By going through these Maharashtra State Board Organisation of Commerce and Management 12th Notes Chapter 6 Social Responsibilities of Business students can recall all the concepts quickly.
Maharashtra State Board Organisation of Commerce and Management 12th Notes Chapter 6 Social Responsibilities of Business
→ Social Responsibility – Social Responsibility refers to all such duties and obligations of the business that are directed towards the welfare of society.
→ Legal Pc Legal responsibility refers to all such duties and obligations of the business that are prescribed by law. It may be fulfilled by mere compliance with the law.
→ Trusteeship’ – According to the principle of trusteeship that was propounded by Mahatma Gandhi, “A business must be carried out in trust, legally and morally for the benefit and welfare of the people.”
→ Fringe benefits: A benefit to employees in kind or in service, the cost of which is borne by the employer. They include profit-sharing schemes, bonuses and medical schemes, sick pay, holidays, etc.
→ Job Security: It is an assurance that an employee has about the continuity of gainful employment
for his/her work life.
→ Trade Union: An association of employees who have come together to improve their wages, hours and conditions of employment by means of collective bargaining.
→ ‘Divide and rule’ Policy: The policy of maintaining control over one’s subordinates or opponents by
encouraging dissent between them thereby preventing them from uniting in opposition.
→ Anti-Social Activ: It covers a wide range of unlawful activity that causes harm to an individual, to their community or to their environment.
→ Business Ethics: It is a code of conduct for regulating the activities of business towards society or others.
→ Moral Values: Moral values are the standards of right and wrong which govern an individual’s behaviour and choices.
→ Social Values: Social values are a set of moral principles that provides the general guidelines for social conduct. Values such as fundamental rights, patriotism, respect for human dignity, rationality, sacrifice, equality, democracy, etc. influence our behaviour in many ways.
→ Corporate Social Responsibility (C.S.R.): C.S.R in the integration of socially beneficial programmes and practices into corporation business model and culture. It aims to produce an overall positive impact on society.
→ Dumping: In International trade, the practice of a producer or supplier, usually monopolist, who sells a product at a lower price in a foreign country than in the home market.
→ Insider trading: The managerial personnel as well as top officials have access to the confidential and sensitive information of the company. These persons may misuse such information for their own or other persons’ benefits. The misuse of sensitive information may lead to fraud or rigging of the prices of shares. This is called ‘insider trading’.
→ Warranty: A written guarantee given to a purchaser that the manufacturer, dealer, etc. will make repairs or replace defective parts free of charge for a stated period of time.
→ Resources: Capital fund, tools, machinery, vehicles, power supply, employees, etc., that an enterprise uses to carry out its activities.
→ Public image: The general impression of a business organization gained and held by its own employed personnel or by and large based upon the presentation of its activities and the reputation of its products.
→ Natural calamities: A disaster or misfortune, especially one causing distress or misery produced by nature e.g. cyclones, storms, earthquakes, famine, droughts, etc.
A business organization depends upon society for its continued existence and growth. Different segments of society contribute to the success of a business. The business obtains its input like manpower, money, machines, materials, etc. from its environment. No organization can survive in the absence of an environment. A business organisation depends on society both for procurement of required input and also for disposal of its output. Thus, it becomes important that businesses should do something for society in return. This responsibility of business towards society is called Social Responsibility.
The concept of social responsibility is as old as our civilization. In India, it has been followed since ancient times. Philosophers like Chanakya from India and pre-Christian era philosophers in the West preached and promoted the concept of social responsibility and other ethical principles while doing business.
Concept of Social Responsibility-
Social responsibility is broader than legal responsibility of business. Legal responsibility may be fulfilled by mere compliance with the law but social responsibility is more than that. It is voluntary action on the part of business for the benefit of society. Thus, all the activities of business should be performed in such a manner that they will not harm any part of the society, but help to protect and contribute to the interest of the society.
According to Howard D. Bowen, “Social Responsibility is to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.”
Need for Social Responsibility:
- Concept of Trusteeship: This concept was propounded by Mahatma Gandhi. Wealthy people who are the trustees of trusts must take care of the welfare of the people in general. Businessmen are treated as trustees of society.
- Changing expectations of society: Society’s expectations from business firms have changed from provider of goods and services to contributor towards social welfare.
