UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM

II)_BE

Unit 5: Social Environment

Overview

5.1 Concept and Significance of Socio-Cultural Environment

5.2 Concept of Social Responsibility and Stake Holder Approach

5.3 Social Responsibility Models

A. Ackerman‘s Model

B. Carroll‘s Four Part Model

5.4 Arguments for Social Responsibility

5.5 Arguments against Social Responsibility

5.6 Limits of Social Responsibility

5.7 Business Ethics

5.8 Consumerism & Consumer Protection Act, 1986

Asst Prof Hiral D Mehta 1

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

5.1 Concept and Significance of Socio-Cultural Environment

– Socio-cultural environment is a collection of social factors affecting a business and includes

social traditions, values and beliefs, level of literacy and education, the ethical standards and
state of society, the extent of social stratification, conflict and cohesiveness, and so forth.
– Socio-cultural environment consists of factors related to human relationships and the impact
of social attitudes and cultural values on the business of the organization.
– Every society develops its own culture over a time and this culture determines how its
members behave and interact with each other. Since the society is a collection of the
organizations and social institutions, it is evident that they are affected to a considerable
degree by cultural forces in the environment.
– The social norms are those standards that mold behavior, attitudes, and values of those
members who constitute a society. They are standards, because members take them into
account in their decisions and behavior. In other words, one can say that behavior and
attitude actually reflect the prevailing norms within a society or an organization.

– Every organization develops its own internal culture. It is the responsibility of the
management or managers to create such a culture that will help to maintain a common
behavior. The organizations are supported by three legs-assumptions, values and goal. Each
of these legs plays an important part in the life of an organization.
– In a modern business, social and cultural forces usually influence the welfare of a business
concern in the long run. The nature of goods and services in demand depends upon the
changes in habits and customs of people in the society.
– With rise in population the demand for household as well as other goods has increased. The
nature of food and clothing pattern has also changed to a greater extent. Demand for
packaged food and readymade garments have increased in recent times. All produce goods
accordingly. So the social and cultural factors have affected the production pattern of
business.
– Some of the important factors and influences operating in this environment are as follows:

 Social concerns, such as the role of business in society, environmental pollution,

Asst Prof Hiral D Mehta 2

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
corruption, use of mass media, and consumerism.

Asst Prof Hiral D Mehta 3

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

 Social attitudes and values, such as expectations of society from business, social customs,
beliefs, rituals and practices, changing lifestyle patterns, and materialism.
 Family structure and the changes in it, attitude towards and within the family, and family
values.
 Role of women in society, position of children and adolescents in family and society.

 Educational levels, awareness and consciousness of rights, and work ethics of members
of society.

5.2 Concept of Social Responsibility and Stake Holder Approach

– Business depends on the society for the needed inputs like money, men and skills. Business
also depends on the society for market where products may be sold to their buyers. Thus,
business depends on society for existence, sustenance and encouragement.
– Being so much dependent, business has definite responsibility towards society

– Hence Corporate Social Responsibility is understood as the obligation of decision-makers

to take actions which protect and improve the welfare of society as a whole along with their
own interests.

– Every decision the businessman takes and every action he contemplates have social
implications, be it deciding on diversification, expansion, opening of a new branch, closure
of an existing branch or replacement of men by machines, the society is affected in one way
or the other.
– Even routine matters like overtime and night shifts, subcontracting, and laying off employees
due to load-shedding have a social impact. Whether the issue is significant or not, the
businessman should keep his social obligation in mind before contemplating any action.
– CSR makes a corporation accountable for any of its actions that affect people, their
communities, and their environment. The social actions which a firm undertakes in the name
of its CSR occur "beyond the factory gate" and will benefit the society in general.
– Difference between CSR and Charity (or philanthropy):

Asst Prof Hiral D Mehta 4

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
 Charity refers to an idea that a wealthy individual should be bountiful to the weak and
poor in the society. Poor feeding and donations to temple construction constitute charity.
Charity is undertaken to redeem karma a wealthy person has inherited because of
misdeeds in his or her previous birth, or to accumulate punya for the next birth. Charities
are generally occasional and their end use is not monitored.

 Unlike philanthropy, CSR is inspired not by self-interest but the motive is the interest of
the organization. Maintaining schools, donating computers to village schools, adopting
villages, promoting greenery and contributing to ecology and the like benefit society and
in turn help contribute to the growth of healthy businesses.

 The Stakeholder Approach to CSR

– The stakeholder approach is a theory of organizational management and business ethics that
addresses morals and values in managing an organization.
– It was propounded by R.E.Freeman in his book ―Strategic Management: A Stakeholder
Approach‖ in which he identifies and models groups which are stakeholders of a firm and
also recommends methods by which management can give due regards to the interests of
these groups.
– In traditional – shareholder approach, only the owners or shareholders of the company are
important and the company has a duty to put their needs first, to increase value for them.

– Instead of this, the stakeholder approach argues that there are other parties involved like
employees, customers, suppliers, financers, community, government bodies, political groups,
trade associations and trade unions. Even competitors are sometimes counted as stakeholders
because of their capacity to affect the firm and its stakeholders.
– The attitude of various stakeholders and the internal power relationship affects the social
orientation of a company.
– A firm can attempt to unite the diverse interests of these stakeholders to form workable
coalition. Beyond a certain level of economic activity, the social issues of stake may become
conflicting.
– From the figure below, it can be seen that a company has responsibility towards shareholders,

Asst Prof Hiral D Mehta 5

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
employees, consumers, local community and society at large.

