Social Responsibility of Business

  • Post last modified:14 January 2022
  • Reading time:25 mins read

Social Responsibility of Business

Social responsibility is a doctrine that claims that an entity, whether it is state, government, corporation, organization or individual, has a responsibility to society. Many people, particularly libertarians, assert that there is no “social responsibility” to do anything.

They argue that social responsibility only exists to the extent that an individual or business should not initiate physical force, threat of force or fraud against another.

Fig 3.1 Social Responsibility of Business

The Social Responsibility of Business is to Increase Profits,” Nobel Economist, Milton Friedman asserts that business has no social responsibility other than to increase profits and refrain from engaging in deception and fraud. He maintains that when business seeks to maximize profits, it almost always incidentally does what is good for society.

Friedman does not argue that business should not help the community but that it may indeed be in the long-run self-interest of a business to “devote resources to providing amenities to the community…” in order to “generate goodwill” and thereby increase profits.


Meaning of Social Responsibility of Business

The Social Responsibility of Business is to Increase Profits,” Nobel Economist, Milton Friedman asserts that business has no social responsibility other than to increase profits and refrain from engaging in deception and fraud. He maintains that when business seeks to maximize profits, it almost always incidentally does what is good for society.

Friedman does not argue that business should not help the community but that it may indeed be in the long-run self-interest of a business to “devote resources to providing amenities to the community…” in order to “generate goodwill” and thereby increase profits.

  • The sociology-economic obligation
  • The sociology-human obligation

The sociology-human obligation of every business is to nurture and develop human values (such as morale, cooperation, motivation and self-realization in work. Every business firm is part of a total economic and political system and not an island without foreign relations.

It is at the center of a network of relationships to persons, groups and things. The businessman should, therefore, consider the impact of his actions on all to which he is related. Business should be carried out in such a manner that it proves to be a boon, packed with benefits for his employees, investors, consumers, the government and the general public.

His task is to mediate among these interests, to ensure that each gets a square deal and that nobody?s interests are unduly sacrificed to those of others.


Definition of Social Responsibility (SR)

From conceptual point of view, SR has been defined by Davis as follows: “Social responsibilities refer to the businessman?s decisions and actions taken to reasons at least partially beyond the firm?s direct economic or technical interest.” This is a broad definition of SR and prescribes actions not related to the interests of the organization.

Andrews have suggested still broader view when he says that: “By social responsibility, we mean the intelligent and objective concern for the welfare of society that restrains individual and corporate behavior from ult-mutely destructive activities, no matter how immediately profitable and leads in the direction of positive contributions to human betterment, variously as the latter may be defined.”

Both of these definitions prescribe some actions by managers for the betterment of the society but do not prescribe the actions precisely. Therefore, most business managers prefer words other than SR because these words to them can note a fixed obligation.

They prefer such synonyms as social concern, social program mes, social challenge, social commitment or concern with public problems. However, the term SR has been widely recognized and its operational definition may be as follows:

Social responsibility contends that management is responsible to the organization itself and to all the interest groups with which it interacts. Other interest groups such as workers, customers, creditors, suppliers, government and society in general are placed essentially equal with shareholders.


Features of Social Responsibility

Based on this definition, following features of SR can be identified:

  • The SR contains three types of behavior- positive, neutral and negative. The negative and neutral aspects of behavior areas important as positive.
  • Every person in the society has a social obligation to fulfill. However, the emphasis is on social responsibility of management as a group because it is in a position to use the resources of the society in the way it likes. Therefore, it must be conscious about its SR.
  • SR involves fulfilling obligations to various parties concerned with the functioning of an organization. Some of these parties are concerned directly. Others may be concerned indirectly.
  • The standards fixed for fulfilling obligations to various parties are to be decided according to social norms and expectations. Therefore, these obligations may vary from society to society.

Scope of Social Responsibility

and business ethics together tell what a business organization should do. The issue of responsibilities of business towards society merits consideration in all phases of business growth. The scope of social responsibility is wide and can be considered in terms of different factors. Some people consider social responsibility in terms of employees, customers and shareholders.

Fig 3.2 Scope of Social responsibility

Thus, the business organizations, depending on their nature and size, can extend social responsiveness to the problems of the local community and the nation at large. Business organizations can classify social responsibility in terms of relatedness to their own activities or otherwise.