- Reputation: A company which fulfils social obligations enjoys a good reputation in the society. Business should indulge in creating a favourable image and build its brand. Such a business is held in high esteem which ultimately results in increase in sales, profit, growth, etc.
- Protection of Environment: Business organisation should adopt eco-friendly practices. They should make proper use of country’s natural resources and avoid environmental degradation like pollution of water, depletion of ozone layer, etc.
- Optimum Utilisation of Resources: It is the responsibility of the business organisation to make optimum use of the resources at their disposal. Business firms should avoid wastage of resources.
- Pressure of Trade Union: It is necessary for the business organisations to understand their responsibilities towards the employees and their unions. They should avoid any conflict with them.
- Growth of Consumer Movement: Business organisation must follow fair trade practices and follow consumer oriented policies in increasing competitive market.
- Government Control: Government has enacted various laws to regulate business organisations. All these laws put moral as well legal pressure on business organisations.
- Long term self interest: Fulfilling social responsibility is in long term interest of the business organisation i.e. service to society. It can obtain support from various interest groups.
- Complexities of Social Problems: A progressive and socially aware business concern has moral obligations to help in solving social problems like discrimination at workplace, etc.
- Globalisation: In globalisation, those business organisation that have adopted good practice are influencing the entire world trade.
- Role of Media: Media can raise voice against business malpractices and exploitation of consumers. Hence, business organisation cannot ignore the social responsibilities towards different constituents of society.
Responsibility Towards Different Interest Groups-
Responsibilities Towards Owners:
- Reasonable profit: Business organisation should earn reasonable profit to bring financial stability and growth.
- Exploring business opportunities: Business should be alert to find opportunities to explore, expand, grow and diversify the business. This is very crucial for success.
- Optimum use of capital: Business organisations should use available capital carefully and efficiently by considering business risk. Management should pay attention to the safety of capital.
- Minimum wastages: Business organisations should minimise wastage of time, money, manpower, etc. to maximise profit.
- Efficient Business: Efficient and optimum use of available scarce resources by the business firm result into increase in profitability and productivity which is turn facilitates the business firm to carry on business more efficiently.
- Fair practices on stock exchanges: The business firm should avoid all types of unfair practices in relation to stock exchange such as insider trading, providing wrong and secret information, etc. It may bring unfavourable changes in share prices which lead to loss to common investors.
- Expansion and diversification: To face market competition more comfortably, business enterprises should undertake Research and Development on various projects.
- Periodic information: The business organisations should provide complete and accurate information about the financial position through reports, circulars, etc. to the owners from time to time.
- Effective use of owner’s funds: The business organisation must use owners’ fund in the best manner possible to give them short term as well as long term gains on time.
- Creating Goodwill: The management of the business enterprises should strive hard to develop and maintain good public image, respect and trust in the market.
Responsibility Towards Investors:
1) Proper conduct of meetings: The business organisations are expected to call and organise meetings of investors at regular intervals to provide information of the business. During the period of financial crisis, investors should be taken into confidence. However, in case of failure, management should explain them the factors responsible for such failure.
2) Return on investment: The business organisation are expected to give fair returns to the investors regularly on their investments in the form of interest. The business organisations are also expected to take care of investment, pay fair returns on investments and bring steady appreciation of the business.
3) Handling grievances: A company should handle the investors’ grievances properly by implementing effective methodology. All queries of other issues should be answered satisfactorily.
4) Maintain transparency : The investors supply the funds to satisfy the long term capital and working capital needs of the business. In return, all business organisations are required to maintain high degree of transparency in their operations.
5) Proper disclosure of information: The management of the business firms are expected to provide full and factual information to the investors regularly through reports, circulars, statement of profit, etc. These information of financial performance of the business must be correct. This is because prospective investors take decisions to invest in future on the basis of information so provided.
6) Maintain solvency and prestige: The business organisations are expected to maintain solvency, prestige, goodwill and sound financial position to win confidence of their investors. They should continuously strive to undertake research, innovation and expansion programme.
Responsibilities Towards Employees:
1) Job security: It is responsibility of business enterprises to provide security or guarantee of job to their employees. This will provide them mental peace and encourage them to work with full concentration and dedication. This will also help to raise employees morale and loyalty towards the organisation.
2) Fair remuneration: The business organi¬sations are expected to pay attractive salaries and other incentives like overtime allowance, bonus, etc to all employees. Remuneration should be determined according to the nature of work. The business organisation should also adopt suitable wage plans, giving increment and revision of wages from time to time.
