Revision Notes for CBSE Class 11 Business Studies Chapter 6 - Social Responsibility of Business and Business Ethics PDF

Social Responsibility

• Social responsibility is an ethical paradigm that implies that an entity, whether an organization or an individual, has a responsibility to behave in the best interests of society as a whole. Every individual has a responsibility to fulfil in order to maintain a balance between the economy and the ecosystems.

• Social responsibility encompasses more than a company's legal obligations. Compliance with the law may be sufficient to discharge legal responsibility

• But social responsibility entails a lot more. It is a company's recognition of social obligations that are not covered by legislation, as well as legal requirements.

• To put it another way, social responsibility entails a voluntary activity on the part of business people for the good of society.

Need for Social Responsibility

1. Improving Company’s Brand Image

• Being socially responsible is of utmost importance to build company's image and brand.

• By portraying a positive image, a firm can build a name for itself for not only being financially profitable, but socially responsible as well.

2. Engaging Customers

• A company's social responsibility policy may impact customers' purchasing decisions.

• Some buyers may pay a greater price for a product if they know a portion of the profit will be donated to a worthwhile cause.

3. Retaining Top Talent

• Many employees desire to be a part of something bigger than themselves.

• Employees with a sense of social responsibility can use the tools available to them at work to help others.

4. Helping Company Stand Out of Competition

• Companies that are involved in the community set themselves apart from the competitors.

• Improving the brand's image by cultivating relationships with customers and their communities.

Arguments for Social Responsibility

1. Protect the Interest of Stakeholders:

• It has become vital for organizations to discharge responsibilities towards their employees in order to gain their support.

• The customer does not purchase what is being provided to him. He purchases what he desires. As a result of increased customer awareness, businesses have been pushed to assume social responsiveness toward them.

• Fulfilling social commitments is helpful to a company's long-term sustainability.

2. Long-run Survival:

• When a company's primary purpose is to provide "service to society," it and its image stand to profit the most in the long run.

• If a company performs its social obligation, it benefits itself.

• Also the image of the firm in the eyes of the people also improves,when the firm fulfils social goals.

3. Self-enlightenment:

• Businesses are motivated to work for the greater good as their degree of knowledge and understanding of their role as society's creators increases.

• Managers adopt and follow voluntary moral and social responsibility norms, which help to shape public expectations.

• Firms assume social responsibility on their own, rather than as a result of legislative intrusion.

4. Avoids Government Regulation:

• Regulations from the government are unwelcomed since they restrict one's freedom.

• Businessmen are thought to be able to escape the problem of government restrictions by voluntarily taking on social duties, hence reducing the need for new legislations.

• The Central Pollution Control Board, for example, is in charge of environmental pollution issues.

5. Resources:

• Business organizations have vast resources that can be leveraged to help solve societal problems in part.

• Businesses are the result of society's creation, and they must act in its best interests, both economically and socially.

• Given the vast financial and personnel resources at its disposal, it can assist society in better addressing its problems.

6. Professionalisation and Better environment:

• Management is becoming more professional, which is helping businesses become more socially oriented.

• Managerial ethics bind them to societal ideals and a growing sense of social responsibility.

• A society with fewer difficulties creates a better environment for a company to operate in.

7. Holding Business Responsible for Social Problems:

• Businesses have either generated or perpetuated social problems.

• Instead of ignoring these issues, businesses have a moral obligation to be actively involved in their solution rather than only anticipating that they will be dealt with by other social agencies.

8. Converting Problems Into Opportunities:

• By accepting the challenge, business, which has a history of turning difficult situations into profitable agreements, may not only alleviate societal problems, but also make them successfully helpful.

Arguments against Social Responsibility:

1. Violation of Profit Maximisation:

• Profit maximisation is the sole purpose of business. As a result, any discussion of social responsibility is incompatible with this goal.

• Profit maximisation through higher efficiency and lower costs is the best way for business to fulfil its social obligation.