Social Responsibility of Managers

Social responsibility (SR) of managers particularly in business organizations has, of late, been one of the most talked about and widely supported subjects. Traditionally business? basic objective has been defined in terms of profit maximization.

The first break came in the 1930s when the view was advanced and accepted that managers of large companies must make decisions, which maintain an equitable balance among the shareholders, employees, customers, suppliers and public. Managers were considered trustees for these interests. Such a view was later developed as the social responsibility.

Fig 3.3 Social responsibility of Managers

The phrase social responsibility is widely used in the literature of sociology, anthropology, economics, politics and business management. However, concept-ally as well as in practice also, this has been a volatile, vague and confused area. Conceptually, people are not very clear what the exact meaning of SR is and what they are expected to do under this.

From practical point of view, the response from business has gone on providing a spectrum ranging from mere verbal sympathy to multi-lake rupees concrete program mes in our country.


Benefits of Manager’s Social Responsibility

Social responsibility is defined as the obligation and commitment of managers to take steps for protecting and improving society?s welfare along with protecting their own interest. The managers must have social responsibility because of the following reasons:

Organizational Resources

An organization has a diverse pool of resources in form of men, money, competencies and functional expertise. When an organization has these resources, it is in better position to work for societal
goals.

Precautionary measure

If an organization lingers on dealing with the social issues now, it would land up putting out social fires so that no time is left for realizing its goal of producing goods and services. Practically, it is more cost-efficient to deal with the social issues before they turn into disaster consuming a large part of managements time.

Moral Obligation

The acceptance of a managers? social responsibility has been identified as a morally appropriate position. It is the moral responsibility of the organization to assist solving or removing the social problems.

Better Organizational Environment

The organization that is most responsive to the betterment of social quality of life will consequently has a better society in which it can perform its business operations. Employee hiring would be easier and employee would be of a superior quality.

There would be low rate of employee turnover and absenteeism. Because of all the social improvements, there will be low crime rate; consequently, less money would be spent in form of taxes and for protection of land. Thus, an improved society will create a better business environment.


Limitations to Manager’s Social Responsibility

A manager?s social responsibility is not free from some criticisms, such as:

High Social Overhead Cost

The cost on social responsibility is a social cost, which will not instantly benefit the organization. The cost of social responsibility can lower the organizational efficiency and effect to compete in the corporate world.

Cost to Society

The costs of social responsibility are transferred on to the society and the society must bear with them.

Lack of Social Skills and Competencies

The managers are best at managing business matters but they may not have required skills for solving social issues.

Profit Maximization

The main objective of many organizations is profit maximization. In such a scenario, the manager?s decisions are controlled by their desire to maximize profits for the organizations shareholders while reasonably following the law and social custom. Social responsibility can promote the development of groups and expand supporting industries.


The Interested Groups

SR requires the identification of various interest groups, which may affect the functioning of a business organization and may be affected by its functioning. Normally various groups associated with a business organization are shareholders, workers, customers, creditors, suppliers, government and society in general.

The management owes responsibility towards all these groups. Therefore, the management should show a standard dissed norm of behavior. However, the standard norm of behavior may not be universal.

We are more concerned with Indian situation while prescribing the norms of behavior in respect of fulfilling obligations to various interest groups. Various norms have been suggested through seminars and conferences in our country and our attempt is to present an integrated view.


Share Holders

The first responsibility of management is to protect the interest of shareholders. The interests of majority of shareholders and large minority of shareholders are generally well protected through either direct participation in the management actions or they have real power to intervene, if necessary.

However, large numbers of minority shareholders are not in such a position. Therefore, management is expected to use the resources provided by them effectively and to protect their interests. They should be informed about the functioning of the organization adequately and timely.

Though the provisions of the Companies Act provide safeguard to the investment made by shareholders, whether minority or otherwise, management can find loopholes in these Therefore, management has a responsibility to provide proper safeguard to the money invested by shareholders.


Workers

Workers have a direct interest in an organization because by working there, they satisfy their needs. The traditional economic concept of organizational functioning does not give workers their proper share in the distribution of income. The owners and managers have too much power under the economic state of affairs. Thus, it is the management?s responsibility to protect the interest of workers in the organization. The management can do this in the following ways:

  • The management should treat workers as another wheel of the cart.
  • The management should develop administrative process in such a way that promotes cooperative endeavor between employers and employees.
  • The management should adopt a progressive labor policy based on recognition of genuine trade union rights- participation of workers in management, creating a sense of belongingness, improving their working and living conditions.
  • The management should pay fair and reasonable wages and other financial benefits to workers.