3) Healthy and safety measures: The business enterprises are required to protect health and hygiene of employees by providing good canteen, medical and sanitation facilities, to prevent accidents. To control pollution, proper maintenance of machines and premises should be done regularly. Safety equipment such as safety shoes, hand gloves, masks, goggles, helmets, etc. should be provided to the workers.
4) Good working conditions: The business organisations must provide good working conditions like adequate lighting, ventilation, safe drinking water and take necessary steps to avoid air, sound and water pollution. They should also decide proper working hours with lunch breaks and other facilities.
5) Recognition of Trade Unions: Every employer or company must recognise the employee’s right to join and form trade union. Management should not follow ‘divide and rule’ policy. Management should solve the problems of workers through talks or negotiations with trade union. Both should agree to ban strikes and lockouts to protect their interest.
6) Education and training: The business enterprises are expected to educate the employees through guidance and training according to the nature of job. To keep employees updated with latest developments, introduction training and refresher training should be arranged at regular intervals by their employers. Training is necessary to increase efficiency and confidence of employees.
7) Workers participation in management: The business organisations must encourage the employees to participate in the management through formation of workers committee. Management should also encourage suggestion schemes, profit sharing to raise employees morale and to give them sense of belongingness.
8) Promotion and career opportunities: Every business organisation is expected to give sufficient opportunities of promotion to their talented employees. Organisation should give information regarding qualification, skill and experience needed to get promotion. This will enhance awareness among the employees.
9) Proper grievance procedure: The business organisations are expected to lay down proper grievance procedure to handle employee’s problems, complaints, queries without any delay. Investigation and necessary steps must be taken to settle their grievances.
10) Miscellaneous: The business organisations are expected: (i) to give fair treatment to all employees, (ii) to recognize, appreciate and encourage special skills of employees, (iii) to introduce code of conduct, (iv) to provide enough opportunities for meaningful work and to recognize goals, (v) to protect religious, social political rights of employees and (vi) allowing formation of informal groups.
Responsibilities Towards Consumers:
1) Good quality products: It is the respon¬sibility of business organisation to produce better quality products. For this purpose, every business unit should have quality control department to reject inferior and substandard products. In this respect, ISO is considered as the latest tool towards quality control. This ensures customer loyalty to the products.
2) Fair prices ; The business organisations must charge fair and reasonable prices for their products. Maximum Retail Price (M.R.P) inclusive of all taxes should be printed on all packed products. The customers should not be cheated by charging high prices.
3) Customer’s safety: The business organi¬sations should not sell harmful (unsafe) goods or goods that make adverse effect on the life and health of the customers.
4) Honest advertising: Advertisement conveys information of products, their facts, features, advantages, side effects, uses, etc. The business organisations must see that their advertisements are honest and do not mislead the consumers. It should not indulge in false, misleading and vulgar advertisement.
5) After sales service: The business organisations are expected to provide efficient and effective after sales service to establish good relation with the customers.
6) Research and Development: The business organisations are expected to conduct research and development to improve quality of goods and to reduce the total cost of production. They should apply for quality standards like BIS or AGMARK on their products.
7) Regular supply: The business organisation must supply goods and services to the consumers regularly. The business firms should not create artificial shortage through hoarding and black marketing.
8) Attend complaints: The business firms must attend consumers’ complaints without delay through implementation of effective grievances redressal system.
9) Training: The business firms should arrange training for their customers either free of charge or by charging nominal fees.
10) Avoid customer exploitation: The business organisation should avoid adoption of unfair trade practices and monopolistic competition to protect the interest of the consumers.
Responsibilities Towards Government:
- Timely payment of taxes: The business organisation are expected to pay various taxes such as sales tax, income tax, wealth tax, etc. levied by the government from time to time. This helps the government to take up various development projects.
- Observing rules and regulations: The business organisations are expected to comply with the various laws and regulations enacted by the government. They should observe the laws in relation to obtaining license, operation of business, price determination and production, etc. and conduct business in lawful manner.
- Earning foreign exchange: The business organisation carrying on business on large scale are expected to export their products to foreign countries to earn foreign exchange. The government needs foreign exchange to import valuables and important products.
- Economic Development: The business organisation Eire expected to give necessary co-operation to the government in balanced and rapid economic development of the country.
