role of social responsibility in business ethics-analytical study

8/2/2019 Role of Social Responsibility in Business Ethics-Analytical Study

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Role Of Social Responsibility in

Business Ethics-Analytical Study

Presented By:-

Rinkesh Jain 201058

Raunak Jain 201057

Ankit Kapoor 201066

Sarfaraz Merchant 201094

Chitral Mistry 201097

Rishabh Khanna 201078

Amit Khadagi 201075


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You know that business is an economic activity, which is carried out on aregular basis to earn profit. However, you must have seen businessmenspending money on different aspects, which is not going to give them any profitstraightway. For example, you must have seen businessmen maintaining and

developing gardens and parks on streets and squares in cities. Some businessmen engage themselves in research for improving the quality ofproducts; some provide housing, transport, education and health care to theiremployees and their families. In some places businessmen provide free medicalfacility to poor patients. Sometimes they also sponsor games and sports atnational as well as international level. Did you ever wonder why they do so?

Let us learn more about why businessmen engage themselves in such activities.

Objectives

After studying this lesson, you will be able to:

explain the concept of social responsibility of business;

appreciate the importance of social responsibility;

recognize the responsibility of business towards different interest groups;

explain the concept of social values and business ethics;

identify the causes of environmental pollution; and

describe the role of business in preventing and controlling environmentalpollution.

What is Social Responsibility?

In your daily life, you perform a number of activities. For example,brushing your teeth, listening to your parents, showing respect to elders obeyingtraffic rules on road etc. Now why do you perform all these activities? It is

because you live in a family as well as in a society and the members of yourfamily as well as the society want you to do all of them. They do several thingsfor you and expect something from you, which you must do. The expectationsof the family or society become your obligations, which you need to fulfill. Forexample, taking care of your parents or children, keeping the road clean by notthrowing garbage on it, etc. There are also obligations towards yourself, whichyou need to fulfill. For example, taking food timely, going to sleep early atnight, etc. that keep you fit and takes care of your health. Now you fulfill allthese obligations by performing certain activities which are called yourresponsibilities. Any responsibility you have, particularly towards members ofthe society with whom you interact or towards the society in general, are calledyour social responsibility.

This is true in case of business also. As we know, every business operates


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within a society. It uses the resources of the society and depends on the societyfor its functioning. This creates an obligation on the part of business to lookafter the welfare of society. So all the activities of the business should be suchthat they will not harm, rather they will protect and contribute to the interests of

the society. Social responsibility of business refers to all such duties andobligations of business directed towards the welfare of society. These duties can

be a part of the routine functions of carrying on business activity or they may bean additional function of carrying out welfare activity.

Let us take an example. A drug-manufacturing firm undertakes extensiveresearch and thus, produces drugs which are qualitatively superior. It also

provides scholarships or fellowships to the family members of its employees forstudying abroad. We find, in both the cases, the drug-manufacturing firm is

carrying out its social responsibility. In case of the former, it is a part of itsroutine business function while in the latter case it is a welfare function.

Concept of Social Responsibility

We all know that people engage in business to earn profit. However,profit making is not the sole function of business. It performs a number of socialfunctions, as it is a part of the society. It takes care of those who arenstrumental in securing its existence and survival like- the owners, investors,

employees, consumers and government in particular and the society andcommunity in general. So, every business must contribute in some way or theother for their benefit. For example, every business must ensure a satisfactoryrate of return to investors, provide good salary, security and proper workingcondition to its employees, make available quality products at reasonable priceto its consumers, maintain the environment properly etc.

However, while doing so two things need to be noted to view it as socialresponsibility of business. First, any such activity is not charity. It means that if

any business donates some amount of money to any hospital or temple or schooland college etc., it is not to be considered as discharge of social responsibility

because charity does not imply fulfilling responsibility. Secondly, any suchactivity should not be such that it is good for somebody and bad for others.Suppose a businessman makes a lot of money by smuggling or by cheatingcustomers, and then runs a hospital to treat poor patients at low prices hisactions cannot be socially justified. Social responsibility implies that a

businessman should not do anything harmful to the society in course of hisbusiness activities.