Customers

A customer may broadly be defined as a person who has a favorable impression of a company and its products and services. Thus, a person may be categorized as customer even though he may not have committed the act of buying; he may be only a potential customer. Management owes a primary obligation to give a fair deal to customers. This can be done in the following ways:

  • Customers should be charged a fair and reasonable price.
  • The supply of goods and services should be of uniform standard and of reasonable quality.
  • The distribution of goods and services should be widespread so that customers do not face any problems in procuring them.
  • Management should not indulge in profiteering, hoarding or creating artificial scarcity. 5. Management should not lure customers by false, misleading and exaggerated advertisements.

Creditors, Suppliers and Others

Creditors, suppliers and other groups affect the organization in various ways. Therefore, management is responsible to fullfil its obligations to them. This can be done in the following ways:

  • Management should create healthy and cooperative inter-business relationship between different businesses.
  • Management should provide accurate and relevant information to creditors and suppliers.
  • Payments of price of materials, interest on borrowings, other charges should be prompt.

Government

  • The Management should be law-abiding.
  • The management should pay taxes and other dues fully, timely and honestly.
  • It should not corrupt public servants and democratic process.
  • It should not buy political favor by any means.

Society

Organizations exist within a social system and get facilities from the system. Therefore, they owe obligations to the society as a whole. It is the obligation of management to protect the interest of society because management process is determining the life in the society. In this context, management should have in the following ways.

  • Management should maintain fair business policies and practices.
  • It should set up socially desirable standards of living and avoid ostentation and wasteful expenditure.
  • It should play proper role in civic affairs.
  • It should provide and promote general amenities and help in creating better living conditions in general.

Indian Businesses and Social Responsibility

The idea of social responsibility is very old in our country. The concept of parting with a portion of one?s surplus wealth for the good of society has prevailed through ages in India. The business community occupied a significant place in ancient Indian Society. Merchants were treated with respect because of their services towards society.

Merchants provided reliefs in times of famine or epidemics, built and maintained temples, dharmshalas, bathing ghats and installed tube wells and sank wells for providing drinking water facilities. They also built hospitals, educational institutions and art museums for the benefit of society.

During the freedom struggle period, many businessmen had made political donations for the purpose and had contributed to many of the social and cultural causes associated with the movement such as revival of Indian art and culture.

Many of India?s leading businessmen such as GD Birla, Jamnalal Bajaj, Lala Shri Ram and Ambalal Sarabhai and others came under the influence of Mahatma Gandhi and his Theory of Trusteeship of Wealth was well accepted. They contributed liberally for his program mes for removal of untouchables, women?s emancipation, rural reconstruction, building institutions and infrastructural facilities.

Even after independence, the nation looked to the business community and they responded both by creating more wealth and utilizing part of it for social causes. They built institutes of scientific and technological research as well as art academics and institutes for the study of Indian history and culture.

Many of the best Indian Institutions in several fields such as Tata Institute of Fundamental Research, The Birla Institute of Technology, J. K. Institute of Sociology and Human Relations, Shri Modi Eye Hospital and Ophthalmic Research, Dr. B.P. Godrej Centre, AMM Murugappa Chetiar Research Centre, Shri Ram Collage of Commerce and many others.

  • Developing social trusts
  • Following anti-pollution measures
  • Adopting villages for achieving all-round progress and development Building family planning clinics for the promotion of workers and residents
  • Allocating a fixed percentage of profit to train unemployed engineer, technicians

Community development activities like:

The social responsibility of business is a contentious subject. It extends far beyond voluntary and philanthropic social activity and revolves around ethical rather than legislative behaviour. Business depends upon the society for its input resources such as manpower materials and natural resources like water, air and light. Business also needs society to buy goods and its production and provide money.

