9.0.

Social responsibilities of
the organization
By Mrs I. Savo
 Introduction
• Every individual living in the society has obligations towards society.
Business men therefore have an obligation to run the business on
those lines which make the business desirable from the point of view
of society. Therefore, their decisions must be influenced by their
obligations towards society.
 The growing attention to corporate social
responsibility
• One of the most revolutionary changes in capitalism over the last 50 years is
the development of a ‘conscience’.
• So their decisions must be influenced by their obligations towards the
society.
• Businessmen recognize that since they are managing an economic unit in
the society, they have a broad obligation to the society with regard to
matters affecting employment, availability of goods and inflation.
• Social responsibility refers to both socio-economic and socio-human
obligations of the business. It indicates a businessman's obligation to
nurture and develop human values such as motivation, morale, co-operation
and self-realization in work.
 forces and factors which have formed and persuaded
businessmen to consider their responsibilities
• 1. The threat of public regulation or public ownership.
• 2. The pressure of the labour movement.
• 3. The development of moral values and social standards applicable to businessmen.
• 4. The development of business education and contact with government and its problems.
• 5. Recognition of human factors contributing to the long run interests of the business people.
• 6. The development of a professional managerial class with a different motivation and point of view
due to the separation of ownership from management in the corporate enterprise.
• 7. The increased complexity of the decision-making processes in which various points of view and
devise interests are expressed.
• 8. The change in public opinion about the role of business in modern society.
• These and a number of other social, ethical and economic forces have combined together to make
business a socio-economic activity, an economic institution operating in social environment –
Essentially, it is this which gives rise to the general and specific social responsibilities of business.
 Obligations of business towards different
segments of the society
• Obligations towards owners or shareholders
• Obligations towards Customers
• Obligations towards Employees
• Responsibility towards Suppliers
• Obligations towards Government
• Obligation towards Society
Obligations towards owners or shareholders

• In the case of sole trader ship and partnership concerns, the owners can look after
their interest themselves. Whereas in the case of the company, the directors have
the following responsibilities towards the shareholders:
• A) Reasonable Dividend: shareholders are a source of funds for the company. They
expect a high rate of dividend on the money invested by them and also the
maximization of the value of their investment in the company.
• (B) Protection of assets: The assets of the company are purchased with
shareholders’ funds. Therefore the company is responsible to safeguard these
assets.
• (C) Information: It is the responsibility of the management to keep the
shareholders informed about the financial position as well as the progress of the
company
Obligations towards Customers

• Customer's satisfaction is the ultimate aim of all economic activity. Therefore, it is, the
duty of management
• (a) To make goods of the right quality available to the right people at the right time and
place and at reasonable prices.
• (b) The business should not indulge into unfair practices such as black marketing,
hoarding, adulteration etc.
• (c) To provide prompt and courteous service to customers.
• (d) To handle customers grievances carefully.
• (e) To distribute the goods and services properly so that the customers do not face any
difficulty in purchasing them.
• (f) To produce goods which meet the needs of the customer who belong to different
classes, tastes and with different purchasing power.
Obligations towards Employees

• Employees should be treated as human beings and their co-operation must be achieved for the realization
of organizational goals. The business should fulfil the following obligations towards their employees.
• (a) Fair wages: Business should pay reasonable salaries so that their employee's may lead a good life and
satisfy their needs.
• (b) Adequate benefits: Employees should be provided benefits like housing, insurance cover, medical
facilities and retirement benefits.
• (c) Good Working Conditions: Good working conditions are necessary to maintain the health of the
workers. Therefore they must be provided with good working conditions.
• (d) Opportunity for Growth: Business should give their employees opportunity to develop their capabilities
through training and education.
• (e) Recognition of Worker's Rights: The business should recognize the worker's right to fair wages, to form
trade unions, to collective bargaining etc.
• (f) Co-operation: The business must win the co-operation of the workers by creating the conditions in
which workers are willing to put forward their best efforts towards the common goals of the business.
Responsibility towards Suppliers

• The business must create healthy relations with the supplier.