Asst Prof Hiral D Mehta 6

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

1) Responsibility to Shareholders

– The responsibility of a company to its shareholders, who are the owners, is indeed a primary
one. The fact that the shareholders have taken a great risk in making investment in the
business should be adequately recognized.
– To protect the interests of the shareholders and employees, ―the primary business of business
is to stay in business‖. To safeguard the capital of the shareholders and to provide reasonable
dividend, the company has to strengthen and consolidate its position. Hence, it should
develop and improve its business and build up its financial independence.

– Needless to say, to provide dividend, the company should earn sufficient profit. Adequate
reserves should be built up so that it will be able to declare a reasonable dividend during a
lean period as well.
– If a company fails to cope with changes in a changing and dynamic world, its position will be
shaken, and the shareholders ‘interests will be affected. By innovation and growth the
company should consolidate and improve its position and help strengthen the share prices.
– The shareholders are interested not only in the protection of their investment and the return
on it but also in the image of the company. It shall, therefore, be the endeavor of the company
to ensure that its public image is such that the shareholders can feel proud of their company.
– It may be mentioned here that the shareholders also have certain responsibilities. Which they

Asst Prof Hiral D Mehta 7

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
have to discharge to protect their own interests. They shall riot only offer whole-hearted
support and co-operation in the positive efforts of the company but shall also guide and

Asst Prof Hiral D Mehta 8

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

control properly its policies and activities. At the same time, they shall appreciate the
responsibility of the business to other sections of society — to the workers, consumers and
the community.

2) Responsibility to Employees

– The success of an organization depends to a very large extent on the morale of the employees
and their whole-hearted co-operation. Employee morale depends to a large extent on the
discharge of the company‘s responsibilities to them and the employer employee relationship.
– The responsibility of the organization to the workers include:

1. The payment of fair wages;

2. The provision of the best possible working conditions;

3. The establishment of fair work standards and norms;

4. The provision of labor welfare facilities to the extent possible and desirable;

5. Arrangements for proper training and education of the workers;

6. Reasonable chances and proper system for accomplishment and promotion;

7. Proper recognition, appreciation and encouragement of special skills and capabilities the
workers;
8. The installation of an efficient grievance handling system;

9. An opportunity for participating in managerial decisions to the extent desirable.

3) Responsibility to Consumers

– According to Peter Drucker, ―there is only one valid definition of business purpose; to create
a customer.‖
– Drucker observes: ―The customer is the foundation of a business and keeps it in existence. He
alone gives employment. To supply the wants and needs of a consumer, society entrusts

Asst Prof Hiral D Mehta 9

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
wealth-producing resources to the business enterprise‖.
– It has been widely recognized that customer satisfaction shall be the key to satisfying the
organizational goals.
– Important responsibilities of the business to the customers are:

1. To improve the efficiency of the functioning of the business so as to (a) increase

productivity and reduce prices, (b) improve quality, and (C) smoothen the distribution
system to make goods easily available.

2. To do research and development, to improve quality and introduce better and new
products.
3. To take appropriate steps to remove the imperfections in the distribution system,
including black-marketing or profiteering by middlemen or anti-soda elements.
4. To supply goods at reasonable prices even when there is a seller‘s market.

5. To provide the required after-sales services.

6. To ensure that the product supplied has no adverse effect on the consumer.

7. To provide sufficient information about the products, including their adverse effects,
risks, and care to be taken while using the products.
8. To avoid misleading the customers by improper advertisements or otherwise.

9. To provide an opportunity for being heard and to redress genuine grievances.

10. To understand customer needs and to take necessary measures to satisfy these needs

– Despite the popularity of the marketing concept and societal marketing concept and the
growing awareness of consumer rights, consumers all over the world are, by and large,
dissatisfied.

– Consumerism, which is an organized endeavor of the consumers to protect their

rights, is a manifestation of this fact. In shortage economies like India many businessmen pay
scant attention to their responsibilities to consumers. To protect consumer rights and to make the
business discharge its responsibilities to them, the consumers should give up their indifferent attitude
and build up a strong consumer movement.

Asst Prof Hiral D Mehta 10

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

4) Responsibility to Suppliers

– Suppliers are businessmen who supply raw materials and other items required by
manufacturers and traders. Certain suppliers, called distributors, supply finished products to
the customers.
– The responsibilities of business towards these suppliers are as follows

1. Giving regular orders for purchase of goods

2. Dealing on fair terms and conditions.

3. Availing reasonable credit period

4. Timely payment of dues.

5) Responsibility to Government

– Business activities are governed by the rules and regulations framed by the government. The
various responsibilities of business towards the government are:
1. Setting up units as per the government guidelines

2. Payment of fees, duties and taxes regularly as well as honestly.

3. Not to indulge in monopolistic and restrictive trade practices.

4. Conforming to pollution control norms set up by the government

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

6) Responsibility to The Community

– A business has a lot of responsibility to the community around its location and to the society
at large.
– These responsibilities include:

1. Taking appropriate steps to prevent environmental pollution and to preserve the

Asst Prof Hiral D Mehta 11

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
ecological balance.
2. Rehabilitating the population displaced by the operation of the business, if any.

3. Assisting in the overall development of the locality.

4. Taking steps to conserve scarce resources and developing alternatives, wherever possible.

5. Improving the efficiency of the business operation.

6. Contributing to research and development.

7. Development of backward areas.

8. Promotion of ancillarisation and small-scale industries.

9. Making possible contribution to furthering social causes like the promotion of education
and population control.
10. Contributing to the national effort to build up a better society.