Thus, the concept of social responsibility discourages businessmen from


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adopting unfair means like black-marketing, hoarding, adulteration, tax evasionand cheating customers etc. to earn profit. Instead, it encourages them to earn

profit through judicious management of the business, by providing betterworking and living conditions to its employees, providing better products, after

sales-service, etc. to its customers and simultaneously to control pollution andconserve natural resources.

Why should business be socially responsible?

Social responsibility is a voluntary effort on the part of business to takevarious steps to satisfy the expectation of the different interest groups. As you

have already learnt, the interest groups may be owners, investors, employees,consumers, government and society or community. But the question arises, whyshould the business come forward and be responsible towards these interestgroups. Let us consider the following points:

Public Image - The activities of business towards the welfare of the society earngoodwill and reputation for the business. The earnings of business also dependupon the public image of its activities. People prefer to buy products of acompany that engages itself in various social welfare programmes. Again, good

public image also attracts honest and competent employees to work with such

employers.

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

Employee satisfaction - Besides getting good salary and working in a healthyatmosphere, employees also expect other facilities like proper accommodation,transportation, education and training. The employers should try to fulfill all theexpectation of the employees because employee satisfaction is directly relatedto productivity and it is also required for the long-term prosperity of theorganisation. For example, if business spends money on training of theemployees, it will have more efficient people to work and thus, earn more

profit.

Survival and Growth -Every business is a part of the society. So for its survivaland growth, support from the society is very much essential. Business utilizes

the available resources like power, water, land, roads, etc. of the society. So itshould be the responsibility of every business to spend a part of its profit for the


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welfare of the society.

Consumer Awareness - Now-a-days consumers have become very consciousabout their rights. They protest against the supply of inferior and harmful

products by forming different groups. This has made it obligatory for thebusiness to protect the interest of the consumers by providing quality productsat the most competitive price.

Responsibility Towards Different Interest Groups

After getting some idea about the concept and importance of socialresponsibility of business let us look into the various responsibilities that a

business has towards different groups with whom it interacts. The businessgenerally interacts with owners, investors, employees, suppliers, customers,competitors, government and society. They are called as interest groups because

by each and every activity of business, the interest of these groups is affecteddirectly or indirectly.

Responsibility towards owners

Owners are the persons who own the business. They contribute capital and bearthe business risks. The primary responsibilities of business towards its ownersare to:

Run the business efficiently

Proper utilisation of capital and other resources.

Regular and fair return on capital invested.


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Growth and appreciation of capital.

Responsibility towards investors

Investors are those who provide finance by way of investment in debentures,bonds, deposits etc. Banks, financial institutions, and investing public are allincluded in this category. The responsibilities of business towards its investorsare :

Ensuring safety of their investment,

Regular payment of interest,

Timely repayment of principal amount.

Responsibility towards employees

Business needs employees or workers to work for it. These employees put theirbest effort for the benefit of the business. So it is the prime responsibility ofevery business to take care of the interest of their employees. If the employeesare satisfied and efficient, then the only business can be successful. Theresponsibilities of business towards its employees include:

Job security as well as social security like facilities of provident fund,group

insurance, pension, retirement benefits, etc.

Timely and regular payment of wages and salaries.

Proper working conditions and welfare amenities.

Opportunity for better career prospects.

Better living conditions like housing, transport, canteen, crches etc.

Timely training and development.

Responsibility towards suppliers

Suppliers are businessmen who supply raw materials and other items required by manufacturers and traders. Certain suppliers, called distributors, supplyfinished products to the consumers. The responsibilities of business towardsthese suppliers are:

Giving regular orders for purchase of goods.

Dealing on fair terms and conditions.

Availing reasonable credit period.

Timely payment of dues.


