Chapter social-responsibilities-of-business-and-business-ethics: Social Responsibilities of Business and Business Ethics | Summary

Arguments in favour of social responsibility include: justification for the existence and growth of business; serving the long-term interest and image of the firm; avoiding government regulation; maintaining an orderly society; utilising the resources available with business to solve social problems; converting social problems into business opportunities; creating a better environment for doing business; and recognising that businesses themselves have created or perpetuated certain social problems.

Arguments against social responsibility include: it violates the profit maximisation objective; it places an undue burden on consumers through higher prices; businessmen lack the social skills needed to solve social problems; and it lacks broad public support. In reality, however, most enterprises recognise their social obligations because of external forces such as the threat of public regulation, pressure from organised labour, increasing consumer consciousness, evolving social standards, development of business education, and the emergence of a professional managerial class.

Corporate Social Responsibility (CSR) refers to the responsibility of enterprises for their impacts on society, encompassing a balanced approach to economic progress, social progress, and environmental protection. In India, CSR is governed by Clause 135 of the Companies Act, 2013, which applies to companies with an annual turnover of Rs. 1,000 crore and more, a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more.

The Act requires qualifying companies to set up a CSR committee consisting of board members including at least one independent director. It encourages spending at least 2% of the average net profit of the previous three years on CSR activities. The indicative activities are listed under Schedule VII, must be undertaken in India, and activities meant exclusively for employees and their families do not qualify.

Social responsibility of business can be broadly divided into four categories. Economic responsibility is the primary responsibility to produce goods and services that society wants and sell them at a profit. Legal responsibility requires every business to operate within the laws of the land, since law-abiding enterprises are socially responsible enterprises. Ethical responsibility includes behaviour expected by society but not codified in law, such as respecting religious sentiments in advertising.

Discretionary responsibility refers to purely voluntary obligations assumed by an enterprise, such as making charitable contributions to educational institutions or helping people affected by natural disasters. Moving from economic to discretionary responsibility, the degree of compulsion decreases and the element of voluntary action increases.

Business enterprises have specific responsibilities towards four major groups. Towards shareholders or owners, the enterprise must provide a fair return on investment, ensure the safety of invested capital, and furnish regular, accurate, and full information about its working and future plans. Towards workers, it must provide meaningful work, fair wages, healthy working conditions, and respect workers' democratic rights including the right to form unions.

Towards consumers, the enterprise must supply the right quality and quantity of goods at reasonable prices, avoid adulteration and misleading advertising, and ensure that customers have the right to information about products. Towards the government and community, the enterprise must respect laws, pay taxes honestly, protect the natural environment, avoid pollution, and build a positive image through continuous interaction with various social groups.

The environment is defined as the totality of man's surroundings — both natural and man-made — including natural resources like land, water, air, fauna, flora, and raw materials, as well as man-made resources such as cultural heritage and socio-economic institutions. Pollution, defined as the injection of harmful substances into the environment, is largely the result of industrial production. Business activities such as production, distribution, transport, and storage are major sources of environmental pollution.

The four major types of pollution are air pollution (caused by carbon monoxide from automobiles and smoke from manufacturing plants), water pollution (caused by chemical and waste dumping into water bodies), land pollution (caused by dumping of toxic wastes on land making it unfit for agriculture), and noise pollution (caused by factories and vehicles leading to health hazards like hearing loss and mental disorders). The United Nations has identified eight key environmental problems including ozone depletion, global warming, solid and hazardous wastes, water pollution, deforestation, land degradation, and danger to biological diversity.

Pollution control is needed for the following reasons: reduction of health hazards caused by diseases like cancer and lung complications; reduced risk of legal liability for damage caused by toxic waste; cost savings from efficient production processes; improved public image as society becomes more environmentally conscious; and other social benefits like cleaner air and better quality of life. Governments in India have enacted several laws for environmental protection including the Water Act (1974), Air Act (1974), and the Environment Protection Act (1986).

Business enterprises should take the lead in environmental protection because they command huge financial, physical, and human resources and possess the know-how to control pollutants at source. Specific steps include top management commitment to environmental protection; developing clear policies for pollution control; complying with government regulations; participating in government programmes; conducting periodic assessment of pollution control measures; and providing educational workshops on pollution control to employees, suppliers, and dealers.

The word 'ethics' originates from the Greek word 'ethos' meaning character. Ethics is concerned with what is right and what is wrong in human behaviour, judged on the basis of socially determined standards. Business ethics refers to the socially determined moral principles that should govern business activities. Examples include charging fair prices, using accurate weights, giving fair treatment to workers, and earning reasonable profits. Ethical business behaviour improves public image, earns trust, and leads to greater long-term success.

An enterprise can foster ethics in day-to-day working through five key elements. Top management commitment requires the CEO and senior managers to be openly committed to ethical conduct. Publication of a Code involves defining principles of conduct in written documents covering areas like honesty, product safety, and financial reporting. Establishment of compliance mechanisms ensures decisions align with ethical standards. Involving employees at all levels makes ethical implementation practical. Measuring results through audits and discussions enables continuous improvement.

This chapter establishes that business is not merely an economic institution focused on profit maximisation but a socio-economic entity with obligations towards shareholders, workers, consumers, the government, and the wider community. Social responsibility encompasses economic, legal, ethical, and discretionary dimensions, and is increasingly driven by external forces such as government regulation, consumer awareness, labour movements, and the rise of professional management. The Companies Act 2013 has formally codified CSR obligations for large companies in India, requiring a minimum spending of 2% of average net profits.

For examination purposes, students must be able to distinguish between social responsibility and legal responsibility, articulate arguments for and against social responsibility, describe the four kinds of social responsibility, explain the causes and types of pollution, outline the role of business in environmental protection, and enumerate the elements of business ethics. Questions on CSR provisions under the Companies Act 2013 and the steps for pollution control are highly likely in board examinations.