Asst Prof Hiral D Mehta 12

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

5.3 Social Responsibility Models

– There are two basic approaches to the concept of corporate social responsibility. Some
theorists, focuses on 'micro' level of analysis and assume that it is the responsibility of
individual companies to be more socially responsive.

– While other researchers focus on 'macro' level of analysis and assumes that the government,
not individual companies, should establish social responsibility.

A. Ackerman’s Model

– Micro-level theorist Robert Ackerman was among the earliest people to suggest that
responsiveness should be the goal of corporate social Endeavour.
– Ackerman described three phases through which companies commonly tend to pass in
developing a response to social issues

1) Phase 1

– In phase 1, a corporation's top managers learn of an existing social problem. At this stage, no
one asks the company to deal with it. The chief executive officer merely acknowledges the
problem by making a written or oral statement of the company's policy toward it.

2) Phase 2

– In phase 2, the company hires staff specialists or engages external consultants to study the
problem and to suggest ways of dealing with it. Upto this point, the company has limited
itself to declaring its intentions and formulating its plans.

3) Phase 3

– Phase 3 is implementation. The company now integrates the policy into its ongoing
operations. Unfortunately, implementation often comes slowly and often not until the
government or public opinion forces the company to act.
– By that time, the company has lost the initiative. Ackerman thus advises that managers should
―act early in the life cycle of any social issue in order to enjoy the largest amount of
managerial discretion over the outcome‖.

Asst Prof Hiral D Mehta 13

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
– For Example: It has recently been suggested that women who spend a great deal of time
working at video display terminals, such as word processors or computer operators, stand a
higher than average chance of having problem pregnancies. The research is preliminary,
tentative and disputed by some investigators.
– Ackerman‘s point is that as this issue unfolds, as more actors and competing interests
become involved in efforts to resolve it, managers could conceivably lose control over their
ability to handle the issue at their own discretion.

– Ackerman‘s model suggests developing options early in the life cycle of an issue.
In this case, enlightened companies could make the best information available to their employees,
encourage them to ask questions, and even seek transfers or retraining if they believe it is warranted.
Being responsive may well be the only responsible course of action.

ORGANIZATIONAL PHASES OF ORGANIZATIONAL INVOLVEMENT

PHASE I PHASE II PHASE III
LEVEL
Chief Executive ISSUE: Corporate Obtain knowledge and Obtain
Obligation staff specialists organizational
ACTION: Write commitment
and communicate
policy OUTCOME:
Change performance
Enriched purpose,
increased awareness

Asst Prof Hiral D Mehta 14

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

Staff Specialists ISSUE: Technical Provoke response

Problem from operating units.
ACTION: Design Data Apply data system to
system and interpret performance
environment measurement
OUTCOME:
Technical and
information
groundwork

Asst Prof Hiral D Mehta 15

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

Division Management ISSUE:

Management
problem
ACTION: Commit
resources and modify
procedures
OUTCOME:
Increased
responsiveness

B. Carroll’s Four Part Model

– Archie B. Carroll, who defines corporate social responsibility as the entire range of
obligations business has to society, has proposed a three-dimensional conceptual model of
corporate performance.
– According to Carroll, a firm has the following four categories of obligations of corporate
performance.
1) Economic

2) Legal

3) Ethical

4) Discretionary

Asst Prof Hiral D Mehta 16

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

Asst Prof Hiral D Mehta 17

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

1) Economic Responsibilities

– The firm being an economic entity, its primary responsibility is economic, i.e., efficient
operations to satisfy economic needs of the society and generation of surplus for rewarding
the investors and further development.

2) Legal Responsibilities

– Legal responsibilities are also fundamental in nature because a company is bound to obey the
law of the land.

3) Ethical Responsibilities

– Ethical responsibilities are certain norms which the society expects the business to observe
though they are not mandated by law.
– For example: A company shall not resort to unethical practices, unfair competitive practices
etc.

4) Discretionary Responsibilities

– Discretionary responsibilities refer to the voluntary contribution of the business to the social
cause, like involvement in community development or other social programs.

– Carroll points out that these four categories are not mutually exclusive, and the boundaries
between them are difficult, if not impossible, to define. Further, these terms are not value-
free and they may be interpreted differently by different people.
– Carroll later presented the different categories of responsibilities as a pyramid of corporate
social responsibility. Economic responsibilities are at the base of the pyramid, succeeded by
legal responsibilities, ethical responsibilities and, finally, philanthropic responsibilities.

Asst Prof Hiral D Mehta 18

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

– According to Carroll‘s pyramid, legal responsibilities come only at the second stage.
This is not a right view. A company must inevitably obey the laws, even if it is unable to
discharge some of the economic objectives, as long as it exists. Figure 8.1 presents the right
perspective.

5.4 Arguments for Social Responsibility

[Why should firm have social responsibility]
1. Changed Public Expectations of Business:

One of the most potent arguments for social responsibility is that public expectations from
business have changed. Changed expectation from business demand that the business should
fulfill them because the very existence of business is due do society. Therefore, if business
wishes to remain viable in the long run, it must respond to society’s needs and give the society
what it wants.

2. Better Environment for Business:

Another argument favoring social responsibility is that it creates a better environment for

Asst Prof Hiral D Mehta 19

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
business. When business fulfills social responsibility life standards of community improve. And
cultural environment is better. The firm which is most responsive to the improvement of
community quality of life will as a result has better community in which to conduct its business.
So, the operations of business can be efficient in better environment. E.g. labor recruitment
becomes easier quality of employee is high, turnover and absenteeism reduces, etc.…

3. Public Image:

Public image of a firm fulfilling the social objective is improved. It results in more number of
customer’s better employees, more response from money market supplier, etc.….A firm which
seeks better public image should support social goals.