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Responsibility towards customers

No business can survive without the support of customers. As a part of theresponsibility of business towards them the business should provide the

following facilities: Products and services must be able to take care of the needs of the

customers.

Products and services must be qualitative

There must be regularity in supply of goods and services

Price of the goods and services should be reasonable and affordable.

All the advantages and disadvantages of the product as well as procedureto use

the products must be informed do the customers.

There must be proper after-sales service. Grievances of the consumers, if any, must be settled quickly. Unfair means like under weighing the product, adulteration, etc. must be

avoided.

Responsibility towards competitors

Competitors are the other businessmen or organizations involved in a similar

type of business. Existence of competition helps the business in becoming moredynamic and innovative so as to make itself better than its competitors. It alsosometimes encourages the business to indulge in negative activities likeresorting to unfair trade practices. The responsibilities of business towards itscompetitors are

not to offer exceptionally high sales commission to distributers, agentsetc.

not to offer to customers heavy discounts and /or free products in everysale.

not to defame competitors through false or ambiguous advertisements.

Responsibility towards government

Business activities are governed by the rules and regulations framed by thegovernment. The various responsibilities of business towards government are:Setting up units as per guidelines of government Payment of fees, duties andtaxes regularly as well as honestly.

Not to indulge in monopolistic and restrictive trade practices. Conforming to pollution control norms set up by government.


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Not to indulge in corruption through bribing and other unlawful activities.

Responsibility towards society

A society consists of individuals, groups, organizations, families etc. They allare the members of the society. They interact with each other and are alsodependent on each other in almost all activities. There exists a relationshipamong them, which may be direct or indirect. Business, being a part of thesociety, also maintains its relationship with all other members of the society.Thus, it has certain responsibilities towards society, which may be as follows:

to help the weaker and backward sections of the society

to preserve and promote social and cultural values

to generate employment

to protect the environment

to conserve natural resources and wildlife

to promote sports and culture

to provide assistance in the field of developmental research on education,medical

science, technology etc.

Social Values and Business Ethics

Every society generally views certain activities, conduct and behaviour of itsmembers to be undesirable or armful to others. Similarly, desirable acts andconduct of people are recognised and appreciated in society. Social values referto the general recognition in society about which acts are good and desirable onthe part of people and which acts are not. In relation to business, social values

of business may indicate: the characteristics of good business;

objectives which are desirable for business to follow; and

the manner in which business activities should be conducted in theinterest of

society.

For example, we consider it bad, if any business indulges itself in selling

adulterated goods or charging higher price or polluting the environment. Thus,social values of the business form the base for social responsibilities.


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Ethics refers to conduct and activities of people based on moralprinciples. Honesty, truthfulness, compassion, sympathy, feeling of brotherhoodetc. are considered ethical. Business can also be guided by certain moral

principles say, running the business without adopting unfair practices, beinghonest and truthful about quality of goods, charging fair prices, abiding to laws,paying taxes, duties and fees to the government honestly. The basic questionunderlying business ethics is whether business should aim at earning profit byany means? Obviously, not. Thus, businessmen should charge only fair price forthe goods and services supplied, never sell adulterated products as pure. Indeed

business ethics suggest certain principles to conduct business so as to bemorally justified. Just like social values, business ethics also play a major rolewhile fulfulling social responsibilities.

Case Study

The Body Shop: Social Responsibility or Sustained Greenwashing?

Abstract:

This case is about the issue of sustainability rhetoric and green washing. InMarch 2006, The Body Shop International Plc. (Body Shop), a retailer ofnatural-based and ethically-sourced beauty products, announced that it hadagreed to an acquisition by the beauty care giant LOreal SA (LOreal) in a cashdeal worth 652 million (US$ 1.14 billion).

The announcement brought in its wake a spate of criticism against Body Shopand its founder, Dame Anita Roddick (Roddick). Body Shop was regarded as a

pioneer in modern corporate social responsibility (CSR) practices. The companywas also strongly associated with Roddick's social activism.