• Management should deal with them judiciously. They should be
provided with fair terms and conditions regarding price, quality,
delivery of goods and payment.
 Obligations towards Government
• It is the duty of every business enterprise to manage its affairs
according to the laws affecting it.
• It should pay taxes and other dues honestly. It should not encourage
corruption, black marketing and other social evils.
• It should discourage the tendencies of concentration of economic
power and monopoly and should encourage fair trade practices.
 Obligation towards Society

• Every business owes an obligation to the society at large. The following are the important obligations of
business towards society.
• (a) Socio-Economic Objectives: A business should not indulge in any practice which is not fair from social
point of view. The business should use the factors of production effectively and efficiently for the
satisfaction of the needs of the society.
• (b) Employment Opportunities: It is the responsibility of management to help increase direct and indirect
employment in the area where it is functioning.
• (c) Efficient use of Resources: The resources at the command of business belong to the society. Therefore,
the business should make the best possible use of the resources at its disposal for the well-being of the
society.
• (d) Business Morality: The business should not indulge into anti-social and unfair trade practices such as
adulteration, hoarding and black marketing.
• (e) Improving local environment: Business should take preventive measures against water and air
pollution. It can develop the surrounding area for the well being of the employees and the general public.
A business can also contribute to the advancement of local amenities.
 Business Ethics
• Ethics is concerned with the study of morality: practices and activities
that are considered to be importantly right or wrong, together with
the rules that govern those activities and the values to which those
activities relate.
• business ethics seeks to explore the implications of general ethics for
the conduct of business.
Types of business ethics

• Chester Barnard refers to the following types of moralities in a company:

• Personal responsibility.
• Representative or official responsibility.
• Personal loyalties.
• Corporate responsibilities.
• Organizational loyalties.
• Economic responsibilities.
• Technical morality.
• Legal responsibility.
Personal Responsibility

• It refers to a man's personal code of ethics.

• If a man behaves in honesty, he will behave in a very honest and
straight forward manner.
Representative or Official Responsibility

• A manager's action often represents the position he holds or the

office he occupies rather than his personal beliefs.
• This is so because the manager represents the business. He has to
follow the rules and regulations of the business, e.g. a manager may
want to do something but the regulations may forbid him from doing
it and therefore his hands are tied and he may not do it.
Personal Loyalties

• Sometimes personal loyalties are so strong that ethical standards may

not be applied when acting towards a particular individual.
• Personal loyalties include the loyalties of a subordinate to his superior
and superior's loyalty towards his subordinate.
Loyalties of a subordinate to his superior
• If a subordinate has strong personal loyalty towards their superior,
they turn a blind eye towards the blunders committed by their
superiors and attempt to defend their omissions and commissions.
• For example, if the branch manager of a bank is sanctioning loan
without any security and this act on his part may bring disastrous
financial troubles to the organization, his subordinates who were men
of high moral character and who had close connections with the head
office did not inform them of the financial irregularities because of
strong personal loyalty towards their branch manager.
Superior's loyalty towards his subordinate
• If a superior has strong personal loyalty towards their subordinates,
they turn a blind eye towards the mistakes committed by their
subordinates.
• This is done because the superior does not want to hurt the feeling of
his subordinates because of their close personal contact.
• For example, if the subordinates who are close to the manager do not
do their work properly, the manager may not reprimand (rebuke or
scold) them for their poor performance. He may rather defend their
poor quality work with his superiors because of his personal
attachment towards his subordinates.
Corporate Responsibilities
• Every individual living in society has a moral obligation towards it.
Corporations are entities which are "artificial persons", therefore they
too have moral responsibilities towards the society.
• Their moral responsibilities are not necessarily identical with the
personal moral codes of the executives who run them.
• Every corporation must have moral codes which help it in deciding
matters connected with shareholders, employees, creditors,
customers, government and society.
 Organizational Loyalties:
• Some employees have a deep sense of loyalty to the organization.
• Their loyalties to their organization are so strong that they even
neglect their own self-interest for the sake of the organization.
Economic Responsibility
• According to Milton Friedman, "there is one and only one social
responsibility of business – to use its resources efficiently and engage
in activities designed to increase profits without deception or fraud".
• Therefore, every business must contribute to the general welfare of
the society by making efficient and economical use of resource at
their command.
• This type of morality guides individual action towards economy in the
use of resources put at his disposal.
Technical Morality
• In any country, the state of technology plays an important role in
determining what products and services will be produced.
• Technological environment influences organizations in terms of
investment in technology, consistent application of technology and the
effects of technology.
• A manager having technical morality will refuse to compromise with
quality.
• Every organization which is actively engaged in technological
advancement will create more challenging situations for the
organizations because they are not prepared to accept lower standards.
 Legal Responsibility
• Legal environment provides the framework within which the business
is to function.
• The viability of business depends upon the ability with which a
business can meet the challenges arising out of the legal framework
• However, it must be observed here that legal responsibility is more
than an intention to conform to laws, orders etc.
• It is a belief in the need for effective co-operation and justice in
organized life. It is morality that transcends conformity to law.