2. Burden on Consumers:

• Pollution management and environmental preservation are expensive social duties that frequently necessitate large financial investments.

• Instead of carrying the burden of social duty, business people tend to simply pass it to their customers by demanding higher costs.

3. Lack of Social Skills:

• Business people lack the essential knowledge and training to solve social issues. Instead, other specialized agencies need to deal with social issues.

4. Lack of Broad Public Support:

• Business engagement or meddling in social programmes is disliked by the general public.

• As a result, business cannot thrive due to a lack of public trust and collaboration in resolving social issues.

Reality of Social Responsibility

1. Threat of Public Regulation:

• To protect the public's interests, actions are taken to control business enterprises that operate in a socially irresponsible manner.

• One of the main reasons why businesses are concerned about social responsibility is the fear of government regulation.

2. Pressure of Labour Movement:

• The labour movement has grown in strength around the world in order to extract gains for the working class.

• This has compelled businesses to consider the welfare of their employees rather than employing a "hire and fire" policy.

3. Impact of Consumer Consciousness:

• With the advancement of education and mass media, as well as increased market competition, the customer has become more aware of his rights and powers in influencing market dynamics.

• Now that the consumer is king, businesses have begun to take a customer-centric approach.

4. Development of Social Standard for Business:

• New social standards recognise corporate firms' economic activity as acceptable, but only if they also serve social requirements.

• There is no way to run a business without interacting with the rest of the world.

5. Development of Business Education:

• The expansion of business education, with its strong social responsibility content has increased public awareness of business's social mission.

6. Relationship Between Social Interest and Business Interest:

• Social and business goals are no longer mutually exclusive, according to business enterprises. Infact, they are a good match for each other.

• The long-term benefit of business is in providing good service to society.

7. Development of Professional, Managerial Class:

• Professional management education at universities and specialized management schools has resulted in the formation of a distinct class of professionals.

• Professional managers are more concerned with fulfilling a variety of societal interest groups than with simply meeting profit targets when it comes to running their businesses successfully.

Kinds of Social Responsibility

1. Economic Responsibility

The primary social obligation of a business enterprise is the economic responsibility, i.e., to produce things and services that society desires and sell them for a profit.

2. Legal Responsibility

Every business has a legal obligation to follow the rules of the land. A business who abides to the laws and regulations of the country, is also a socially responsponsible business.

3. Ethical Responsibility

Described as the behaviour that is expected by society but not codified in law. Performance of this task includes some voluntary action.

4. Discretionary Responsibility

It is the responsibility of the company to protect the capital investment by avoiding speculative activity and engaging in only healthy business initiatives that provide good returns on investment, such as charities, donations etc.

Social Responsibility Towards Different Interest Group

1. Responsibility Towards Owners and Shareholders

• The organization must also offer shareholders with regular, accurate, and complete information about its operations as well as future growth plans.

• The responsibility of a business enterprise is to deliver a reasonable return to its shareholders or owners.

2. Responsibility Towards Workers

• The correct kind of working circumstances to provide in order to gain workers’ cooperation.

• The company must respect the workers' democratic freedom to form unions.

• The employee must also be guaranteed a fair wage and a fair deal from the employer.

3. Responsibility Towards Consumers

• A company's responsibility to its clients is to provide the required quality and quantity of goods and services to them at reasonable pricing.

• Adulteration, poor quality, lack of desired service and courtesy to consumers, misleading and dishonest advertising, and so on must all be avoided by the business.

4. Responsibility Towards the Government and the Community

• An enterprise must follow the rules of the country and pay taxes on time and in full.

• It must also act as a good citizen and adhere to the society's acceptable norms.

Business and Environmental Protection

• The whole of man's surroundings, both natural and manmade is characterised as the environment. These surroundings also include resources that are beneficial to human life.

• Natural resources, such as land, water, air, fauna and flora, and raw materials, as well as artificial resources, such as cultural heritage, socio-economic institutions, and people, are examples of resources.

