws are generally considered minimum standards forethics.ethics.


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Arguments for Social ResponsibilityArguments for Social Responsibility

Society and Business are interdependent.Society and Business are interdependent.

Better environment for Business:Better environment for Business:

Public ImagePublic Image

Business has the resources and PowerBusiness has the resources and Power

LetBusiness tryLetBusiness try

Prevention is better than Cure. Social involvement ofPrevention is better than Cure. Social involvement ofbusiness would foster a harmonious and healthybusiness would foster a harmonious and healthyrelationship between society and business to the mutualrelationship between society and business to the mutual

benefit of both.benefit of both. Moral ResponsibilityMoral Responsibility

Citizenship ArgumentCitizenship Argument

Social responsibility like recycling of waste may haveSocial responsibility like recycling of waste may havefavorable financial effectsfavorable financial effects


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Arguments against Social ResponsibilityArguments against Social Responsibility

Profit MaximizationProfit Maximization: Economic efficiency of business should be the top priority and: Economic efficiency of business should be the top priority andthe sole mission of business. In this situation decisions are controlled by their desirethe sole mission of business. In this situation decisions are controlled by their desireto maximize profits for the shareholders while reasonable complying with law.to maximize profits for the shareholders while reasonable complying with law.

Society has to pay the CostSociety has to pay the Cost: Costs of social responsibility will be passed on to the: Costs of social responsibility will be passed on to thesociety and eventually it is the society which has to bear them.society and eventually it is the society which has to bear them.

Lack of social skills: Business managers are goods at solving matters relating toLack of social skills: Business managers are goods at solving matters relating tobusiness and not very effective at solving social problems as their outlook is primarilybusiness and not very effective at solving social problems as their outlook is primarilyeconomic.economic.

Business has enough PowerBusiness has enough Power: Business already has enough social power and the: Business already has enough social power and thesociety should not take any steps which give it more power as it could mould socialsociety should not take any steps which give it more power as it could mould socialvalues.values.

Social Overhead CostsSocial Overhead Costs: Cost of social responsibility will not immediately benefit the: Cost of social responsibility will not immediately benefit thebusiness. Why spend money on an object, benefits of which will be realized only inbusiness. Why spend money on an object, benefits of which will be realized only infuture.future.

Lack of accountabilityLack of accountability: Businessmen have no direct accountability to the people.: Businessmen have no direct accountability to the people.Unless the society can develop mechanisms which establish direct lines of socialUnless the society can develop mechanisms which establish direct lines of socialaccountability from the business to the public, business must not stay away fromaccountability from the business to the public, business must not stay away fromsocial activities.social activities.

Friedmans ViewsFriedmans Views: Friedman asserted that if managers spend corporate funds on: Friedman asserted that if managers spend corporate funds onprojects not intended to maximise profits, the efficiency of the market mechanismprojects not intended to maximise profits, the efficiency of the market mechanismwill be undermined and resources will be misallocated within the economy.will be undermined and resources will be misallocated within the economy.

Many companies involve themselves in social activities because of the tax exemptionsMany companies involve themselves in social activities because of the tax exemptionson the income spent on social purposes.on the income spent on social purposes.


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Social Responsibility StrategiesSocial Responsibility StrategiesBusinesses response to social responsibility tend to fall within fourBusinesses response to social responsibility tend to fall within four

categories:categories: Social Opposition: View taken by business is that they have noSocial Opposition: View taken by business is that they have no

obligation to the society in which they operate.obligation to the society in which they operate. Social obligation: Companies believe that they have an obligation toSocial obligation: Companies believe that they have an obligation to

obey the law.obey the law. Social response: Position taken by companies which believe thatSocial response: Position taken by companies which believe that

their social responsibilities are as dictated by law and will ontheir social responsibilities are as dictated by law and will onselective basis go beyond the legal requirements. These units mayselective basis go beyond the legal requirements. These units mayvolunteer to participate in limited socially responsible efforts, butvolunteer to participate in limited socially responsible efforts, butnot until they are convinced that the benefits outweigh the costs.not until they are convinced that the benefits outweigh the costs.

Social contribution: Position taken by Companies which believe thatSocial contribution: Position taken by Companies which believe thatthey have a deep obligation to serve the society.they have a deep obligation to serve the society.


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Responsibilities towards different sectionsResponsibilities towards different sections

Shareholders:Shareholders: The primary business of a business is to stay inThe primary business of a business is to stay inbusiness. To safeguard the capital of the shareholders and tobusiness. To safeguard the capital of the shareholders and toprovide reasonable dividends and returns to its shareholders.provide reasonable dividends and returns to its shareholders.