4. Avoidance of Government Regulation:

Government regulation are minimizing or avoided by meeting the social responsibility because
a firm already implements well in advanced whatever government expects to do. Thus, self-
discipline is the best discipline.

5. Balance of Responsibility with Power:

Balance of responsibility and power is embedded / lying in business. It has vast social influence
to affect economy, minorities and other social problems. So, it can better fulfill the
responsibility.

6. Business has Vast Resources:

Business has vast resources of man power skills functional expertise and money so that it can
meet social responsibility more easily than non-profit organization. Maney non-profit
organizations have failed to fulfill social responsibility but business has tired and succeeded.

7. Prevention is Better than Cure:

The principle that prevention is better than cure applies equally to well to social responsibility
also because a social problem left unsolved grows in dimension and results in breakdown and
disturbances in business, hence reduction in efficiency. A problem sorted and attended in the
initial stage can be solved easily and more economically.

8. Moral Responsibility:

Asst Prof Hiral D Mehta 20

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
It is moral responsibility of organization to fulfill to social responsibility because the evolution
of many social problems has been due to industrialization and large scale operations. So when a
firm is benefited from business it should spare some resources for the society.

9. Duty of Gratitude:

Business units benefit from society. On the basis of the commonly accepted principle that one
owes debts of gratitude towards those who benefit us, the corporation has certain debts that it
owes to the society. Business Corporation are also the part of society so, they should develop
the society and express the felling of gratitude towards it.

10. Let Business Try

It is that many other institutions have failed in handling social problems. So why should not a
business enterprise handle social problems? Many people are frustrated with failures of other
institutions and in their frustration they are turning to business.

Asst Prof Hiral D Mehta 21

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

5.5 Arguments against Social Responsibility

Arguments against social responsive actions are equally strong. Some arguments are as follows :

1. Profit Maximization:

Profit maximization is the main and most important objective of business. Surviving in
business and making profit itself is the best way of fulfilling social responsibility. It need not be
separately fulfilled in any other different way. Business function is economic, not social and
economic values should be the only criteria used to measure success.

2. Society has to pay the cost:

Society has to pay the cost of social responsibility and business has to fulfill only business
costs. It is not necessary burden with the business by additional cost of social responsibility.

3. Lack of Social Skills:

Lack of social skills among business managers does not favor to take up social responsibility.
They are not equally good at solving social problems. Their outlook is primarily economic and
their skills are the same. Because a manager best at business operations need not be best at
social matters. So, when social responsibility is entreated to such managers, there performance
will be lower as compared to that of skill socialist.

4. Business has enough Power:

Business has enough social power to dominate the society through its product and service. So it
additional social responsibility is given to business it will be full constructive power of
influence, which is not desirable. Business influence is felt throughout society. It is felt in
education, in government, in the home and in the market place. Business is an institution which
is considered to be not so good and giving more power to it is not advisable.

5. Social Overhead Cost:

Social overhead cost in fulfilling social responsibility sometimes reduces the profitability to
such an extent there business is not able to meet even primary requirement or it may incurred
loss. So, it need not spend money for better future at the cost of present. It is the heavy social

Asst Prof Hiral D Mehta 22

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
overheard cost which is one of the reasons for the dismal performance of some of our
government undertaking.

6. Lack of Accountability:

Another point of view is that the businessmen have no direct accountability to the people;
therefore, it is unwise to give businessmen responsibility for areas where they are accountable.
Business is accountable only for business operation and not for social responsibility so, if need
not pay attention to such unaccountable causes. Accountability should always go with
responsibility and it is poor social control to allow any other kind of arrangement.

7. Lack of Broad Support:

Business has lack of support from all groups of society in fulfilling social responsibility. Many
times business has to have friction from dissident parties when social reforms are propagated
by business. There is lack of agreement among the even among businessmen themselves.

8. Economic and legal ground:

Economic and legal ground stat that business is meant for economic activities and it should not
construct on other unrelated activity like social responsibility. Also business has law right to
utilize the funds collected from investors for business purposes, in any other purpose. If
investors have to do any social work they can do own their own from the dividend or other
income.

5.6 Limits of Social Responsibility

– The social responsibility actions of businesses are limited by cost, efficiency, relevance and
scope. As a result of these constraints, actions fall short of public expectations.

1. Cost

– Social responsibility costs money. Whether a company desires to adopt a village, donate to a
college or school, build a hospital, maintain parks or undertake relief operations in times of
calamity, it costs money.

Asst Prof Hiral D Mehta 23

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

2. Efficiency

– Social responsibility affects efficiency adversely. Being obliged to the employees, say a
company runs its plant, even if it is incurring losses every year. Its efficiency goes down and
its ability to compete is lost.

3. Relevance

– According to several critics, business has no obligation to society. The only obligation is to
run the business successfully. Social responsibility is irrelevant.
– According to Friedman, for example, ―There is one and only one social responsibility of
business: to use its resources and energy in activities designed to increase its profits so long
as it stays within the rules of the game...(and) engages in open and free competition without
deception and trend..

– Friedman contends that corporate officials are in no position to determine the relative
urgency of social problems or the amount of organizational resources that should be
committed to a given problem.
– He also insists that managers who devote corporate resources to pursue personal, and perhaps
misguided notions of the social good, unfairly tax their own shareholders, employees and
customers.
– In short, business should produce goods and services efficiently and leave the solution of
social problems to the concerned individuals and government agencies.
– Often, social responsibility action is undertaken for wrong reasons and rendered
irrelevant and ineffective. Example: Brij Mohan Khaitan, the tea giant: In the beginning of

1990s, Khaitan was under tremendous pressure from the Bodo Security Force (8SF). One of
his executive was kidnapped and another was gunned down by the militants. BSF demanded
hefty sums as a precondition for peace. It was at this time that Khaitan reflected and set up a
school at a cost of 22 crore. The school could not help Khaitan buy peace from the BSF.