• Industrial production is mostly responsible for the release of dangerous compounds into the environment.

• Pollution alters the physical, chemical, and biological properties of the atmosphere, land, and water.

• Because the environment can only absorb a certain quantity of pollutants and wastes, pollution exists.

• Hazardous pollutants are hazardous wastes, poisonous by-products, and compounds that have toxic qualities that the environment cannot digest.

• Pollution thus endangers environmental quality, human health, natural and man-made resources, and environmental protection is inextricably linked to pollution control.

Causes of Pollution

1. Air Pollution

• It is primarily due to carbon monoxide emitted by automobiles, as well as smoke and other chemicals emitted by manufacturing industries, which contribute to air pollution.

• As a result of the pollution, a hole in the ozone layer has formed, causing severe global warming.

2. Water Pollution

• Water pollution has resulted in the death of several animals and provided a severe threat to human life.

• Water pollution has resulted in the death of several animals and posed a serious threat to human life.

3. Land Pollution

• Land contamination occurs when toxic wastes are dumped on it.

• This degrades the land's quality, rendering it unsuited for agriculture or planting.

4. Noise Pollution

• Noise generated by the operation of factories and automobiles is not only an inconvenience, but also a major health concern.

• Noise pollution can cause a variety of illnesses, including hearing loss, heart problems, and mental illness.

Need for Pollution Control

1. Reduction of Health Hazards: 

Many ailments, including cancer, heart attacks, and lung difficulties, are increasingly being linked to environmental contaminants.

2. Reduced Risk of Liability:

It is conceivable for a company to be held accountable for compensating people who have been harmed by the toxicity of gaseous, liquid, or solid pollutants it has released into the environment. To avoid the possibility of responsibility, businesses must install pollution control systems on their premises.

3. Cost Savings:

Cost reductions are especially obvious when faulty manufacturing technology produces more trash, resulting in higher waste disposal and facility cleaning costs.

4. Improved Public Image:

A company that promotes environmental causes will have a positive reputation and be seen as a socially responsible business.

5. Other Social Benefits:

Controlling pollution has a number of other advantages, including improved visibility, cleaner buildings, a higher quality of life, and the availability of natural resources in their purest form.

Role of Business in Environment Protection

• A firm commitment from the company's senior management to create, maintain, and develop a work culture that promotes environmental protection and pollution prevention.

• Ensuring that all divisions and employees share the company's commitment to environmental protection.

• Creating defined policies and programmes for acquiring high-quality raw materials, using advanced technology, applying scientific waste disposal and treatment procedures, and improving employee skills in order to reduce pollution.

• Adherence to the government's pollution-prevention rules and regulations.

• Participation in government programmes aimed at preventing deforestation, managing dangerous substances, cleaning up dirty waterways, and planting trees.

• Periodic evaluation of pollution control programmes in terms of costs and benefits in order to improve environmental protection efforts.

• Organizing educational workshops and training materials to share technical knowledge and experience with suppliers, dealers, and customers in order to engage them in pollution control programmes.

Business Ethics

• Ethics is concerned with determining what is acceptable and wrong in human behaviour based on a standard form of individual conduct/behaviour as approved by society in a particular sector of activity.

• The relationship between company objectives, procedures, and processes and the good of society is the subject of business ethics.

• The socially decided moral norms that should regulate company activity are referred to as business ethics.

• Ethical companies are profitable. Ethical corporate conduct boosts a company's public image, earns people's trust, and leads to better success.

Elements of Business Ethics

1. Top Management Commitment

• Top management plays a critical role in steering the entire organization toward morally sound behaviour. 

• They must provide ongoing leadership in defining and upholding the organization's values.

2. Publication of a ‘Code'

• Define the principles of conduct for the entire organization in the form of written papers known as the "code."

