Social responsibility of business

1. 1. Social Responsibility of Business

2. 2.  Social responsibility is an ethical or ideological theory that an entity whether it is a government,
corporation, organization or individual has a responsibility to society.  While primarily associated with
business and governmental practices, activist groups and local communities can also be associated with
social responsibility, not only business or governmental entities.  Corporate social responsibility (CSR,
also called corporate responsibility, corporate citizenship, and responsible business) is a concept whereby
organizations consider the interests of society by taking responsibility for the impact of their activities on
customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the
environment.  This obligation is seen to extend beyond the statutory obligation to comply with legislation
and sees organizations voluntarily taking further steps to improve the quality of life for employees and their
families as well as for the local community and society at large.
3. 3.  Social responsibility is voluntary; it is about going above and beyond what is called for by the law
(legal responsibility).  Social responsibility means eliminating corrupt, irresponsible or unethical behavior
that might bring harm to the community, its people, or the environment before the behavior happens.  The
shareholders, suppliers of resources, the consumers, the local community and society at large are affected
 by the way an enterprise functions. Thus a business enterprise should be able to strike a balance between
these divergent groups.  There has been greater consensus around the fact that the business enterprise
which makes use of the resources of society and depends on society for its functioning, should discharge its
duties by enhancing the overall welfare of society. The nature of social responsibility can be classified into:
 Manner in which a business carries out its own activity.  Welfare activity that it takes upon itself as an
additional function.
4. 4. Businesses can use ethical decision making to strengthen their businesses in three main ways  To
use their ethical decision making to increase productivity. This can be done through programs that
employees feel directly enhance their benefits given by the corporation, like better health care or a better
pension program. One thing that all companies must keep in mind is that employees are stakeholders in the
business. They have a vested interest in what the company does and how it is run. When the company is
perceived to feel that their employees are a valuable asset and the employees feel they are being treated and
such, productivity increases.
5. 5.  By making decisions that affect its health as seen to those stakeholders that are outside of the
business environment. ◦ Customers and Suppliers are two examples of such stakeholders. If we were to
look at companies like Johnson & Johnson, their strong sense of responsibility to the public is well known.
In particular, take for instance Johnson & Johnson and the Tylenol scare of 1982. When people realized
that some bottles of Tylenol contained cyanide they quit buying Tylenol, stocks dropped and Johnson &
Johnson lost a lot of money. But they chose to lose even more money and invest in new tamper resistant
seals and announce a major recall of their product. In the long run they gained the trust of their customers.
 By making decisions that allow for government agencies to minimize their involvement with the
corporation. For instance if a company is proactive and follows the pollution guidelines for admissions on
dangerous pollutants and even goes an extra step to get involved in the community and address those
concerns that the public might have; they would be less likely to have the authorities investigate them for
environmental concerns.
6. 6. Carroll’s model:        Carroll has proposed a three dimensional conceptual model of
corporate performance. A firm has the following four categories of obligations of corporate performance:
Economic Legal Ethical Discretionary Firm being an economic activity, the main responsibility is
economic alongwith complying with the legal responsibilities. Ethical responsibilities are norms which the
society expects the business concern to observe even though they are not mandated by law. While
discretionary responsibilities refer to the voluntary contribution of the business to the social cause like
involvement in community development etc. Carroll points out that these four categories are not mutually
exclusive and presented them as a pyramid of CSR.
7. 7. The Pyramid of Social Responsibility 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 society’s codification of right and wrong; Play by the rules ECONOMIC Responsibilities Be
Profitable The foundation upon which all others rest Carroll’s Model
8. 8. Halal’s model:  Halal’s return on resources model of corporate performance points out that a firm
can only attempt to unite the diverse interests of various social groups to form a workable coalition
engaged in creating value for distribution among members of the coalition. Beyond a certain level of
economic activity the social issues at stake become conflicting. Ackerman’s model:There are three phases.
 The first phase is one when top management recognizes the existence of a social problem and
acknowledges the company’s policy by making it an oral or written statement.  The second phase is
characterized by the company appointing staff specialists to study the problem and provide
recommendations.  The third phase involves the implementation of the social responsibility programmes.