- Implementing socio-economic policies: The business organisation are expected to provide required co-operation and help to the government in implementation of various socio-economic programmes and policies.
- Suggestions to government: The business organisations should give suggestions to the government before framing important policies such as Industrial Policy, Import-Export Policy, Licensing Policy, etc.
- No favours: The business organisations should not give bribe or influence any government officials to get any favour for doing their work.
- Contributing to government treasury: The business organisation must give financial help to the government during emergency and occurrence of natural calamities such as earthquakes, floods, cyclones, etc.
Responsibilities Towards Community/ Society/Public in General:
- Protection of environment: In recent years, pollution has become the major problem. Industries, chemical plants, cement plants, etc. create air and water pollution. The business firms must take all possible measures to minimise or avoid pollution.
- Better and maximum use of resources: The business organisations are expected to make proper, efficient and optimum use of available scarce resources like water, fuel, land, etc.
- Reservation for weaker section: The business organisations are expected to reserve certain positions in their organisation for financially weaker sections of the society. The poor people also expect financial and other help from the business firms which must be provided regularly.
- Development of backward regions:The society expects that business organisations start their industries in backward areas to create employment opportunities, increase purchasing power among people and facilitate development of backward regions.
- Protest against anti-social activities:The business organisations should not indulge in anti¬social activities which will adversely affect the society. They should not provide any financial help to support anti-social activities. Anti-social activities such as smuggling, association with underworld people, bribing government officials, etc. should be avoided by the business organisations.
- Financial assistance: The business organi¬sations are expected to provide financial assistance and donations to the society for various social activities such as eradication of poverty and illiteracy, arranging anti-drug campaigns, anti noise pollution campaigns, etc.
- Prevent congestions: The business organi¬sations should avoid crowding of industries in cities by shifting and establishing industries in different industrial zones or location. This will minimise adverse effect on residential areas.
- Employment generation: The business organisations should generate large employment opportunities for all sections of the society through expansion and diversification programmes. This will reduce and help to solve the burning problem of unemployment, poverty, etc.
Social Responsibility towards Protection of Environment-
Business organisations are under obligation to protect and promote environment. For manufacturing goods and services business enterprises use all types of resources from the nature. Working of business organisations create imbalance in original state of nature. The development is responsible for its degradation. It is the responsibility of every business organisation to protect environment and not to create imbalance in nature. The diagram showing how business organisations influence environment is given below:
Rapid industrialisation results in environmental pollution through generation of waste and loss of bio-diversity and releasing genetically modified organisms and toxics. Through the use of natural resources the business organisation degrade the bio-physical environment.
Effect of Business on Environment:
- Air pollution: Air pollution is created by release of different types of harmful gases into the atmosphere, smokes and emissions of toxic fumes from burning of coal and vehicles.
- Water pollution: Harmful chemical fertilizers, pesticides, industrial waste, distilleries waste, e-waste, etc. when mixed with water, create water pollution.
- Sound pollution: Increase in number of industries, transportation, machinery, aeroplanes, etc. create unbearable sound pollution.
- Electronic Garbage: Wastage created from mobile, TV sets, laptops, etc. Eire not properly destroyed by many industries. Various products like lead, cadmium, chromium are called electronic garbage.
Waste prevention technique: The waste preventive techniques are summarised and called as 4 R’s i.e. Reduction, Reuse, Recycling and Recovery.
- Reduction: This preventive technique suggests that wherever possible wastage of resources should be reduced.
- Reuse: This preventive technique states that if waste is produced, wasted materials or by¬products should be reused if it is practicable and possible.
- Recycle: This preventive technique gives option that wastage that cannot be reduced or reused should be recycled.
- Recovery: This preventive technique suggests that recover energy or materials from the . waste which cannot be reduced, reused or recycled.
The word ‘Ethic’ is originated from Greek word ‘Ethos’ which implies ‘human character and conduct’. Accordingly, the term ethics refers to the set of rules and principles that every organisation should adopt. In other words, business ethics refers to the code of conduct that business
organisations should follow while doing their business. Ethic is a branch of social science which deals with the concepts, such as right and wrong, just and unjust, proper and improper, legal and illegal, fair and unfair, good and bad, etc. in respect to human behaviour and actions.
According to Wheelers, “Business Ethics is an art of science of maintaining harmonious relationship with society, its various groups and institution as well as recognising the moral responsibility for right or wrong conduct of business.”