• This includes topics such as basic honesty and obedience to regulations, product safety and quality, workplace health and safety, conflicts of interest, and employment practises, among others.

3. Establishment of Compliance Mechanisms

• Appropriate measures should be implemented to guarantee that real decisions and actions correspond with the firm's ethical standards.

4. Involving Employees at All Levels 

• Because it is employees at all levels who execute the policies relating to ethics and make ethical business a reality.

• Hence, their participation in ethics programmes becomes essential.

5. Measuring Results

• While it is difficult to accurately quantify the ultimate benefits of ethics programmes, organizations can audit to ensure that ethical standards are being followed.

• The results should then be discussed by the top management team and other staff to determine the next course of action.

Facts that Matter

• A business enterprise should be business in such a manner, which fulfills the expectations of the society.

• Certain things are prohibited legally like supply of adulterated goods, deceptive advertisements, making false information in advertisements, exploiting workers and polluting the environment.

• There are certain things beyond it like providing healthy working conditions, supplying high quality goods, paying taxes honestly, etc. These are called social responsibility of business, which we shall discuss in this chapter.

• Business ethics are also important in this context.

Meaning of Social Responsibility

• Social Responsibility of business means an enterprise takes full responsibility ethically to take decisions and conduct actions accordingly, which are required to meet the objectives and create values for our society.

• Social responsibility means to aim to do business for the benefit of various social groups like employees, consumers, investors, government, etc.

Areas of Social Responsibility

• Economic Responsibility: The aim of any business or enterprise to make profits. Therefore, it is the obligation of every business to carry out economic activities such as producing goods and services according to the needs and wants of consumers and selling them at rational costs.

• Legal Responsibility: Every business must be liable to respect the laws and regulations of the country in which it operates, as laws are shaped for the betterment of society.

• Ethical Responsibility: Every enterprise must follow only those business practices that are in line with the social principles that are needed from the perspective of society. This also includes respecting religious sentiments and producing quality products.

• Discretionary Responsibility: This is a voluntary responsibility that an enterprise takes. It means that a business enterprise may desire to involve in community services like opening a charitable school or hospital for the poor, granting aid to the victims who are affected by natural calamities, providing employment opportunities to the people who are physically challenged and so on.

Arguments for Social Responsibility

Business enterprises must assume social responsibility because of the following reasons:

• Justification for Existence and Growth: It is justified for growth and existence of business.

• Long-Term Interest of the Firm: It is in the long-term interest of business.

• Avoidance of Government Regulation: If social responsibility is fulfilled, government intervention can be minimized.

• Maintenance of Society: It is necessary to maintain society in a crime free manner.

• Availability of Resources with Business: Business has financial and human resources to fulfill it. 

• Converting Problems into Opportunities: It converts problems into opportunities.

• Better Environment for Doing Business: It provides a better environment for doing business because when interest groups are satisfied, they cooperate in a better way.

• Holding Business Responsible for Social Problems: Non-compliance with social responsibility makes business responsible for social problems like corruption, forgery, scams, etc.

Arguments Against Social Responsibility

There are some arguments against the concept of social responsibility:

• Violation of Profit Maximization Objective: Social responsibility is against the objective of profit maximization.

• Burden on Consumers: Ultimately social responsibility involves a cost. The burden of this falls on the consumer.

• Lack of Social Skills: Business claims that they lack requisite resources for it.

Reality of Social Responsibility

The various factors, which have persuaded businessmen to consider their social responsibilities, are:

1. Threat of Public Regulation: In reality, business institutions do not carry out their social responsibility on their own. They are concerned with the social responsibilities because of the threat of public action.

2. Pressure of Labour Movement: The business houses follow the labour laws not out of a sense of social responsibility but because of the labour movement mounting pressure on them.

3. Impact of Consumer Consciousness: Consumers have become more educated about their civil rights since the enactment of Consumer Protection Act, 1986.

4. Development of Social Standard for Business: No business can be done in isolation with the society. The accomplishment of a business is determined on social standards.

