Chapter_3.pptx

Copyright © 2017 by McGraw Hill Education (India) Private Limited
Principles of Management, 6e
P C Tripathi & P N Reddy
Chapter 3
Social Responsibilities of business
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Learning Objectives
 Define social responsibility and describe its origin and growth
 Examine the different views on social responsibility
 Discuss the social responsibilities of business towards different groups
 Review the social performance of business in India
 Explain social audit
 Define business ethics and analyse ethics and corruption in international
business
 Explain corporate governance and its benefits
 Describe corporate governance in India

Meaning of Social Responsibilities
 The socio-economic obligation of every business is to see that the
economic consequences of its actions do not adversely affect public
welfare.
 The socio-human obligation of every business is to nurture and develop
human values.
 Origin and Growth of the Concept
 As the pace of industrialisation quickened, employers became more and
more concerned with the loss of productive efficiency.
 The changing image of business in recent years has lent further support to
the idea of social responsibility.
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Different Views on Social Responsibilities
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 Communist View: This view advocates the imposition of social
responsibilities on business through the instrumentality of the State.
 Capitalist View: This view holds that economic expediency alone is a
just standard for business decisions and that business has an unbridled
and an uncontrolled right to make money free from all sorts of social
responsibilities.
Continued…

Different Views on Social Responsibilities
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 Pragmatic View: This view acknowledges the importance of profits but
simultaneously stresses the need for social responsibility. It holds that a
company cannot make a social contribution if it is not profitable.
 Trusteeship View: This view advocates the retention for personal use of
so much as is necessary for an honourable livelihood, no better than
that enjoyed by million others; and the utilization of the rest for the
welfare of the community.

Social Responsibilities of Business Towards
Different Groups
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 Towards the Consumer and the Community
 Towards Employees and Workers
 Towards Shareholders and Other Businesses
 Towards the State

Social Performance of Business in India
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 For some organizations, the approach has been to take up only business-
centric activities, i.e., which are directly relevant to their business.
 The guiding philosophy in these organizations is that social responsibility is
good only if it pays. This approach benefits both the organization and the
stakeholder.
 Since 1999, an award is being given jointly by the Federation of Indian
Chambers of Commerce and Industry (FICCI) and Business World (BW) to
champion the cause of corporate social responsibility.
 In recent years many progressive Indian organizations keenly play a social
role. In some of these organizations, the approach is to take up only
business-centric activities, i.e. which are directly relevant to their business.
Continued…

Social Performance of Business in India
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 Some companies (e.g., Coca-Cola) link donations to sales of their
products. In this way, they not only serve social causes but also
strengthen their brands.
 The active involvement of Bharat Heavy Electricals Ltd. (BHEL) in the
welfare of the surrounding communities is helping the organization to
earn goodwill of the local population.
 Many companies are encouraging sports by placing good players on
their pay rolls.
 Awards being given since 1999 jointly by FICCI and BW to recognize the
CSR activities.

Social Audit
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 A social audit is a systematic study and evaluation of the organization’s
social performance as distinguished from its economic performance.
 Benefits
 Supplies data
 Develops a sense of social awareness
 Limitations
 Difficult to measure
 Classification under “good” or “bad” is not universally accepted
 Most of them occur outside the organization

Business Ethics and Corporate Governance
Business Ethics: Is the application of moral principles to business problems.
 The credibility of a business depends on its high business ethics and
integrity.
 How does a manager decide what is ethical or unethical?
 Government legislation
 Business codes
 Pressure groups
 Personal values of the manager
Continued…
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Ethics and Corruption in International Business
 On an international scale, it is difficult to clearly define what
constitutes corrupt business practices.
 Although there exist more than 40 codes of conduct worldwide, but
the observance of these codes being voluntary and not legally
enforceable, MNEs differ in their approach.
 Studies have shown that developing and transitional economies are
more prone to corruption partly because of the inadequate legal
framework, weak enforcement and lack of open and independent
media.
Continued…
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 Corporate Governance: The term “corporate governance” is used to
denote the extent to which companies run in an open and honest
manner in the best interest of all stakeholders.
 Benefits of Good Corporate Governance
 creates overall market confidence
 leads to an increase in company’s share prices
 ensures the integrity of company’s financial reports
 maximises corporate security
 limits the liability of top management
 improves strategic thinking
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 Corporate Governance in India
 The Securities and Exchange Board of India (SEBI) monitors corporate
governance of listed companies in India via Clause 49 i.e.,
incorporated in the listing agreement of stock exchanges with
companies
 The Companies (Amendment) Act, 2000, has introduced several
provisions relating to corporate governance
 The World Council for Corporate Governance has instituted in 2001
the Golden Peacock Award to foster competition among companies
to improve their quality of corporate governance
 India has several bodies that rate companies for their credit-
worthiness
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 Need for a Corporate Whistle Blower Protection Act
 A corporate whistle blower is an honest and conscientious individual
who discloses in public interest, and as an ethical duty, information
relating to gross corruption, mismanagement, abuse of authority or
grave injustice prevailing in a company.
 In the US, although the burden of proof to show reasonable cause
devolves overwhelmingly on the whistle blower, anyone retaliating
against him can be imprisoned for up to 10 years under The
Whistleblower Protection Act.
 In India, in conjunction with the Freedom of Information Act, can
have a Whistleblower Protection Act, to promote good and
transparent corporate governance in the country.
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