Chapter-6

CHAPTER-6
SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS
ETHICS

Business is an integral part of society; so it must fulfill social responsibility. It

can’t exist without the support of the society. It is the obligatory on the part of
business enterprise not to do anything that is undesirable from society’s point of view.
Manufacturing and sales of adulterated goods, avoiding payment of tax to the
government, polluting the environment and exploiting workers are examples anti
social activities of the business. On the other hand, supplying good quality goods at
reasonable price, creating healthy environment, paying taxes honestly, providing good
working condition to employees etc shows social commitment of a business to its
society. These practices will improve the image of the enterprises and also make them
profitable.

Social Responsibility

The concept of social responsibility is fundamentally an ethical concept. Social

Responsibility means responsibility of the business to act in such a way which will
serve the best interest of the society. Any business which does not act in the best
interest of the society can neither be tolerated nor allowed to continue. So business
must assume certain special responsibilities which are essential for its own survival
and for the well being of the society. Business has to fulfill several obligations
towards the various interested groups in the society. Business is accountable to the
environment because it derives its input from the environment. Business also has to
take care of the interest of the consumers, suppliers, local citizens, employees,
government etc because in one way or another they influenced by its operations.

As part of the social responsibility of business, several services and activities are
undertaken today. For example, Pepsi is working in the area of promotion of sports.
Tata Steel is working in the field of tribal development. Escorts is working in the

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field of health care. Similarly, there are several business enterprises which contribute a
small fraction of their earnings for the welfare of the poor like providing free
education, free distribution of medicines, creations of employment opportunities for
the rural masses, installations of pollution control measures etc……

Kinds of social responsibility

1. Legal responsibility
Every business enterprise has a responsibility to respect and operate within the laws of the
country. Since the laws of the country are meant for the wellbeing of the society, a law
abiding enterprise is a society responsible enterprise as well.

2. Ethical responsibility
This includes the behavior of a business firm that is expected by society but not codified in
law,e.g., respecting the religious sentiments of people, supply of quality products at
reasonable price, etc.

3. Economic responsibility
Business enterprise is basically an economic entity. It is the responsibility of the business to
produce goods and services that society wants and sell them at a reasonable profit. They
never indulge in anti social and unfair trade practice.

4. Discretionary responsibility
This refers to purely voluntary obligation that a business firms assumes,e.g, helping flood
affected people, generating employment opportunities to the physically handicapped people
of the society, providing basic amenities like school, hospitals, promote arts ,sports etc.

Importance of social responsibility in business/ why should business is socially

responsible?

Social responsibility is a voluntary effort on the part of business. Business is

the creation of society therefore it should respond according to the expectations of the
society. To survive and grow in society for long the business must provide continuous
service to the society.Business is expected to be responsible to society due to the
following reasons.

1. Public Image
The activities of business towards the welfare of the society earn goodwill
and reputation for the business. The earnings of business also depend upon the
public image of its activities. Good Public Image attracts honest and competent
employees to work with such firms.

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2. To Avoid Govt. Regulation

To avoid govt. regulations business should discharge their duties
voluntarily. For example. If any business firm pollutes the environment it will
naturally come under strict government regulation, which may ultimately force
the firm to close down its business.
3. Employee Satisfaction
A business cannot flourish without industrial peace. Business must maintain
better relation with employees. Employees are to be provided with better wages,
better working conditions, participation in management etc…in order to avoid
class conflict.
4. Consumer awareness
Now –a-days consumers are very conscious about their rights. They
protest against the supply of inferior and harmful products by forming different
groups. So business must protect the interest of the consumer by providing
quality products at reasonable price.
5. Moral Justification
Every business enterprise is an integral part of society and depends on
society in a number of ways. So, there is every moral justification on the part of
business to contribute to well being of the society.
6. Survival and Growth
Every business is a part of the society. So, for its survival and growth support
from society is very much essential. Business should spend a part of its profit
for the welfare of its society.

7. Better environment for doing business

If a business firm voluntarily helps in solving society’s problems such as poverty,
unemployment, illiteracy, etc.it gets better environment to conduct its business.

