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Social Responsibility of Business
Social responsibility is an ethical or ideological theory that an
entity whether it is a government, corporation, organization or
individual has a responsibility to society.
While primarily associated with business and governmental
practices, activist groups and local communities can also be
associated with social responsibility, not only business or
Corporate social responsibility (CSR, also called corporate
responsibility, corporate citizenship, and responsible business) is a
concept whereby organizations consider the interests of society by
taking responsibility for the impact of their activities on customers,
suppliers, employees, shareholders, communities and other
stakeholders, as well as the environment.
This obligation is seen to extend beyond the statutory obligation to
comply with legislation and sees organizations voluntarily taking
further steps to improve the quality of life for employees and their
families as well as for the local community and society at large.
Social responsibility is voluntary; it is about going above and
beyond what is called for by the law (legal responsibility).
Social responsibility means eliminating corrupt, irresponsible or
unethical behavior that might bring harm to the community, its
people, or the environment before the behavior happens.
The shareholders, suppliers of resources, the consumers, the local
community and society at large are affected by the way an
enterprise functions. Thus a business enterprise should be able to
strike a balance between these divergent groups.
There has been greater consensus around the fact that the
business enterprise which makes use of the resources of society
and depends on society for its functioning, should discharge its
duties by enhancing the overall welfare of society.
The nature of social responsibility can be classified into:
Manner in which a business carries out its own activity.
Welfare activity that it takes upon itself as an additional function.
Businesses can use ethical decision making to
strengthen their businesses in three main ways
To use their ethical decision making to increase
productivity. This can be done through programs
that employees feel directly enhance their
benefits given by the corporation, like better
health care or a better pension program. One
thing that all companies must keep in mind is
that employees are stakeholders in the
business. They have a vested interest in what
the company does and how it is run. When the
company is perceived to feel that their
employees are a valuable asset and the
employees feel they are being treated and such,
By making decisions that affect its health as seen to those
stakeholders that are outside of the business environment.
◦ Customers and Suppliers are two examples of such stakeholders. If we
were to look at companies like Johnson & Johnson, their strong sense of
responsibility to the public is well known. In particular, take for instance
Johnson & Johnson and the Tylenol scare of 1982. When people realized
that some bottles of Tylenol contained cyanide they quit buying Tylenol,
stocks dropped and Johnson & Johnson lost a lot of money. But they
chose to lose even more money and invest in new tamper resistant seals
and announce a major recall of their product. In the long run they gained
the trust of their customers.
By making decisions that allow for government agencies to
minimize their involvement with the corporation. For instance if a
company is proactive and follows the pollution guidelines for
admissions on dangerous pollutants and even goes an extra step to
get involved in the community and address those concerns that the
public might have; they would be less likely to have the authorities
investigate them for environmental concerns.
Carroll has proposed a three dimensional conceptual model of
corporate performance. A firm has the following four categories of
obligations of corporate performance:
Firm being an economic activity, the main responsibility is economic
alongwith complying with the legal responsibilities.
Ethical responsibilities are norms which the society expects the
business concern to observe even though they are not mandated by
law. While discretionary responsibilities refer to the voluntary
contribution of the business to the social cause like involvement in
community development etc. Carroll points out that these four
categories are not mutually exclusive and presented them as a
pyramid of CSR.
The Pyramid of Social Responsibility
Be a good Corporate Citizen.
Contribute resources to the
community; improve quality of life.
Obligation to do what is right,
just and fair; Avoid harm.
Obey the Law
Law is society’s codification of right and wrong;
Play by the rules
The foundation upon which all others rest
Halal’s return on resources model of corporate performance points
out that a firm can only attempt to unite the diverse interests of
various social groups to form a workable coalition engaged in
creating value for distribution among members of the coalition.
Beyond a certain level of economic activity the social issues at
stake become conflicting.
Ackerman’s model:There are three phases.
The first phase is one when top management recognizes the
existence of a social problem and acknowledges the company’s
policy by making it an oral or written statement.
The second phase is characterized by the company appointing staff
specialists to study the problem and provide recommendations.
The third phase involves the implementation of the social
Promoters, Directors and Top Management: The values and
vision of promoters and top management is a key influencing factor.
Stakeholders: Attitude of various stakeholders like shareholders,
creditors, employees etc. also affect the social orientation of a
Societal Factors : Social orientation could also be affected by the
expectation of the society from the Corporation. Eg: A resourceful
firm located in a poor community may be expected to contribute to
the development of education facilities of the locality etc.
