Modern business does not operate in isolation. It exists within society and must contribute to social well-being beyond merely earning profits. This chapter deals with social responsibility and business ethics.
Concept of Social Responsibility
Social responsibility of business means the obligation of business to take actions that protect and improve the welfare of society as a whole, along with its own interests.
It goes beyond legal compliance — it is about ethical behaviour and voluntary contribution to social causes.
Arguments FOR Social Responsibility
- 1.Long-run self-interest – responsible businesses earn public goodwill and survive longer
- 2.Moral justification – business uses society's resources; it must give back
- 3.Better public image and reputation
- 4.Government support and avoidance of strict regulation
- 5.Maintaining ecological balance
- 6.Prevention of social problems (unemployment, pollution)
Arguments AGAINST Social Responsibility (Milton Friedman's View)
- Business should only maximise shareholder profit
- Social issues should be handled by government, not business
- Spending on social activities may raise product prices
- Business leaders may lack expertise in social programmes
Responsibility towards Different Stakeholders
- 1. Responsibility towards Shareholders/Owners:
- Earn adequate profit and dividend
- Safeguard their investment
- Provide regular and accurate information
- 2. Responsibility towards Employees:
- Fair wages and working conditions
- Job security
- Opportunities for growth and training
- Safety at workplace
- 3. Responsibility towards Consumers:
- Supply quality goods at fair prices
- Honest advertising
- After-sales service
- Address consumer grievances
- 4. Responsibility towards Government:
- Pay taxes honestly and on time
- Comply with all laws and regulations
- Not engage in corrupt practices
- 5. Responsibility towards Community and Society:
- Protect the environment
- Support local development
- Contribute to education and health initiatives
- Avoid discrimination
Corporate Social Responsibility (CSR)
Under the Companies Act, 2013, companies meeting certain criteria (net worth >/= Rs. 500 crore, turnover >/= Rs. 1000 crore or net profit >/= Rs. 5 crore) must spend at least 2% of their average net profit of the past 3 years on CSR activities. Examples: clean water projects, girl-child education, environmental conservation.
Business Ethics
Business ethics refers to the application of ethical values and moral principles to business behaviour. Ethics sets the standards of right conduct in business beyond what is legally required.
- 1.Elements of Business Ethics:
- 2.Top management commitment – ethical culture must start at the top
- 3.Publication of a code of conduct – written ethical guidelines for all employees
- 4.Compliance mechanism – systems to detect and report unethical behaviour
- 5.Involving employees – ethics training at all levels
- 6.Measuring results – periodic audit of ethical performance
- Areas of Business Ethics:
- Honesty and transparency with stakeholders
- Environmental responsibility
- Fair treatment of employees
- Avoiding bribery and corruption
- Respecting intellectual property
- Consumer protection
Relationship between Social Responsibility and Ethics
Social responsibility is the what (what actions to take for society); ethics is the how (how to behave and make decisions). Together, they build a sustainable, trusted business.
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Tata Group runs hospitals, schools and research institutes and donates a significant portion of profits to charity through Tata Trusts. How does this illustrate social responsibility? · Answer: · Tata demonstrates responsibility to community and society by investing in healthcare and education — creating shared value beyond profit-making.
A garment factory provides free medical check-ups, safety equipment and skill training for all workers. What type of responsibility is shown? · Answer: · This is responsibility towards employees — ensuring their safety, health and personal development.
An FMCG company is legally required to spend 2% of its average net profit on CSR. It voluntarily spends 3%. How does this show the difference between legal compliance and social responsibility? · Answer: · Legal compliance = spending the minimum 2% required by law. Spending an extra 1% voluntarily shows genuine social responsibility beyond legal obligation.
A company sells inferior quality goods at MRP but advertises them as premium quality. Which ethical principle and which stakeholder responsibility is violated? · Answer: · Honesty/transparency in ethics is violated. The company fails its responsibility towards consumers (quality goods and honest advertising).
A factory continues to dump waste into a river despite warnings, to avoid the cost of proper disposal. How does this relate to social responsibility? · Answer: · The factory is violating its environmental responsibility to society and is acting unethically. This could also violate legal environmental regulations.
Milton Friedman argued that businesses should not engage in social activities. What was his main reason? · Answer: · Friedman believed the only social responsibility of business is to increase profits for shareholders; social issues are the government's domain and business spending on them is an unjustified use of shareholders' money.
A pharmaceutical company refuses to bribe government inspectors even though it delays product approvals. Which ethical element does this reflect? · Answer: · This reflects the code of conduct (no bribery) and top management commitment — ethical decisions are upheld even at financial cost.
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Common mistakes
- Students confuse legal compliance with social responsibility. Legal compliance is mandatory; social responsibility includes voluntary action beyond the law.
- CSR under Companies Act is a legal obligation for qualifying companies but is still considered "social responsibility" when performed meaningfully.
- Business ethics applies to all employees and decisions, not just top management.
- Friedman's argument is often stated as "business has NO social responsibility" — be precise: he meant the responsibility IS to maximise profit, which indirectly serves society.
Summary
Social responsibility obliges business to act in the interest of all stakeholders — shareholders, employees, consumers, government and society. Business ethics provides the moral framework for decision-making. The Companies Act, 2013 mandates CSR spending for large companies. Sustainable business success requires integrating both social responsibility and ethical conduct into everyday operations.