Lecture 04:

Social Responsibility & Business

Ethics
 Social Responsibility of Business
•The awareness that business activities have an impact on
society and the consideration of that impact by firms in
decision making.
•Why practice social responsibility?
To avoid –
Fines
Increased regulations
Negative publicity
Public dissatisfaction
Loss of consumers / customers
Pressure of Consumer Welfare Groups
Social Responsibility of Business

Consumers

Employees Business Environment

Activities

Investor

Figure: Social Responsibility Concerns of Business

 Responsibility to Consumers

Consumer: Consumer is defined as someone who acquires goods or

services for direct use or ownership rather than for resale or use in production
and manufacturing.

Firms trying to succeed, provide products that satisfy the needs of the
consumers.

• When firms engage in practices opposed to the interest of consumers, they

sometimes boycott products to convey their dissatisfaction with a product.

• Consumers, the public and special-interest groups are making increasing

demands that business firms demonstrate social responsibility; such pressure
has prompted many business firms to adopt socially responsible policies.
 Responsibility to Consumers

• Concept of Consumerism: Consumerism is an

organized movement of citizens & government
agencies to improve the rights & power of buyers
in relation to sellers.
• Consumerism includes the activities of
individuals, groups and organizations aimed at
protecting consumer rights.
 Responsibility to Consumers
What are consumer rights?
There are 8 basic rights of the consumers. These basic rights are
internationally recognized and have been approved by the
United Nations. These are:
• the right to satisfaction of basic needs;
• the right to safety;
• the right to be informed;
• the right to choose;
• the right to be heard;
• the right to redress;
• the right to consumer education; and
• the right to a healthy environment.
 Responsibility to Employees
• Employees hold certain expectations from business firms. They expect
safe working conditions, fair compensation, equal opportunities and
adequate benefits (e.g. health insurance, vacation etc.) So, the
responsibility to the employees include:
1.Safety in the workplace
The Occupational Safety and Health Administration (OSHA) monitors
conditions in the workplace.
2. Equality in the workplace:
People required to have same rights / benefits irrespective of their age,
race, gender, religion, national origin . The Equal Employment
Opportunity Commission (EEOC) works toward increasing job
opportunities for women, minorities, and handicapped people.
3. The hard-core unemployed :
Training the unemployed.
 Responsibility to Environment

• Business decisions have a profound impact on the

environment. Business activities can cause pollution
– the contamination of air, water and land.
• Socially responsible firms and consumers take active
measures to reduce pollution. The Environment
Protection Agency sets standards and monitors
compliance among firms and industries.
 Responsibility to Environment
1. Water Pollution
Results from dumping toxic chemicals, sewage and
garbage into the rivers and streams. Buried industrial
waste can also find its way into underground water
supplies.
2. Air Pollution
Air is polluted by carbon emission from vehicles and
factories.
3. Land Pollution
Results from strip mining, deforestation, forest fires,
garbage disposal, dumping of industrial waste,
dumping of chemical and medical supplies.
 Responsibility to Investors

• Business firms have responsibility to the people who invest

money in them. Firms have the following responsibilities:
1. Proper management of funds: To manage funds property so
as to return a fair profit to investors.
2. Access to information: To make stock information available
to all potential investors.
3. Executive compensation: To offer a fair compensation
package to its executives. Executives who run firms carry
tremendous responsibility and deserve to be compensated
accordingly.
 Concept of Business Ethics

• Ethics is the principles of behavior that distinguish

between right or wrong

• Business Ethics is the evaluation of business activities

and behavior as right or wrong.

• Ethical standards in business are based on commonly

accepted principles of behavior established by the society,
the firm, the industry, and the individual’s personal
values.
 Factors Influencing Ethical Behavior

1. The Organization
2. The Individual Moral Philosophy
 Factors Influencing Ethical Behavior

1. The Organization
• Individuals learn from ethical and unethical behaviors
by interacting with others in the organization
• Rewarding for ethical conduct and punishing for
unethical behavior may help the organization to
promote ethical behavior among the employees.
 Factors Influencing Ethical Behavior

2. The Individual
• A person’s own moral philosophy influences his or
her ethical behavior.
• Moral Philosophy – the set of principles (learned
from family, school, co-workers, friends) that dictate
acceptable behavior.
 Factors Influencing Ethical Behavior

• In developing Moral Philosophy, individuals can follow

two approaches:
Humanitarian Philosophy:
A set of moral principles focusing on individual rights
and values.
Individuals & organizations adopting this philosophy
would honor their moral duties to customers and workers.
Utilitarian Philosophy:
A set of moral principles focusing on the greatest good
for the largest number of people.
  
Encouraging Ethical Behavior

• Many organizations take positive steps to encourage ethical

behavior. E.g. Ethics training programs etc.
• Code of Ethics – A basic way for an organization to
encourage ethical behavior is to establish a Code of Ethics (A
statement spelling out exactly what an organization considers
ethical behavior).
• Whistle Blower – Employees of an organization can also
encourage ethical behavior by reporting unethical practices.
An employee who informs superiors, the media or a
government regulatory agency about unethical behavior within
an organization (often risking great professional and personal
danger).
• Efforts to encourage ethical behavior will be effective only
with the support of top-level management.