Chapter 6 — Social Responsibilities of Business and Business Ethics

Chapter 6 covers the concept and need for social responsibility of business, arguments for and against it, responsibilities towards different interest groups (shareholders, workers, consumers, government and community), the relationship between business and environmental protection including causes of and need for pollution control, and the concept and elements of business ethics.

Social responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of our society. It implies that business enterprises respect the aspirations of society and try their best to contribute to those aspirations along with their profit interests.

Legal responsibility may be fulfilled by mere compliance with the law, whereas social responsibility is broader — it is a firm's recognition of social obligations even though not covered by law, in addition to those laid down by law. Social responsibility also involves an element of voluntary action on the part of business people for the benefit of society.

The four kinds are: (a) economic responsibility — producing goods and services society wants and selling them at a profit; (b) legal responsibility — operating within the laws of the land; (c) ethical responsibility — behaviour expected by society but not codified in law, involving voluntary action; and (d) discretionary responsibility — purely voluntary obligations such as charitable contributions to educational institutions or helping flood-affected people.

The major arguments are: justification for existence and growth, long-term interest and image of the firm, avoidance of government regulation, maintenance of orderly society, availability of financial and human resources with business, converting problems into opportunities, providing a better environment for doing business, and holding business responsible for social problems it has created or perpetuated.

The four major arguments against are: (i) it violates the profit maximisation objective; (ii) costs of social responsibility like pollution control are ultimately shifted to consumers through higher prices; (iii) businessmen lack the necessary understanding and training to solve social problems; and (iv) the public does not generally support business involvement in social programmes.

An enterprise is responsible for supplying the right quality and quantity of goods and services to consumers at reasonable prices. It must take precaution against adulteration, poor quality, misleading and dishonest advertising, and lack of courtesy. Consumers must also have the right to information about the product, the company, and other matters bearing on their purchasing decision.

Management of an enterprise is responsible for providing workers opportunities for meaningful work and creating the right kind of working conditions to win their cooperation. The enterprise must respect the democratic rights of workers to form unions and ensure a fair wage and fair deal from the management.

Business enterprises have been responsible for causing four types of pollution: (i) air pollution — from carbon monoxide emitted by automobiles and smoke from manufacturing plants; (ii) water pollution — from chemical and waste dumping into rivers, streams and lakes; (iii) land pollution — from dumping toxic wastes on land, making it unfit for agriculture; and (iv) noise pollution — from running factories and vehicles, which can cause loss of hearing, heart malfunction, and mental disorder.

Important reasons are: reduction of health hazards such as cancer and lung complications linked to pollutants; reduced risk of liability for compensation to people affected by toxic wastes; cost savings when proper technology reduces waste and disposal costs; improved public image as society becomes more conscious of environmental quality; and other social benefits like cleaner air, buildings, and better quality of life.

Business ethics refers to the socially determined moral principles which should govern business activities. It concerns the relationship between business objectives, practices, and techniques and the good of society. Ethical behaviour goes beyond observing laws and government regulations — it means adhering to moral principles and behaving in a way people ought to act, such as charging fair prices, using fair weights, and earning reasonable profits.

The five basic elements are: (i) top management commitment — the CEO and senior managers must be openly committed to ethical conduct and provide continuous leadership; (ii) publication of a code — a written document defining principles of conduct covering honesty, product safety, workplace health and safety, and financial reporting; (iii) establishment of compliance mechanisms such as ethics training and auditing; (iv) involving employees at all levels in ethics programmes; and (v) measuring results by auditing compliance with ethical standards and discussing findings for further action.

Under Clause 135 of the Companies Act, 2013, CSR provisions apply to companies with an annual turnover of Rs. 1,000 crore or more, a net worth of Rs. 500 crore or more, or a net profit of Rs. 5 crore or more. The Act encourages companies to spend at least 2% of their average net profit of the previous three years on CSR activities. Companies must also set up a CSR committee of board members, including at least one independent director.

Steps include: a definite commitment by top management to create a work culture for environmental protection; ensuring that commitment is shared throughout the enterprise; developing clear policies for purchasing quality raw materials and employing superior technology; complying with government laws and regulations on pollution; participating in government programmes for managing hazardous substances and tree plantation; and periodically assessing pollution control programmes in terms of costs and benefits.

Yes, the Chapter 6 PDF is free to download on cbseprepmaster.com with no sign-up required.