9. 9.         Promoters, Directors and Top Management: The values and vision of promoters and
top management is a key influencing factor. Stakeholders: Attitude of various stakeholders like
shareholders, creditors, employees etc. also affect the social orientation of a company. Societal Factors :
Social orientation could also be affected by the expectation of the society from the Corporation. Eg: A
resourceful firm located in a poor community may be expected to contribute to the development of
education facilities of the locality etc. Industry and Trade Associations: They influence the behaviour of
firms by establishing professional and ethical codes and norms. Government and Laws : Laws to curb
corruption, unfair practices etc. and the government’s view of social responsibility also acts as an
influencing factor. Political Influences: Competitors Resources
10. 10.          Society and Business are interdependent – There is a clear conviction within
sections of the public that business has an obligation towards the society Better environment for business
would be conducive for future success of the Organization Public Image: Socially responsible behavior
creates a positive public image for Business. Business has the resources and Power: Business has a
reservoir of capital and expertise that is could leverage Let Business try Prevention is better than Cure.
Social involvement of business would foster a harmonious and healthy relationship between society and
business to the mutual benefit of both. Shareholder interest: Business will prosper from an improved social
environment Avoidance of Governmental Regulation: If business is perceived as meeting its social
obligations, costly and restrictive governmental regulations can be avoided. Social responsibility like
recycling of waste may have favorable financial effects
11. 11.         Profit Maximization: Economic efficiency of business should be the top priority and
the sole mission of business. In this situation decisions are controlled by their desire to maximize profits for
the shareholders while reasonable complying with law. Society has to pay the Cost: Costs of social
responsibility will be passed on to the society and eventually it is the society which has to bear them. Lack
of social skills: Business managers are goods at solving matters relating to business and not very effective
at solving social problems as their outlook is primarily economic. Business has enough Power: Business
already has enough social power and the society should not take any steps which give it more power as it
could mould social values. Social Overhead Costs: Cost of social responsibility will not immediately
benefit the business. Why spend money on an object, benefits of which will be realized only in future. Lack
of accountability: Businessmen have no direct accountability to the people. Unless the society can develop
mechanisms which establish direct lines of social accountability from the business to the public, business
 must not stay away from social activities. Friedman’s Views: Friedman asserted that if managers spend
corporate funds on projects not intended to maximise profits, the efficiency of the market mechanism will
be undermined and resources will be misallocated within the economy. Many companies involve
themselves in social activities because of the tax exemptions on the income spent on social purposes.
12. 12. Businesses response to social responsibility tend to fall within four categories:  Social
Opposition: View taken by business is that they have no obligation to the society in which they operate. 
Social obligation: Companies believe that they have an obligation to obey the law.  Social response:
Position taken by companies which believe that their social responsibilities are as dictated by law and will
on selective basis go beyond the legal requirements. These units may volunteer to participate in limited
socially responsible efforts, but not until they are convinced that the benefits outweigh the costs.  Social
contribution: Position taken by Companies which believe that they have a deep obligation to serve the
society.
13. 13.  Shareholders: The primary business of a business is to stay in business. To safeguard the capital
of the shareholders and to provide reasonable dividends and returns to its shareholders.  Employees : The
success of the organization depends largely on the morale of the employees. Employee morale depends on
employer-employee relationship. The responsibility of the organization to the workers include: Payment of
fair wages Provision of best possible working conditions Establishment of fair work standards Provision of
labor welfare activities Arrangement of proper training of workers. Reasonable chances of promotion
Proper recognition, appreciation etc. Installation of an effective grievance handling system        
14. 14. Consumers:  The consumer is the king and is the foundation of any business venture. Important
responsibilities of the business to the customers are:  Improve efficiency so as to increase productivity and
reduce prices, improve quality and smoothen the distribution system so as to make the products easily
available.  To do research and development so as to improve quality  To supply goods at reasonable
prices, even in case of a sellers market  To provide after sales sevice  To ensure that the product supplied
has no adverse effect.  To provide sufficient information about the product  To avoid misleading
customers by improper advertising etc. Community:  Taking steps to prevent environmental pollution 
Rehabilitating the population displaced by the operation of the business  Assisting in the overall
development of the locality  Taking steps to conserve scarce resources and develop alternatives  Improve
the fficiency of the business operation  Contribute to R & D  Development of backward areas 
Promotion of ancillary and small scale industries  Contributing to welfare activities like promotion of
education etc.
15. 15. Meaning: Social audit is a tool for evaluating how satisfactorily a company has discharged its
social responsibilities. Social audit enables the public as well as the company to evaluate the social
performance of the company. Social audit involves:  Identification of the firm’s activities having potential
social impact  Assessment and evaluation of the social costs and social benefits of such activities 
Measurement of the social costs and benefits  Reporting Objectives and Benefits of Social Audit: 
Evaluate the social dimension of the performance of the company.  Take measures to improve the social
performance of the company on the basis of feedback provided by the social audit.  Social audit increases
the public visibility of the organization.  In case the social audit reveals a sociialy commendable
performance, it helps boost the public image of the company