“Business is not merely profit making enterprise, but essentially a social

institution”. Comment.
Even though business is an economic activity it must fulfill certain social obligations.
While owners have invested funds in their business, employees have invested their labour,
the input from the society and environment are largely employed in the business. The
environment in which the business operates must be kept free from pollution, as individuals
have a right to get pure drinking water, fresh and clean air, hygienic living conditions. It is,

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thus, evident that a business must think beyond profit. It has to fulfill several obligations
towards the various interested groups in the society.
The traditional view that business enterprises dealing with production and distribution
of goods and services and thereby earning profits alone, no longer stands valid.
It is accountable for the input it derives from environment and the resources it employs. Such
a business should take care of the interest of consumers, local citizens, dealers, employees,
government, suppliers and other stake holders in the society who influence and get influenced
by its operations.
Business is not merely an economic institution. It has a responsibility to help the society and
is bound to remain active on social issues.
As part of social responsibility of a business, several services and activities are
undertaken today. There are several enterprises which contribute a small fraction of their
earnings for the welfare of the poor, like providing free education to the poor, free
distribution of medicine, creation of employment opportunities, compliance to safety standars
etc.
Social responsibilities of business can be classified into the following four categories.(Here
explain 4 kinds of social responsibility,i.e, economic,legal,ethical and discretionary
responsibilities).

Arguments against social responsibility

Major arguments against social responsibilities are:

1. It is against profit maximization objective

According to this argument, business exists only for profit maximisation.It should not
waste its energies and resources in fulfilling social responsibility.

2. Burden on consumers
It is argued that social responsibilities like pollution control and environmental
protection are very costly and often require huge financial investments.Business
actually shift these burden on customers by charging higher prices to their product
and services.

3. Lack of social skills

Business managers may not be expert to handle social problems like poverty,over
populations etc.

4. Lack of broad public support

Public in general does not like business involvement in social problems. Therefore a
business cannot fulfill social responsibility because of lack of public confidence and
cooperation.

Social Responsibility of business towards Different Interest groups

A Business is a social institution. It works with the participation of several

interest groups of people such as owners, investors, customers, suppliers, employees,
government and competitors. They are called as ‘Interest groups’ because by each and

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every activity of business, the interest of these groups is affected directly or indirectly.
Business is responsible to all these interest groups.

1. Responsibility towards owners

Owners are the persons who own the business. They contribute capital and bear the
business risk. It is the responsibility of the business to provide good return and steady
capital appreciation to the owners. Business has certain responsibilities towards its
owners. They are:
1. To ensure safety of investment.
2. To provide a fair and regular dividend.
3. To provide regular, accurate and adequate information on the financial position of
the firm.
4. To give reasonable opportunities for participating in policy decisions.
5. To make every effort to bring about increase in the value of shares.

6. Responsibility towards investor

Investors are those who provide finance by way of investment in debentures,
bonds, deposits etc…Banks, financial institutions and investing public are all included
in the category.
The responsibilities of business towards its investors are :-
a. Ensuring safety of their investment.
b. Regular payment of Interest.
c. Timely repayment of principal amount.

7. Responsibility towards employees

Satisfied workforce is essential for the smooth functioning of a business.
Responsibilities of business towards its employees are:
1. To pay fair wages and salaries regularly.
2. To provide good working conditions.
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3. To provide welfare schemes such as housing, medical care, reservation etc.

4. To protect trade union rights including the right of participation in management.
5. To guarantee freedom of religion and political views.
6. To give timely training to its employees.

7. Responsibility towards Government

Responsibilities of business towards government are:
1. To comply with the laws passed by the government.
2. To pay taxes promptly and regularly.
3. To set up new ventures in backward area.
4. To contribute towards rescue and relief work in times of flood, earthquake etc.

8. Responsibility towards Suppliers

In order to get regular and timely supply of raw materials and other items, dealings
with suppliers should be based on fair terms and conditions regarding price, regularity
of payments etc. Business should maintain healthy relations with the suppliers.

9. Responsibility towards Customers

This is considered to be the most important responsibility of the business.
Responsibilities of business towards consumers are:
1. To supply right quality of goods and services at reasonable prices.
2. To avoid unfair trade practices such as adulteration, hoarding, black-marketing,
under weighing, misleading advertising, etc.
3. To ensure proper after sales services.
4. To inform them about new products and new uses of the existing products.
5. To handle customers’ grievances promptly.

10.Responsibility of business towards the society

Responsibilities of business towards its society are:
1. To protect the environment pollution free.
2. To provide assistance to educational institutions, dispensaries etc.
3. To generate more employment opportunities.
4. To uplift the weaker sections of society.
5. To assist associations engaged in promoting arts and sports by providing financial
aid.