Since its inception, it had endorsed and championed various social issues suchas opposition to animal testing, developing community trade, building self-esteem, campaigning for human rights, and protection of the planet. Throughthese initiatives, the company had cultivated a loyal base of customers whoshared these values.

LOreal, on the other hand, had been severely criticized by activists for


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allegedly testing its cosmetics on animals, exploiting the sexuality of women,and selling its products by making women feel insecure. Moreover, Nestlowned 26 percent of LOreal and Nestl were one of the most boycottedcompanies in the world for its alleged unethical business practices and

aggressive promotion of baby milk in developing countries.

Some of Body Shop's critics and customers said that they felt betrayed by thedeal as Roddick had previously been vocal in her criticism of companies likeLOreal. They called for a boycott of Body Shop's products. However, BodyShop and Roddick defended the deal by saying that the acquisition by LOrealwould not compromise Body Shop's ethics; the merger would, in fact, giveBody Shop a chance to spread its values to LOreal. LOreal also announcedthat Body Shop's values would not be compromised and that it would continue

to operate as an independent unit.

This case discusses the reactions of consumers, activists, and CSR experts to theacquisition of Body Shop by LOreal. The acquisition throws up some questionssuch as: Is Body Shop guilty of green washing? Does it have the influence toextend its values to LOreal? The case also looks into the issue of whetherLOreal was trying to improve its own image and to buy CSR through this deal.

Issues:

Understand the issue of sustainability rhetoric and green washing withregard to the acquisition of Body Shop by LOreal

Understand the challenges faced by a company in building a corporateimage and brand on the social marketing concept

Appreciate the importance of the cultural and CSR factors in mergers andacquisitions vis--vis financial and strategic parameters


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A Controversial Makeover

On March 17, 2006, The Body Shop International Plc. (Body Shop), a retailerof natural-based and ethically-sourced beauty products, announced that it hadagreed to be acquired by the beauty care giant LOreal SA (LOreal) in a cashdeal worth 652 million (US$ 1.14 billion). The deal valued the shares of Body

Shop at a premium of 34.2 percent to their price before the acquisition. It wasalso a major windfall for its founder Dame Anita Roddick (Roddick).

Following this announcement, Body Shop and Roddick came under severecriticism. Body Shop was regarded by many as one of the pioneers of moderncorporate social responsibility (CSR).

The company was also strongly associated with the social activism of Roddick.

Since its inception, the company had endorsed and championed various socialissues that complemented its core values - opposition to animal testing,developing community trade, building self-esteem, campaigning for humanrights, and protection of the planet.

Body Shop was one of the first companies to publish a 'Values Report' in 1996(Refer to Exhibit I for Body Shop's mission statement and Exhibit II for itsvalues).

Through these initiatives, the company had cultivated a loyal customer basewho shared these values of the company.

On the other hand, L'Oreal was viewed by activists as the face of modernconsumerism a company that tested its cosmetics on animals, exploited thesexuality of women, and sold their products by making women feel insecure.Moreover, Nestl owned 26 percent of L'Oreal. Nestle was one of the most

boycotted companies in the world for its alleged unethical business practicesand aggressive promotion of baby milk in developing countries.

Body Shop's critics said that they felt betrayed by the deal as Roddick hadpreviously been quite vocal in her criticism of companies like L'Oreal. They


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called for a boycott of Body Shop's products as they felt that the company hadsold out its values and principles.

Body Shop and Roddick defended the deal by saying that L'Oreal would notcompromise Body Shop's ethics and that the merger would give Body Shop achance to spread its values to L'Oreal. L'Oreal also announced that Body Shop'svalues would not be compromised and that it would continue to operate as anindependent unit.

Many analysts were concerned that Body Shop's image would be affected by theacquisition. Some activists felt that Body Shop would not be able to functionindependently and that an important partner in CSR had been lost. However,

they were a few who felt that Body Shop's values would rub in on L'Oreal andbelieved that the deal had some positives.