In short, the business thrives on society for its very survival, sustenance and encouragement. In India, a large number of companies like TISCO, DCM, Mafatlal Group, Hindustan Steel Ltd., Escorts Ltd., Godrej, Kirloskars, Alembic, etc.

have provided a place of importance to social action programmes. Social responsibility is seen as an important check to business and a large percentage of 205 managers allot a high place for social responsibilities with converse of profit. However, the process of social pledge in India is somewhat different.

It takes the form of various following initiatives

  • Provision of drinking water facilities
  • Conducting social audit on a voluntary basis
  • Providing medical, recreational facilities
  • Conducting tournaments to promote sports talent
  • Undertaking consumer education campaign
  • Avoiding unethical, deceptive advertising

Bajaj Aut

The Company has been running a Samaj Seva Kendra at Akurdi near Pune since 1975 with 900 families as members. The Kendra aims at improving the quality of life of its members (education, health care, vocational training etc.). The company also runs the Janki Devi Bajaj Gram VikasSanstha near Pune. The Sanstha?s aim is to promote rural development (water management, procuring vital agricultural inputs, feed and vaccination for livestock, sanitation, etc.).


Larsen and Toubro

The Company spends about fifty million annually on social projects. In healthcare, it sponsors efforts directed towards birth control, mother and child care organises camps to check for tuberculosis, leprosy and special surgery camps along the lines of the Life Line Express – the world?s first ever hospital on rails. L&T also helps the local populace to source seeds, improve soil quality and encourages dairy and poultry development in and around the areas of its work. Finally, as part of its environment enhancement schemes, it assists in afforestation and promoting biogas plants and smokeless chulhas.

Shriram Investments: The Shriram Group formed a trust in 1992 to carry out its social projects. It runs 5 schools for over 2,000 children. The group runs a home for orphans. The group offers work sheds along with capital and management support to women in Thanjavur who make incense sticks and candles. In 1995, the group had launched the Shriram Rural Development Project in Kanchipuram district of Tamilnadu with a view to reduce in debtedness and offer credit to rural population at concessional rites.

Shriram Investments

The Shriram Group formed a trust in 1992 to carry out its social projects. It runs 5 schools for over 2,000 children. The group runs a home for orphans. The group offers work sheds along with capital and management support to women in Thanjavur who make incense sticks and candles. In 1995, the group had launched the Shriram Rural Development Project in Kanchipuram district of Tamilnadu with a view to reduce in debtedness and offer credit to rural population at concessional rites.

Tata Steel

Tata Steel has been a pioneer in employee welfare in the country and has acted as a beacon for labour lawmakers. Tata Steel adopted several welfare measures for employees, decades before they were incorporated in the country?s laws.

These include an eight-hour working day, leave with pay, maternity benefit and leave, workers? provident fund and paying gratuity on retirement. Beyond employee welfare, Tata Steel has been involved in social projects that include environmental conservation activities, education, vocational training and healthcare for the underprivileged, revival of traditional arts and crafts and sports development.

The company has been running a community development and social welfare department since 1958 that takes care of the educational and vocational training needs of the underprivileged in and around Jamshedpur.

The department acts as catalytic enabler rather than doer, so that the hutment dwellers become more responsible citizens and participate in improving their own quality of life. The company established a tribal cultural centre to persevere tribal customs, arts and habits.

It organises an annual fair at Jamshedpur, which services as a marketing platform for traditional, handicraft-. It has also set up link roads, irrigation facilities, and sports activities for the benefit of society at large. It has begun the planting of new trees over a period of 1000 days since June 1997 (also in other locations now)

Otis Elevator Co India

Otis focuses on socially responsive activities by improving the lot of the mentally retarded or “special people.” Worldwide, Otis has been involved in promoting sports for these special people. As part of this initiative, Otis India sponsored 350 special; athletes from Maharashtra for the World Special Olympics in 1995. Since then, Otis employees of all ranks have been involved in fund raising for this cause, on a voluntary basis.

Through these fund-raising efforts, company employees have been able to help equip special schools with items like fans, music systems, sewing machines, wheelchairs, hearing aids, learning aids, books, etc. Regular medical camps are also undertaken at an orphan home for the mentally retarded.

Not only that, many company employees are motivated enough to take out time to repair and paint furniture for such schools and participate in various celebrations with the special children.

The work put in by Otis India?s Team Otis in this regard, helped it bag the Special Partnership Award for 1596 and 1997 from the Otis organization that is judged by Special Olympics International, Washington, USA.

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