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Diagram-Representing the responsibility of business towards various interested parties

Business Ethics

Business ethics is a set of principles governing the moral conduct of a business.

Ethics tells what is right and what is wrong. It requires just and equal treatment with
customers, suppliers, workers etc… Business ethics do not permit a businessman to
earn profits by dishonest means.
Ethics is concerned with what is right and what is wrong in human
behavior judged on the basis of a standard form of conduct, as approved by the society
in a particular field. Ethics involves critical analysis of human action and behavior.
Every action and behavior will be analysed to know whether they are right or wrong
under the existing circumstances. For example if a business man creates artificial
scarcity in the expectation of a rise in price, his action is critically analysed and found
to be against business ethics.

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Examples for Unethical activities of a business

 Keeping a double set of accounts to evade taxes.
 Using company’s assets for personal use.
 Doing personal business on company time.
 Polluting the environment where the business is working.
 Corrupting public servants for getting favors.
 Exploiting workers.
 Defrauding with customers.
Examples for ethical activities
 Supply quality goods at reasonable price.
 Avoid misleading advertisements to cheat customers.
 Protect the environment by apply proper pollution control measures.
 Just and equal treatment with customers and suppliers.

Elements of Business Ethics

Ethical business behavior is good for both the business enterprise and the society.
The business must observe the following basic elements of business ethics:
1. Top management commitment
Business man should always sensitive or proactive to ethical issues concerning
the business. It is the top management, which take decisions, initiates action
and leads the organization towards business ethics.
2. Publication of a ‘code’
The business must develop a code/rule containing the definite ethical
programme.It may be regarding honesty, abiding by law, product quality, sfety,
health care and fair business practices.

3. Establishment of compliance mechanism

In order to ensure actual decisions and actions comply with firm’s ethical
standards, suitable mechanism should be established. This mechanism should
be regarding paying attention of values of ethics in recruitment, training,
auditing, product quality etc.

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4. Involving employees at all levels

The involvement of all the employees in the ethical programme is must.
Employees’ representative must be taken into confidence while framing
documents on ethics.
5. Measuring results
Although it is difficult to accurately measure the end results of ethical
programmes, management should evaluate its actual performance with
standards and take corrective actions if necessary.

Relationship between business ethics and social responsibilities

Business ethics and social responsibilities are interrelated. Business ethics refer to the
moral principles to be followed by businessmen in relation to society. It would mean
doing right thing according to the standards prescribed and the prevailing
expectations. When business is ethical, quite naturally, it meets its social
responsibilities. The concept of social responsibilities is fundamentally an ethical one.
Social responsibility and business ethics are, thus, the two sides of the same coin.

Environmental Pollution and Role of Business

Pollution means injection of harmful substances into the environment causing
serious damages to human and other life. Pollution causes undesirable change in the
physical, chemical or biological characteristics of our air, land and water that can
harmfully affect human and other life. Based on the nature and type of environment
affected, pollution may be categorized into four:
1. Air Pollution
2. Noise Pollution
3. Water Pollution
4. Land Pollution

1. Air Pollution
Air pollution is the result of a combination of factors which lowers the air
quality. Air Pollution occurs when several factors destroy the quality of air
collectively. It is mainly due to carbon monoxide emitted by automobiles ,smoke and

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other chemicals from manufacturing plants,etc. Resultant air pollution has created a
hole in the ozone layer leading to dangerous warming of the earth.
Impact of Air Pollution
Air pollution create lot of problem to our surroundings and on us. Some of
them are:-
 Presence of gases in air which are not required by human beings, animals
and birds, create serious health problems. It may create diseases like
asthma, blindness, skin diseases, genetic disorders etc.
 Air pollution creates smog in the winter. It reduces natural visibility and
irritates the eyes.
 Ozone layer gets depleted because of air pollution and thereby causes
genetic defects and skin cancer.
 The temperature of the earth increases due to air pollution.
 Air pollution causes acid rain which means excessive presence of various
poisons gases like Sulpher dioxide, Nitrogen Oxide in the rain water. This
causes lot of damage to vegetation, trees, marine life, buildings, monuments
etc……..