4. Scope and Complexity

Asst Prof Hiral D Mehta 24

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
– Society‘s problems are too massive, too complex, and too deep seated to be solved by even
the most socially conscientious company or even by all companies acting together.
– The problems such as environmental pollution acid rain, ozone depletion, destruction of rain
forests; health problems AIDS, drug and tobacco use; racial discrimination; sex
discrimination; oil spil, ethnic and religious animosities, etc. possess a challenge to
businesses even if they are much careful for it.
– Business has its own limitations. It should deliver quality goods at reasonable prices, earn
profits for shareholders, and pay taxes to the government and plan strategies to survive in the
competitive world. Amidst such varied problems, how can business solve yet another
complex problem, viz., social responsibility?

5.7 Business Ethics

 Definition

– Ethics refers to a system of moral principles-a sense of right and wrong and goodness and
badness of actions and their motives and consequences.
– Business ethics refers to the application of ethics to business. To be more specific, business
ethics is the study of good and evil, right and wrong and just and unjust actions of
businessmen.
– Business ethics does not differ from generally accepted norms of good or bad. If dishonesty is
considered to be unethical and immoral in society, then any businessman who is dishonest
with employees, customers, shareholders or competitors is acting unethically and immorally.

– If protecting others from any harm is considered to be ethical, then a company that recalls a
defective and harmful product from the market is acting ethically. To be considered ethical,
businessmen must draw their ideas about what is desirable behavior from the same sources as
anybody else.
– Businessmen should not try to evolve their own principles to justify what is right and wrong.
Employees and employers may be tempted to apply special or weaker ethical rules to
business situations. But society does not condone or permit such an exception. People who

Asst Prof Hiral D Mehta 25

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
are in business are bound by the same ethical principles that apply to others.
– To be considered ethical, businessmen must draw their ideas about what is desirable behavior
from the same sources as anybody else. Businessmen should not try to evolve their own
principles to justify what is right and wrong. Employees and employer may be tempted to
apply special or weaker ethical rules to business situations. But society does not ignore or
permit such an exception. People who are in business are bound by the same ethical
principles that apply to others
– Two theories are pertinent when one talks about the nature of ethics.
– The theory of moral unity essentially advocates the principal that business actions should be
judged by the general ethical standards of society. There exists only one ethical standard
which applies to business situations
– Opposed to the theory of moral unity is the theory of amorality, which argues that business
can be amoral, and the actions of businessmen need not be guided by general ethical
standards. Managers may selfishly because the market mechanism distills their actions into
benefits to shareholders and society at large.

 Sources of Business Ethics

– Managers in every society are influenced by three repositories of ethical values: religion,
culture and law. These repositories contain unique systems of values that exert varying
degrees of control over managers.
– Ethical values are a mechanism that controls behavior in business and in the other walks of
life. Ethical restraints are more effective than are cruder controls such as police, law suits or
economic incentives. Ethical values channel individual energy into pursuits that are kind to
others and beneficial to the society.
1) Religion

– One of the oldest sources of ethical inspiration is religion. More than 100,000 different
religions exist across the globe. But despite doctrinal differences, the major religions
converge on the belief that ethics is on expression of divine will that reveals the nature of
right and wrong in business and other areas of life.

Asst Prof Hiral D Mehta 26

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

– The world's great religions are also in agreement on fundamental principles which are similar
to the building blocks of secular ethical doctrine. They preach the necessity for an orderly
social system and emphasize social responsibility in such a way so as to contribute to the
general welfare. Built upon such verities are many other rules of conduct.

2) Cultural Experiences

– Culture refers to a set of values, rules and standards transmitted among generations and
acted upon to produce behaviors that fall within acceptable limits. These rules and standards
always play an important part in determining values, because individuals anchor their
conduct in the culture of the group.

– Civilization itself is a cumulative cultural experience in which people have passed through
three distinct phases of moral codification. These stages correspond to the changing
economic and social arrangements in human history.
– Two centuries ago, society entered an industrial stage of cultural experience, and ethical
systems once more began evolving to reflect the changing physical, cultural, institutional and
intellectual environment. Large factories and corporations, population growth, capitalist and
socialist economic doctrines and technologies have all assaulted the ethical standards of the
agrarian stage.
– Managers run an industrial enterprise on the cutting edge of cultural experience. The tensions
their actions create make business more ethically complex. For instance, the widespread use
of computers for data storage and communication raises new issues of privacy and individual
expression unlike those present in the agrarian societies.

3) The Legal System

– Laws are rule of conduct, approved by legislatures that guide human behavior in any society.
They codify ethical expectations and keep changing as new evils emerge. But laws cannot
cover all ethical expectations of society.
– Law is reactive; new statutes and enforcement always lag behind the opportunity or
corporate suitability.

Asst Prof Hiral D Mehta 27

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
– Whatever ethics that law codifies, it is binding on business, Society expects business to abide
by law and obeying law is presumed to be ethical behavior.

– Although society expects business to be law abiding, seldom does the business adhere to the
rules. Law breaking in business is common.
– Taxes are evaded, hundreds of employees die because of occupational diseases, many die
because of industrial accidents and million others receive disabling injuries on the job. The
blame for these deaths and injuries can be shared by careless employees and by employers
who fail to adhere to occupational health and safety laws.
– Consumers suffer because of poor quality and high priced products supplied by businessmen.
Arid business causes miser' to the society by damaging the environment, disregarding
environment protection laws.

