6.11 – Social Responsibilities & Business Ethics

Social Responsibilities

  • Social responsibility refers to the obligation of the business firm to contribute to resources for solving social problems and working in the socially desirable manner.
  • Examples for some socially responsible Indian companies are Bourbon and Pepsi. Bourbon is working in the area of animal welfare. Pepsi is working in the area of sport.
  • Social responsibilities of business.
Responsibilities towards share-holder
  1. To pay good dividend or interest on their investment.
  2. To ensure safety of their investment.
  3. To increase the market value of their shares
  4. To protect the interests of all kinds of investors.
Responsibilities towards employees
  1. To pay fair wages and salaries to workers.
  2. To provide good working conditions
  3. To provide service benefits such as medical facilities, retirement benefits, etc.
Responsibilities towards consumers
  1. To supply right types of goods and services at reasonable prices.
  2. To avoid unfair trade practices such as black marketing, poor quality of goods and misleading advertisement.
  3. To handle customer problems.
Responsibilities towards Government
  1. To pay taxes regularly and honestly.
  2. To respect the law of the country.
  3. To cooperate with the government voluntarily in solving national problem.
Responsibilities towards communities
  1. To protect natural environment.
  2. To generate more employment opportunities
  3. To uplift the weaker section of the society.
  4. To promote communal harmony.
  1. Sam’s soft-drink firm, Paani Cola, requires a million liters of water for the firm’s running every month. For this he gets water from a clean river near Allahabad. Who is he responsible to? Explain how.
  2. When Sam’s Paani Cola was established in 2010, he had been helped by the government for setting up the plant (company). Now the company running well, what are Sam’s responsibilities to the Government?
  3. Sam’s Paani Cola has been accused for having caused serious damage to 300 trees in Allahabad’s Limbi village. The Limbi villagers are aboriginals (aadivaasis) who worship trees. What social responsibility did Sam violate here? How can Sam repay the damage caused?
Why is Social Responsibility important?

1. For justification for the existence and growth of the firm/business.

  1. A responsible businessman makes sure that his company exists. Business exists for providing goods and services to satisfy human needs and thereby earning profit. Since business is a part of the society, its prosperity (growth) is possible only through continuous service to the society.
  2. Question – Sam’s Imperial Leather company emits smoke into its Naraina factory and the people nearby have found life miserable because of the smoke and smell. Is Sam a responsible businessman? Why?

2. For maintaining a long-term interest/good-will of the firm.

  1. A responsible businessman makes sure that his company’s image doesn’t suffer. A firm’s image or goodwill builds up in a long run. When it has its highest goal as service to society and if it indulges in unfair trade-practices such as black-marketing, hoarding, under-weighing, etc., it may not be able to exist for long.
  2. Question – Sam’s Imperial Leather suffered great defamation (loss of goodwill) because there have been rumors that the factory processes cow-skin for leather. Is Sam a responsible businessman? Why?

3. For keeping the firm free from regulations.

  1. A responsible businessman can avoid unnecessary government involvement (fines, closing, raids, etc.) by voluntarily (readily) assuming (doing) social responsibilities.
  2. Questions – Sam’s Imperial Leather has again suffered another blow recently. Three of its factories have been closed down by the Municipality because of its polluting a river. Is Sam a responsible businessman? Why?

4. For making resources available for society.

  1. A responsible businessman has the responsibility to make proper use of his expert workers and valuable financial resources.
  2. Question – Sam’s Imperial Leather has 45 expert employees but Sam has recently asked them to work in his furniture company. The leather experts have no idea how to work with wood. Is Sam a responsible businessman? Why?

5. For solving social, environmental problems.

  1. A responsible businessman takes care of the society and solves its problems as much as he can. These problems include poverty, unemployment, illiteracy. By fulfilling social needs, he gets a better environment to do business.
  2. Business firms create some of the biggest problems such as air pollution and water pollution, etc. As a responsible business firm, it has the moral obligation to solve this too.

Business Ethics | Sell well!

Before you begin, know that ‘ethics’ simply means what is right/permitted and what is wrong/prohibited.

  1. What is business ethics?
    Business ethics refers to what is a good practice and what is a bad practice in business. It means a business firm has to go in accordance with the prevailing norms of the society.
  2. Write two examples for business ethics.
    Giving fair treatment to workers and using fair and accurate rates for measuring commodity are examples of business ethics.
  3. Question – Sam’s Imperial Leather uses artificial leather such as rexine. Is there any violation of business ethics? Explain how.

Elements of Business Ethics

1. Top management commitment | In the first place, it is a parent’s responsibility to make sure his/her child behaves well!

  1. Top management has a crucial role in guiding the entire organisation towards ethically upright behaviour. To achieve results, the Chief Executive Officer (or CEO) and other higher level managers need to be openly and strongly committed to ethical conduct/behavior/practice. They must give continuous leadership for developing and upholding the values of the organisation.
  2. Question – Sam’s Imperial Leather has recently suffered loss of reputation due to a sale of substandard shoes to Valley International School, Doha. What should Sam do to maintain business ethics?

2. Publication of a ‘Code of conduct’ | Employees, your attention, please! This is your code of conduct!

  1. Enterprises with effective ethics programmes do define the principles of conduct for the whole organisation in the form of written documents which is referred to as the “code”. This generally covers areas such as fundamental honesty and adherence to laws; product safety and quality; health and safety in the workplace; conflicts of interest; employment practices; fairness in selling/marketing practices; and financial reporting.
  2. Question – Sam has noticed that some of the female staff come to the office in terribly unacceptable dresses where men get distracted. Draft a notice (CBSE style) to the notice of the concerned staff in 80 words.

3. Establishment of compliance mechanisms

  1. In order to ensure that actual decisions and actions comply/agree with the firm’s ethical standards, suitable mechanisms should be established. Some examples of such mechanisms are:
    1. Paying attention to values and ethics in recruiting and hiring.
    2. Emphasising corporate ethics in training.
    3. Auditing performance regularly to analyse the degree of compliance.
    4. Instituting communication systems to help employees report incidents of unethical behaviour.
  2. Question – Sam’s Imperial Leather Works in London has recently recruited some of his old friends. Unfortunately the new staff have been found not complying with qualification standards. How can Sam establish a proper compliance mechanism in his office?

4. Involving employees at all levels

  1. It is the employees at different levels who implement ethics policies to make ethical business a reality. Therefore, their involvement in ethics programmes becomes a must. For example, small groups of employees can be formed to discuss the important ethics policies of firms and examine attitudes of employees towards these policies.

5. Measuring results

  1. Although it is difficult to accurately measure the end-results of ethics programmes, the firms can certainly audit to monitor compliance with ethical standards. The top management team and other employees should then discuss the results for further course of action.
Next – Long Notes

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