Employees :Employees : The success of the organization depends largely onThe success of the organization depends largely onthe morale of the employees. Employee morale depends onthe morale of the employees. Employee morale depends on

employeremployer--employee relationship. The responsibility of theemployee relationship. The responsibility of theorganization to the workers include:organization to the workers include: Payment of fair wagesPayment of fair wages Provision of best possible working conditionsProvision of best possible working conditions Establishment of fair work standardsEstablishment of fair work standards Provision of labor welfare activitiesProvision of labor welfare activities

Arrangement of proper training of workers.Arrangement of proper training of workers. Reasonable chances of promotionReasonable chances of promotion Proper recognition, appreciation etc.Proper recognition, appreciation etc. Installation of an effective grievance handling systemInstallation of an effective grievance handling system


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Responsibilities towards different sectionsResponsibilities towards different sectionsConsumers:Consumers: The consumer is the king and is the foundation of any business venture. ImportantThe consumer is the king and is the foundation of any business venture. Important

responsibilities of the business to the customers are:responsibilities of the business to the customers are: Improve efficiency so as to increase productivity and reduce prices, improve qualityImprove efficiency so as to increase productivity and reduce prices, improve quality

and smoothen the distribution system so as to make the products easily available.and smoothen the distribution system so as to make the products easily available. To do research and development so as to improve qualityTo do research and development so as to improve quality To supply goods at reasonable prices, even in case of a sellers marketTo supply goods at reasonable prices, even in case of a sellers market To provide after sales seviceTo provide after sales sevice

To ensure that the product supplied has no adverse effect.To ensure that the product supplied has no adverse effect. To provide sufficient information about the productTo provide sufficient information about the product To avoid misleading customers by improper advertising etc.To avoid misleading customers by improper advertising etc.

Community:Community: Taking steps to prevent environmental pollutionTaking steps to prevent environmental pollution Rehabilitating the population displaced by the operation of the businessRehabilitating the population displaced by the operation of the business Assisting in the overall development of the localityAssisting in the overall development of the locality Taking steps to conserve scarce resources and develop alternativesTaking steps to conserve scarce resources and develop alternatives Improve the fficiency of the business operationImprove the fficiency of the business operation Contribute to R & DContribute to R & D Development of backward areasDevelopment of backward areas Promotion of ancillary and small scale industriesPromotion of ancillary and small scale industries Contributing to welfare activities like promotion of education etc.Contributing to welfare activities like promotion of education etc.


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Social auditSocial audit

Meaning: Social audit is a tool for evaluating how satisfactorily aMeaning: Social audit is a tool for evaluating how satisfactorily acompany has discharged its social responsibilities. Social auditcompany has discharged its social responsibilities. Social auditenables the public as well as the company to evaluate the socialenables the public as well as the company to evaluate the socialperformance of the company.performance of the company. Social audit involves:Social audit involves:

Identification of the firms activities having potential social impactIdentification of the firms activities having potential social impact Assessment and evaluation of the social costs and social benefits ofAssessment and evaluation of the social costs and social benefits of

such activitiessuch activities Measurement of the social costs and benefitsMeasurement of the social costs and benefits ReportingReporting

Objectives and Benefits of Social Audit:Objectives and Benefits of Social Audit:

Evaluate the social dimension of the performance of the company.Evaluate the social dimension of the performance of the company. Take measures to improve the social performance of the companyTake measures to improve the social performance of the company

on the basis of feedback provided by the social audit.on the basis of feedback provided by the social audit. Social audit increases the public visibility of the organization.Social audit increases the public visibility of the organization. In case the social audit reveals a sociialy commendableIn case the social audit reveals a sociialy commendable

performance, it helps boost the public image of the company.performance, it helps boost the public image of the company.


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Methods of Social Audit:Methods of Social Audit: Social Process Audit: To develop an internal managementSocial Process Audit: To develop an internal management

information system which would allow the management to createinformation system which would allow the management to createand administer the social programme in a better way.and administer the social programme in a better way.

Financial Statement Format Audit: Social information is presented inFinancial Statement Format Audit: Social information is presented inthe conventional financial statement format ie balance sheetthe conventional financial statement format ie balance sheet

MacroMacro--Micro Social Indicator Audit: It attempts to evaluate theMicro Social Indicator Audit: It attempts to evaluate themicro indicators (ie the companys performance) against a set ofmicro indicators (ie the companys performance) against a set ofmacro indicators such as national policies.macro indicators such as national policies.

Constituency Group Audit: Preference and attitude of variousConstituency Group Audit: Preference and attitude of variousconstituencies (like employees, creditors, suppliers etc) areconstituencies (like employees, creditors, suppliers etc) areidentified and measured and the firm;s performance is evaluated.identified and measured and the firm;s performance is evaluated.

Corporate Rating Approach: This is an external evaluation of theCorporate Rating Approach: This is an external evaluation of thecompanys performance by public groupscompanys performance by public groups

Social auditSocial audit

1 social responsibility of business

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