There were also questions raised about whether L'Oreal was trying to improveits image and buy CSR through this deal. But for Body Shop's staunchest critics,the acquisition by L'Oreal was vindication of their view that Body Shop wasnothing more than a green washer.

Background Note

In 1970, Roddick (then Anita Perella) and Gordon Roddick (Gordon) wereinspired to set up a beauty products store after seeing a store called 'The BodyShop' in Berkeley, California, USA, that sold cosmetics like shampoos, lotions,

body creams, etc. The California store was run by two entrepreneurs, JaneSaunders and Peggy Short, who sold cosmetics on the 'care for the environment'

plank.

The Pioneer in Modern CSR

Body Shop was regarded as one among the first firms in the world to publish a proper report on its social responsibility initiatives. In addition to socialactivism, internal audit programs were conducted at Body Shop forenvironmental protection, health and safety at work, and the monitoring of'Against Animal Testing Policy'. In 1991, it drafted the EU Eco-Managementand Audit Regulation (EMAS), and in 1992, Body Shop published its firstenvironmental statement called 'The Green Book'.


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Body Shop's CSR Initiatives Against Animal Testing

Body Shop did not test its cosmetic products on animals and did notcommission others to do it on its behalf, as it considered this practice unethical.

Along with customers and animal protection groups, Body Shop campaignedfor a change in the law on the testing of animals for cosmetics purposes in theUK, Europe, the Netherlands, Germany, and Japan. Its campaigns had somemajor successes. In 1996, Body Shop presented the European Union with a

petition signed by over 4,000,000 people, which at the time was the largestpetition against animal testing. Body Shop was also instrumental in the UKgovernment's decision in 1998 to ban animal testing for cosmetic products andingredients.

Criticisms

Though the company had a distinguished record as a pioneer of corporateresponsibility, it had its fair share of critics. From the 1990s, Body Shop facedincreased scrutiny regarding its activities and claims. Business ethics expert JonEntine (Entine) was one of Body Shop's fiercest critics. Entine accused BodyShop and its founders of being hypocrites, as in his opinion, they were preyingon the idealism of consumers, while not being any different from othercompanies in their pursuit of profit.

Body Shop's Response

Body Shop clarified that the acquisition by L'Oreal would not dilute its ethicalstance and that it would continue its position on anti-animal testing. Body Shopspokesman Bill Eyres said, "It has been agreed that all our values are ring-fenced and we will continue to apply our animal testing policy."

Roddick justified the deal by saying that L'Oral wanted to learn from BodyShop's commitment to the environment and human rights in business. She also

denied that she had sold out and maintained that the company's values wouldnot change. She said, "I don't see it as selling out. L'Oreal has displayedvisionary leadership in wanting to be an authentic advocate and supporter of ourvalues."

LOreal Buying CSR?

Some analysts felt that the acquisition was an attempt by LOreal to buy CSR.They cited other instances when major multinational corporations bought upsmaller, model ethical corporations such as Unilever's acquisition of Ben and


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Jerry's, The Coca Cola Company's buyout of Odwalla, Colgate-PalmoliveCompany's takeover of Tom's of Maine, and Dean Foods' acquisition ofHorizon Organics. Critics argued that these "model" corporations would find itdifficult to continue the good work under their new parent.

Outlook

Some analysts felt that L'Oreal did not share the principles of Body Shop andthat this acquisition had removed the biggest supporter of ethically-sourced

beauty care products from the market. Despite the assurance to the contrary,Body Shop might not be able to function autonomously. They pointed out thatalready five members of the board, namely Peggy Bruzelius, Howard Mann,Jack Keenan, Irene Miller and Gordon, had resigned, and were replaced byformer LOreal UK chief Tom Vyner and current LOreal CEO Jean-Paul

Agon.

Thank You!!

role of social responsibility in business ethics-analytical study

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