5. Development of Business Education: Nowadays businessmen are professionally qualified due to the changing pattern of business that is judged on social standards.

6. Relationship Between Social Interest and Business Interest: Businessmen are able to find the balance between social interests and business interests, such that business can grow by doing the maximum good for the betterment of the society.

7. Development of Professional, Managerial Class: Professional management is also more interested in their own benefits it can earn by fulfilling its social responsibility.

Social Responsibility Towards Different Interest Groups

Businessmen must assume social responsibilities towards:

Shareholders or Owners

Investors are likely to invest more money in a project when they are satisfied by the business in which they have made their investments. Happy investors can fulfill the rising demands of funds needed for the growth and expansion. It is the responsibility of a business to pay fair returns to all its shareholders and give accurate updates and information on important management issues and constantly make efforts to improve its business performance and financial structure. The company must give them proper opportunity to the investors or shareholders to participate in important decision-making policies of the company. As a result, the investors will invest more funds and the same can be used to modernize, expand and diversify the existing activities on a larger scale.

Workers or Employees

The business must assume their social responsibilities towards their workers or employees because they are the wheels of an organization. Without their support, the commercial institution simply cannot function or operate. If a business takes care of the needs of its office staff or workers, then it will increase the motivation and working spirit within the organization. A content and happy worker usually gives his best to the organization in terms of quality labour and timely output than an unsatisfied one. A conducive working environment helps in improving the efficiency and productivity of working people. A good compensation strategy and incentives attract new talented professionals who can further contribute to its growth and expansion. Thus, if employees are satisfied then they will work together very hard and contribute willingly in increasing the production, sales and profit.

Consumers

The sales and the profits of a business really depend on the social responsibility a business assumes towards the consumers. The consumers are the end users. The success of any business is directly dependent on their level of satisfaction. Higher the rate of customer’s satisfaction, the greater the chances to earn profits. A business can attract more customers by producing good-quality products or delivering better quality services at rational prices. The end consumers will be satisfied when they feel they are getting worth their money spent. The customers will remain loyal and their retention will surely help the business to grow and make profits.

Government

The business must be very sensitive towards the government’s laws and policies in order to operate or function smoothly. If they present a reckless disregard for social responsibility, they may find themselves dealing with various inquiries and probes conducted by the public service organizations.

The organization can run into huge losses if it does not comply with the rules and policies formulated by the state government or nation. Therefore, compliance in this regard is very essential.

Some example of activities a business can do in this regard:

1. Procuring a license for the company.

2. The company must seek permission as and when required.

3. The business must pay taxes on time to the government.

4. Must comply with the environmental, labour and other laws.

5. The business can create goodwill in the eyes of authorities if they respect and comply with the laws. As a result, the government can come up with new commercial policies favourable for the business. Therefore, satisfying the government and local administrative bodies is necessary for legal continuation of business.

Community

It is important for a business to assume its social responsibilities towards the local community. This responsibility is necessary for the smooth functioning of its operations without any agitations or hindrances. Apart from its establishment and operations in the local area, a business has a responsibility towards the local people so that their lives are not affected by the industrial activities. So, the business must compensate for their hardship or improve the intensity of suffering.

1. A business can be built as a service to the local community.

2. Health centre must be built for the health of the local patients.

3. A primary and secondary school and a degree college must be established for local children.

4. To recruit skilled and professional people, employment agencies must be set up.

5. An organization must organize events for a social cause, etc.

6. Constructing and maintaining devotional or spiritual institutions and recreation centers for people.

Such activities may satisfy the people to some extent that make the local community and hence their changes of agitations against an establishment are greatly reduced. This will ensure the longevity of a business in the long run.

Business and Environmental Protection

The quality of the environment is deteriorating very rapidly due to various industrial activities. Pollution exists because the environment can absorb waste only to a limit. Pollution causes risk to:

• Environment Quality: The rapid growth of industries and factories is causing severe pollution in the environment.