2. Noise Pollution
Noise pollution or noise disturbance is the excessive noise that may harm the
activity or balance of human or animal life. The sponsors of outdoor noise
are machines and transportation systems, motor vehicles, aircraft, and trains. Noise
pollution can be responsible for many diseases like loss of hearing, head ache,
irritation, high blood pressure, mental disorders, hindrances in communication etc.
3. Water Pollution
Water becomes polluted, when chemicals and other waste materials are
dumped into it. Business enterprises have been dumping waste into rivers, streams and
lake with little regard for the consequences. Water pollution has lead to the death of
several animals and threat to the human life.
Causes of Water Pollution
 Improper sanitation system.
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 Dumping of waste by various industrial units into the rivers and canals.
 Drainage of toxic substances like chemicals and fertilizers used in
cultivation into streams and rivers.
 Drainage of human waste into rivers, canals etc.
Impact of Water Pollution
It can create health hazards among human beings, animals and birds. Diseases
like typhoid, jaundice, cholera etc…..are common.
It can endanger lives of various aquatic species.
It can lead to scarcity of drinking water.

4. Land Pollution
Dumping of toxic waste into land leads to land pollution. These damages the
quality of land and making it unfit for agriculture.
Causes of Land Pollution
 Excessive use of fertilizers, chemicals and pesticides in cultivation.
 Disposal of solid waste of industries mines and quarries.
 Excessive use of plastic bugs, which are non-biodegradable.
Effects of Land Pollution
 Reduces the area of cultivable lands.
 Causes damage to the landscape.
 Leads to water and air pollution.
 Causes health hazards as it contaminates the sources of food.

Need/Importance of pollution control

Pollution control is needed to preserve the environmental resources and improve the
environmental quality. In our surroundings pollution can be found in all walks of life like
water, air and land. So water is unfit to drink, air is harmful to breath, and land is unfit to live.
Business plays an important role in polluting the atmosphere. So they need to take suitable
measure for pollution control not merely to avoid criticisms against them but also to enjoy
other benefits of such measures. Given below are some key reasons to control pollution:

1) Improved public image

As society becomes increasingly conscious of environmental quality, a firm’s policies
and practices for controlling wastes will increasingly influence people’s attitude

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towards its working. A firm that protects and promotes the environment will be able
to enjoy good reputation.

2) Reduced risk of liability

It is a sound business policy to install pollution control devices in its premises to
reduce the risk of liability of paying compensation to the affected people.

3) Reduction of health hazards

Pollution control measures can check diseases like cancer, heart attack and lung
complications.

4) Preventing economic losses

There are many economic losses which can be reduced by pollution control. Pollution
control can reduce cleaning and washing expenditures. Expenditure for the damage of
building will also get reduced.

5) Other social benefits

Pollution control results in many other benefits like clear visibility, better quality life
and availability of natural resources in a purer form.

Role of Business in Environmental Pollution

Business is a main contributor to the pollution of environment. Business causes
pollution in the following ways:-
1. Emission of gas and smoke from manufacturing plants.
2. Deforestation due to acquisition of forest lands for setting up plants.
3. Disposal of waste into rivers and canals.
4. Disposal of solid waste in the open space.
5. Increasing use of transportation.
6. Use of machines contributing noise pollution.
7. Growth of urbanization and industrialization.
Role of Business in Environmental Protection
Since environment protection is important for all of us, there is a collective
responsibility on the part of government, business organization, consumers, and other
sections of the society. All are committed to do something to stop polluting the environment.
Business enterprises can take the following steps for environmental protection
a. Preventive Measures
1. Follow the regulation laid down by the government to control pollution.
2. Modernise manufacturing and other activities to minimize pollution of the
environment.
3. Industrial waste should be recycled as far as possible.
4. Filters can be fixed in chimneys.

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5. Silencers can be fixed in generators.

6. Employ eco-friendly techniques and produce eco-friendly products.
7. Timely assessment of pollution control programmes.
b. Awareness Measures
1. Assist public authorities in their programmes of environmental protection.
2. Institute awards and prizes for outstanding achievements in the field of
environmental protection.
3. Provide financial assistance to govt. and non govt. organizations for environmental
protection.
4. Planting trees, develop and maintain parks and garden in cities.
5. Sharing the ideas of environmental protection throughout the organization by all
divisions and employees.
6. Arranging seminars to share technical information and experience with interested
parties of business to get them actively involved in pollution control programmes.

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Prepared by, BINOY GEORGE, HSST, MKNM HSS, Kumaramangalam, Thodupuzha

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