Features of Business Ethics:
- Code of conduct: Business ethics is a code of conduct which businessmen must follow while doing the business. It explains what to do and what not to do for the well-being of the society.
- Based on moral and social values: Business ethics are based on the moral and social principles which includes self control, consumer protection and welfare, services to society, fair treatment to all, etc.
- Gives protection to social groups: Business ethics provides protection to different social groups like consumers, small businessmen, employees, shareholders, creditors, government, etc.
- Provides basic framework: Business ethics provides social, economic, cultural, legal and other limits to the organisations in which they must conduct their business activities.
- Voluntary: The businessmen must accept the business ethics on their own voluntarily. Its acceptance cannot be enforced by law.
- Requires education and guidance: The businessmen should be properly educated, motivated and given guidance before implementing business ethics.
- Relative term: Business ethics differs from one business to another, from one country to another. What is considered good in one country may not be accepted in other country.
- New concept: Business ethics is a newest concept developed in recent years. It is strictly followed only in advanced countries and not in underdeveloped and developing countries.
Moral and Social Values:
Values such as fundamental rights, patriotism, human dignity, sacrifice, equality, democracy, etc. give a direction to grow and integrate our personality. Social values are considered as an important part of the culture of the society. Social values of the business form the base for social responsibilities. They provide general guidelines for social conduct. Social values are usually based on tradition, co-operation, ego, honesty, integrity, hard work, fairness, forgiveness, etc. Moral values such as not to indulge in unfair trade practices, to be honest and truthful about quality, etc. should be followed while doing the business.
Society has created rules regarding type of activities business should do and should not do. These are called business ethics.
The code of business ethics:
- The business should pay taxes and other charges regularly.
- They must pay fair wages, allowances and other monetary incentives to workers.
- They should ensure safety and security of their product.
- The business firms should supply quality goods as per expectations of consumers at reasonable prices.
- The business should give due respect and honour basic to rights of consumers.
- The business must use a part of profit for the well-being of the society.
- The business organisation should not destroy healthy competition.
- The businessmen should not cheat or exploit customers.
- They should not create monopoly.
- They should not resort to hoardings or black marketing.
- They should not create secret or unreasonable profit.
- The businessmen or organisations should avoid unfair competition.
- The businessmen should avoid concentration of economic power.
- They should not make agreement with fellow businessmen for controlling production, distribution, pricing, etc.
- The businessmen should accept principle of “service first and profit next”.
- They should accept the truth in business that “Customer is the king”.
- They should make business just, fair, human, efficient and dynamic.
Corporate Social Responsibility-
Corporate Social Responsibility (CSR) makes a company socially responsible and accountable. It aims to contribute to societal goals or support volunteering or ethically-oriented practices.
The Ministry of Corporate Affairs in India has notified which makes mandatory for certain companies to comply with the provisions of CSR.
According to UNIDO (United Nations Industrial Development Organisation), “Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. ”
Scope of CSR:
(A) Applicability of CSR:
- The companies having net worth of ₹ 1500 crore or more or turnover of ₹ 1000 crore or more or net profit of ₹ 15 crore or more during any financial year shall be required to constitute a corporate social responsibility committee with effect from 1st April, 2014.
- These companies must spend, every financial year, at least 2% of the average net profit of the company made during the three immediately preceding financial years, in pursuance of its CSR policy.
(B) CSR committee:
- The CSR committee consist of four directors who shall meet at least twice in a year to discuss and review CSR activities and policy.
- The committee will recommend CSR activities, prepare budget, monitor progress, etc.
(C) CSR activities:
- Eradicating hunger and poverty
- Health care & sanitation
- Education & employment enhancing vocational skills, livelihood enhancement projects
- Reducing child mortality
- Environmental sustainability and ecological balance & conservation of natural resources
- Rural development & slum area development projects.
(D) Allocation of funds:
The company would spend not less than 2 % of average net profits of the company made during three immediately proceeding financial years.
(E) Non-compliance of CSR activities:
Penalties for non-complying the duty of CSR would attract a fine of not less than ₹ 50,000 which may extend to ₹ 25,00 000 and every officer of the company in default shall be punishable with imprisonment up to 3 years or with fine which shall not be less than ₹ 50,000 which may extend to ₹ 5,00,000 or both.