• Human Health: Emission of toxic gases and smoke from the factory chimneys and vehicles has serious repercussions on human health.

• Damage to Natural and Man-Made Resources: Increase in the consumption of natural resources such as land, food, water, air, fossil fuels, and minerals has led to the degradation of natural flora and fauna.

Causes of Pollution

• Industrial Activities: Manufacturing industries release a wide range of pollutants in the air. Oil refineries discharge harmful gases like Ammonia, Hydrocarbons and Sulphur oxides. Aluminum plants release fluoride dust. Cement industries emit plenty of dust, which is very harmful.

• Transportation: Automobiles, airplanes, ships and trains are the major source of Carbon Monoxide and Hydrocarbons compounds of Nitrogen and Oxygen are the major source of pollution in the air. Vehicular pollution consists of Carbon Monoxide, which is hazardous to health.

• Use of Fertilizers and Pesticides in Agriculture: Malpractices in farming activities like using toxic fertilizers and pesticides has caused the degradation of the soil.

• Consumption of Goods and Services: Excess consumption of goods and services by the increased population has caused gradual depletion of natural and man-made resources.

Types of Pollution

• Air Pollution: This kind of pollution is caused by the emission of harmful and toxic gases into the atmosphere. Smoke and chemicals emitted by factories and vehicles degrade the air quality and causes air pollution.

• Water Pollution: Discharge of industrial and household wastes into rivers, streams or lakes causes degradation of the quality of water. With time, if not checked and not adequate measures then water pollution will result in the complete destruction of aquatic animals and pose serious threats to human beings.

• Noise Pollution: It is caused by the noise from factories and vehicles, which may cause serious health hazards such as mental disorders and loss of hearing.

• Land Degradation: The degradation of the land is caused due to the dumping of garbage and toxic materials on the soil surface, which damages the quality of land or making the soil unproductive and unfertile for agriculture and crop plantation.

Need for Pollution Control

• Reduction of Health Hazards: Many ailments like cancer, hypertension, and heart attacks can be controlled if pollution is checked.

• Reduced Risk of Liability: It is the responsibility of the business to compensate people who are affected by the toxic elements in the environment.

• Cost Savings: Eco friendly methods and techniques may lead to cost saving especially when the cost of waste disposal is very high.

• Improved Public Image: Education has made people aware about the environmental problems and they have started realizing the need to protect the environment. So, any business enterprises, which have adopted measures to control the environmental pollution, enjoy a good status in the society.

• Other Social Benefits: Pollution control helps an organization to enjoy some social benefits like cleaner surroundings, good quality of life for its employees as well as owners and increased availability of good quality resources.

Business Ethics

Business ethics can be defined as the moral principles and code of conduct that a business must follow, as it takes up only those actions that are advantageous for the welfare of society. The objective of business ethics is to steer the managers and other employees in an organization in performing their jobs in a manner that is socially acceptable.

Elements of Business Ethics

Business ethics should be conducted in daily operations of a business enterprise.

1. Top Management Commitment: The top management level of any company like the CEOs and other managers must function according to the ethical code of conduct. This attitude would also steer the other employees in the same direction for the benefits of the organization.

2. Publication of a Code: A business or an enterprise must define the moral principles and quality standards for work, laws governing production and employee’s health and safety standards.

3. Establishment of Compliance Mechanism: In addition to formulating the standards for performance, an enterprise must also devise a mechanism to evaluate the actions of the individual employees in order to confirm whether the ethical standards are being met.

4. Involving Employees at all Levels: The successful implementation of ethical standards depends to a large extent on the involvement of employees at different levels. This is because it is the employees who actually implement the ethical code.

• Measuring Results: Although it is difficult to measure the end results of implementation of ethical standards, the top management should take steps to monitor compliance. It must also take serious measures against any unethical behaviour in the organization.