 Importance of Ethics

– Ethics is important to business for several reasons as stated below:

1. Ethics corresponds to basic human needs

– It is a human trait that man desires to be ethical, not only in his private life but also in his
business affairs where, being a manager, he knows his decisions may affect the lives of
thousands of employees.
– Moreover, most people want to be part of an organization which they can respect and be
publically proud of, because they perceive its purpose and activities to be honest and
beneficial to the society.
– These basic ethical needs compel the organizations to be ethically oriented.

2. Values create credibility with the public

– A company perceived by the public to be ethically and socially responsive will be honored
and respected even by those who have no intimate knowledge of its actual working.
– There will be an instinctive prejudice in favor of its products, since people believe that the
company offers value for money. Its public issues will attract an immediate response.

Asst Prof Hiral D Mehta 28

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

3. Values give management credibility with employees

– Values are supposed to be a common language to bring leaderships and its people together.
Organizational ethics, when perceived by employees as genuine, create common goals,
values and language.

– The management has credibility with its employees precisely. Sound business strategy, a
generous compensation policy or fringe benefits cannot win employee credibility; but
perceived moral and social uprightness can win employee credibility.

4. Values help better decision making

– Another point of great importance is that an ethical attitude helps the management make
better decisions, i.e., decisions which are in the interest of the public, their employees and the
company's own long term good, even though decision making is slower.
– This is so because respect for ethics will force a management to take various aspects-
economic, social, and ethical- in making decisions.

5. Ethics and profit go together

– A company which is inspired by ethical conduct is also profitable one. Value driven
companies are sure to be successful in the long run though in the short run, they may lose
money.

6. Law cannot protect society, ethics can

– Ethics is important because the government, law and lawyers cannot do everything to protect
society.
– Technology develops faster than the government can regulate. People in an industry often
know the dangers in a particular technology better than the regulatory agencies.
– Further, government cannot always regulate all activities which are harmful to society.
Where law fails, ethics can succeed. An ethical oriented management takes measures to
prevent pollution and protect workers' health even before being mandated by law.

Asst Prof Hiral D Mehta 29

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

5.8 Consumerism & Consumer Protection Act, 1986

 Consumerism

– Philip Kotler defines Consumerism as “a social movement seeking to augment, the rights
and powers of the buyers in relation to sellers”.
– Boyd and Allen state that “Although often abused as a term, Consumerism may be best
defined as the dedication of those activities of both public and private organizations which
are designed to protect individuals from practices that impinge upon their rights as
consumers.”

– Consumerism is coined as a movement towards consumer protection that promotes

improvement in safety standards and truthful packaging and advertisement.
– Consumerism seeks to enforce laws against unfair practices implement product guarantees.

– In his speech delivered at the 44th Annual General Meeting of Hindustan Lever Ltd. in
1977 the Chairman, Mr. T. Thomas, rightly pointed out: ―While the producer has the power
or the right to design the product, distribute, advertise and price it, the consumer has only the
power of not buying it. One may argue that the producer runs the greater risk in spite of
having several rights because the veto power remains with the consumer. However, the
consumer often feels that while he has the power of veto, he is not always fully equipped to
exercise that power in his best interests. This situation may be the effect of lack of
information, too much indigestible information or even misinformation from one or several
competing producers. This problem facing the consumer has led to consumerism‘. It is
worthwhile to note that consumerism, like several other social movements, e.g.,
independence movement Civil Rights movement, etc., has been result of a social conflict and
cannot, therefore, be wished away. It will be with us till the conflict facing the consumer is
resolved‖.
– Consumerism, interpreted as collective endeavor of the consumers to protect their interest is
a manifestation of the failure of the business, including that of the public sector and the
government to guarantee and ensure the legitimate rights of the consumers.

Asst Prof Hiral D Mehta 30

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

 Consumer Protection Act, 1986

(1) Introduction

– The Consumer Protection Act, 1986 got the consent of the President on 24th December, 1986
and was made effective from 15th April, 1987.
– It seeks to provide for better protection of the interests of the consumers

– The other objectives of the act include making provision for the establishment of consumer
councils and other authorities for the settlement of consumers' dispute and for matters
connected therewith.

(2) Objectives of the Consumer Protection Act, 1986

– The objectives of the Act are:

(i) To protect against marketing of goods which are hazardous to human beings and property.

(ii) To inform about quantity, quality, purity, potency and standard and also price of goods to
protect the consumers against unfair trade practices.
(iii) To ensure that the interest of consumers will be given a valid consideration.

(iv) To hear and assure that the consumers' interest will receive due consideration at appropriate
forums.
(v) To seek redressal of grievances against unfair trade practices or fraudulent exploitation of
consumers,
(vi) Every consumer shall have the right to consumer education.

(vii) It also aims at to provide speedy and simple redressal to consumer disputes.

– The Consumer Protection Act. 1986 is a kind of benevolent legislation and a solid welfare
legislation objected to safeguard from unfair trade practices.
– It provides cheap and quick redressal of genuine consumers' grievances and it is a matter of
paramount public importance that no person should misuse the remedies available under this
Act for lodging false complaints on the basis of fabricated evidence and harass the persons

Asst Prof Hiral D Mehta 31

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
who supply the out or render services.

Rights of the Consumer explained under the Act and how they are protected by
this Act

– The consumer has the following rights

1) Right to Safety

 Consumer must be safeguarded and protected from such goods which are dangerous or
harmful to them.
2) Right to Heard

 Every consumer is entitled to be heard before the consumer Redressal Agencies.