Industry and Trade Associations: They influence the
behaviour of firms by establishing professional and ethical codes
Government and Laws : Laws to curb corruption, unfair practices
etc. and the government’s view of social responsibility also acts as
an influencing factor.
Society and Business are interdependent – There is a clear
conviction within sections of the public that business has an
obligation towards the society
Better environment for business would be conducive for future
success of the Organization
Public Image: Socially responsible behavior creates a positive
public image for Business.
Business has the resources and Power: Business has a reservoir of
capital and expertise that is could leverage
Let Business try
Prevention is better than Cure. Social involvement of business
would foster a harmonious and healthy relationship between society
and business to the mutual benefit of both.
Shareholder interest: Business will prosper from an improved social
Avoidance of Governmental Regulation: If business is perceived as
meeting its social obligations, costly and restrictive governmental
regulations can be avoided.
Social responsibility like recycling of waste may have favorable
Profit Maximization: Economic efficiency of business should be the top priority
and the sole mission of business. In this situation decisions are controlled by
their desire to maximize profits for the shareholders while reasonable complying
Society has to pay the Cost: Costs of social responsibility will be passed on to
the society and eventually it is the society which has to bear them.
Lack of social skills: Business managers are goods at solving matters relating to
business and not very effective at solving social problems as their outlook is
Business has enough Power: Business already has enough social power and
the society should not take any steps which give it more power as it could mould
Social Overhead Costs: Cost of social responsibility will not immediately benefit
the business. Why spend money on an object, benefits of which will be realized
only in future.
Lack of accountability: Businessmen have no direct accountability to the people.
Unless the society can develop mechanisms which establish direct lines of
social accountability from the business to the public, business must not stay
away from social activities.
Friedman’s Views: Friedman asserted that if managers spend corporate funds
on projects not intended to maximise profits, the efficiency of the market
mechanism will be undermined and resources will be misallocated within the
Many companies involve themselves in social activities because of the tax
exemptions on the income spent on social purposes.
Businesses response to social responsibility tend to fall within four
Social Opposition: View taken by business is that they have no
obligation to the society in which they operate.
Social obligation: Companies believe that they have an obligation to
obey the law.
Social response: Position taken by companies which believe that
their social responsibilities are as dictated by law and will on
selective basis go beyond the legal requirements. These units may
volunteer to participate in limited socially responsible efforts, but not
until they are convinced that the benefits outweigh the costs.
Social contribution: Position taken by Companies which believe that
they have a deep obligation to serve the society.
Shareholders: The primary business of a business is to stay in
business. To safeguard the capital of the shareholders and to
provide reasonable dividends and returns to its shareholders.
Employees : The success of the organization depends largely on
the morale of the employees. Employee morale depends on
employer-employee relationship. The responsibility of the
organization to the workers include:
Payment of fair wages
Provision of best possible working conditions
Establishment of fair work standards
Provision of labor welfare activities
Arrangement of proper training of workers.
Reasonable chances of promotion
Proper recognition, appreciation etc.
Installation of an effective grievance handling system
The consumer is the king and is the foundation of any business venture. Important
responsibilities of the business to the customers are:
Improve efficiency so as to increase productivity and reduce prices, improve quality
and smoothen the distribution system so as to make the products easily available.
To do research and development so as to improve quality
To supply goods at reasonable prices, even in case of a sellers market
To provide after sales sevice
To ensure that the product supplied has no adverse effect.
To provide sufficient information about the product
To avoid misleading customers by improper advertising etc.
Taking steps to prevent environmental pollution
Rehabilitating the population displaced by the operation of the business
Assisting in the overall development of the locality
Taking steps to conserve scarce resources and develop alternatives
Improve the fficiency of the business operation
Contribute to R & D
Development of backward areas
Promotion of ancillary and small scale industries
Contributing to welfare activities like promotion of education etc.
Meaning: Social audit is a tool for evaluating how satisfactorily a
company has discharged its social responsibilities. Social audit
enables the public as well as the company to evaluate the social
performance of the company. Social audit involves:
Identification of the firm’s activities having potential social impact
Assessment and evaluation of the social costs and social benefits of
Measurement of the social costs and benefits
Objectives and Benefits of Social Audit:
Evaluate the social dimension of the performance of the company.
Take measures to improve the social performance of the company
on the basis of feedback provided by the social audit.
Social audit increases the public visibility of the organization.
In case the social audit reveals a sociialy commendable
performance, it helps boost the public image of the company.