3) Right to Choose

 Consumers are free to choose and buy the goods or avail service of their choice which has
been hired for consideration.

4) Right to Seek Redressal

 Every consumer has got right to seek redressal of grievance before consumer Redressal
agencies Viz. The District Forum, the State Commission and the National Commission.
5) Right to Consumer Education

 Every Consumer has right to receive information and knowledge in respect of goods, services
and also right to education in the field of protection of consumer's interest.
6) Right to Access to Competitive Price

 Wherever it is possible, every consumer has right to have access to competitive prices paid or
promised or partly paid and partly promised.

Against Whom Complaint Can be filed?

– Under the Act, complaints can be filed against the followings:

(i) Goods of inferior quality/duplicate/lesser weight/articles supplied by trader to the consumer.

Asst Prof Hiral D Mehta 32

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
(ii) Services provided by the LIC and other insurance agencies which are defective/ negligent.
(iii)Services provided by ST/MTS/Railway and other private travel companies which are
defective/ negligent.

(iv) On full payment of value of defective houses allotted by a contractor/builder/housing

corporation and defective services found.
(v) Supply of defective medicines, of low quality and of expired date supplied by shopkeepers of
drugs and medicines.
(vi) Defective services provided by Electricity Boards or Private electricity companies.

(vii) Defective services provided by banks/telephone department.

(viii) Not delivering car, scooter, rickshaw in time against deposit and dealer in such goods
provides defective services
(ix) Defective services provided by private doctors.

(x) Excess bill prepared by the Telephone department on account of

unreasonableness/computer/mistake/defect or any other.
(xi) At the time of purchase or sale any goods (diamonds, gold etc.) intentionally paying mischief
with the scale and inferior quality and showing more or less weight in the bill in respect of
various goods and services. Every consumer is entitled to fair price in open market.

Who Can File Complaint under This Act?

– According to Sec. 2 (1) (b) of the Act, the following are entitled to file a complaint.

1. A consumer or

2. Any voluntary Consumers Association registered under the Companies Act, 1956 or under
any other law for the time being in force, or.
3. The Central Government or any State Government, who or which makes a complaint.

4. One or more consumers, where there are numerous consumers having the same interest.

Definition of 'Consumer'

– According to Sec. 2 (1) (d) (i) and (ii) of the Act, "Consumer" means any person who

Asst Prof Hiral D Mehta 33

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE

(i) buys any goods for consideration which has been paid or promised or partly paid and partly
promised or under any system of deferred payment and includes any user of such goods other
than the person who buys such goods for consideration paid or promised or partly paid and
partly promised or under any system of deferred payment when such use is made with the approval of
such person, but does not include a person who obtains such goods for resale or for any commercial
purpose or Hires or avails of any services for consideration which has been paid.

Safeguards Available to Consumer under the Act

– The Forum Commission may order to grant any one of the following reliefs to the consumers

(iii) To remove defects and/or deficiency in goods.

(iv) To exchange the goods.

(iii)To return the price paid.
(iv)To compensate the consumer from loss caused to him.

Definition of “Manufacturers”

– According to Sec 2 (i) of the Act, "Manufacturer" means a person who:

(v) Makes or manufactures any goods or parts thereof or

(vi) Does not make or manufacture any goods but reassembles parts thereof made or
manufactured by others and claims the end product to be goods manufactured by himself or
(vii) Puts his own mark on any goods made or manufactured by any other manufacturer and
claims such goods to be goods made or manufactured by him.

Definition of 'Service'

– According to Sec. 2 (i) (0) of the Act, the term 'service' means:

Service of any description which is made available to the potential users and includes the
provision of facilities in connection with banking, financing, insurance, boarding or lodging or
both, transport, housing construction, entertainment, amusement, processing, supply of energy

Asst Prof Hiral D Mehta 34

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
etc. but does not include the rendering of any service free of charge or under a contract of
personal service.
– However, there are 3 essential elements to the term "service" under this Act

(a) "Service" must have been rendered to consumer or consumers.

(b) "Service" must have been availed by a consumer or consumers.

(c) Such service must be for consideration.

Consumer Protection Councils

The consumer protection Act, 1986 as amended by the (Amendment) Act, 2002 provides for
constitution of consumer protection councils at Central, State and District levels.

1. Central Consumer Protection Council

Establishment:

The Central Government shall establish, by notification, a Council to be known as the Central
Consumer Protection Council.

Membership:

The central Council shall consist of the following members, namely:

1) The Minister in charge of the Consumer Affairs in the Central Government, who shall be its
Chairman, and
2) Such number of other official or non-official members representing such interest as may be
presented.

According to rule 3 of the Consumer Protection Rules, 1987, the central Council shall consist of the
following 150 members, namely:

a) The minister in charge of Consumer Affairs in the Central Government, who shall be the
Chairman of the Central Council;
b) The minister of State or Deputy Minister in the Department of Civil Suppliers who shall be the
Vice Chairman of the Central Council;
c) The minister of Food and Civil supplies or minister in charge of Consumer Affairs in States;

Asst Prof Hiral D Mehta 35

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
d) 8 Members of Parliament, 5 from the Lock Sabha and 3 from the Rajya Sabha;
e) The commissioner for Scheduled Castes and Scheduled Tribes;
f) Representatives of the Central Government Departments, autonomous organizations
concerned with consumer interests, not exceeding 20;
g) Representatives of the Consumer Organization or Consumer- not less 135;
h) Representatives of women- not less than 10;
i) Representatives of farmers, trade and industries- not exceeding 20;
j) Persons capable of representing consumer interests not specified above- not exceeding 15;
k) The Secretary in the Department of Civil Supplies shall be the member secretary of the
Central Council.

The term of the Council shall be 3 years.

Any member may, by writing under his hand to the Chairman of the Central Council, resign from
the Council; the vacancies so caused or otherwise shall be filled from the same category by the
Central Government. The person shall hold office so long as the member whose place he fills would
have been entitled to hold office, if the vacancy had not occurred.

Procedure for meetings of the Central Council:

The Central Council shall meet as and when necessary and at least one meeting of the Council shall
be held every year.

Objective of the Central Council: [Sec. 6]

The objects of the Central Council shall be to promote and protect the rights of the consumers such
as:

a) The right to be protected against the marketing of goods and services which are hazardous to
life and property;
b) The right to be informed about the quality, quantity, potency, purity, standard and price of
goods or services so as to protect the consumer against unfair –trade practices
c) The right to be assured, wherever possible, access to a variety of goods and services at
competitive prices;
d) The right to be heard and to be assured that consumers interests will receive due consideration
at appropriate forums;

Asst Prof Hiral D Mehta 36

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
e) The right to seek redressal against unfair trade practices or unscrupulous exploitation of
consumers; and
f) The right to consumer education.

The central council shall give wide publicity to the rights of the consumers and the consumer
dispute redressal agencies and procedure of filing complaints therein though television, radio,
newspapers and magazines to give impetus to consumer movement in the country.

2. The State Consumer Protection Councils

Establishment:

The state government shall, by notification, establish with effect from such date as it may specify in
such notification, a council to be known as the consumer protection council for (referred to as the
state council).

Membership:

The state council shall consist of the following members, namely:

a) The minister in charge of consumers affaire in the state government who shall be its chairman;
b) Such number of other official or non- official members representing such interests as may be
prescribed by the state government.
c) Such number of other official or non-official members, not exceeding ten, as may be nominated by
the central government.

Meetings:

The state council shall meet as and when necessary but not less than 2 meetings are held every year.

Objects of the state council:

The objects of every state council shall at to promote and protect within the state the rights of the
consumers laid down in Sce.6.

3. The District Consumer Protection Council

The state government shall establish for every district, by notification, a council to be known as the
district consumer protection council with effect from such date as it may specify in such
notification.

Asst Prof Hiral D Mehta 37

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
The district consumer protection council (here in after referred to as the district council) shall
consist of the following members, namely:

a) The collector of the district, who shall be its chairman; and

b) The state government may prescribe such number of other official and non- official members
representing such interests as.

Meetings:

The district council shall meet as and when necessary but not less than two meetings shall be held
every year.

Objects of the District council:

[Section 8-B inserted of by the consumer protection) Act, 2002]. The objects of every district
council shall be to promote and protect within the district the rights of the consumers down in
clauses (a) to (f) of Sec. 6.

The Redressal System:

The Act envisages three-tier quasi-judicial machinery at the National, State and District levels.

1. District Consumer Dispute Redressal Forum:

District Consumer Disputes Redressal Forum-popularly known as District Forum-consist of one

president and two other members. The president is a person who is or has qualified to be a District
Judge nominated by the state government, who sell be president, a education, trade or commerce
and a lady social worker.

The District Forum deals with complaints involving costs and composition less than Rs.20 Lakh. At
present, there are 604 District Forums functioning in India.

2. State Consumer Dispute Redressal Forum:

State consumer Disputes Redressal Commissions-known as state Commission-is next in the

hierarchy of consumer Redressal Forum under CPA. State Commission consists of a president and
two members. The president is a person who is or has been a Judge of a High court and two other
members, who shall be persons of ability, integrity and standing and have adequate knowledge or

Asst Prof Hiral D Mehta 38

 UNIT 5: SOCIAL ENVIRONMENT FY BBA (SEM
II)_BE
experience of, or have shown capacity in dealing with problems relating to economics, law,
commerce, accountancy, industry, public affairs or administration, one of whom shall be woman:
provided that every appointment made under this clause shall be made by the state Government on
the recommendation of a selection committee consisting of the following, namely:-

i. President of the state commission-chairman.

ii. Secretary of the law Department of the State-Member.
iii. Secretary, in-charge of Department dealing with consumer affairs in the state-
Member.
State Commission deals with complaints involving costs and compensation higher then Rs.20
Lakh and less than Rs.1 cr. There are 35 State Commissions.

3. National Consumer Dispute Redressal Forum:

National Consumer Disputes Redressal Commission-Popularly known as National Commission-is

the top most layer in the three-level hierarchy of the Consumer Forums. It was constituted in the
year 1988. The National Commission consists of a president and four other members. The president
should be the one who is or has been a Judge of the Supreme Court, and the members should be
persons of eminence in economics, law, commerce, accountancy, industry, public affairs or
administration.

The National Commission deals with compliments involving cost and compensation higher than
Rs.1 cr.

In order to attain the object of the CPA, the National Commission has also been given sufficient
powers of administrative control over all the state Commission by calling for periodical returns
regarding the institution, disposal and pendency of cases. It is empowered to issue instructions
regarding:

1. Adoption of uniform procedure in the hearing of the meters.

2. Prior services of copies of documents produced by one party to the opposite parties.
3. Speedy grant of copies of documents.
4. Generally overseeing the functioning of the State Commission or the District Forums to
ensure that the objects and purposes of the Act are best served without interfering with their
quasi-judicial freedom in any way.

Asst Prof Hiral D Mehta 39