Social Responsibilities of Business and Business Ethics PDF

Chapter 6 Social Responsibilities of Business and Business Ethics LEARNING OBJECTIVES After studying this chapter, you s...

Chapter 6 Social Responsibilities of Business and Business Ethics LEARNING OBJECTIVES After studying this chapter, you should be able to: explain the concept of social responsibility; discuss the need for social responsibility; identify the social responsibility towards different interest groups; analyse the relationship between business and environmental protection; and define the concept of business ethics and state the elements of business ethics. 2024-25 Chapter 6.indd 133 9/2/2022 2:11:36 PM  134 BUSINESS  STUDIES Mani is a young newspaper reporter and has been writing for almost six months on malpractices by business enterprises including such issues as misleading advertisements, supply of adulterated products, poor working conditions, environmental pollution, bribing government officials, and so on. He has started believing that business people tend to do anything to mint money. He happens to take an interview of Mr. Raman Jhunjhunwala, chairman of a leading truck manufacturing company which is known for its fair dealing with customers, employees, investors as well as other social groups. Through this interview, Mani develops the understanding that it is possible for a business enterprise to be socially responsible and ethically upright and, at the same time, be highly profitable. He then gets busy with studying more about the social responsibility of business and business ethics. 6.1 Introduction working conditions, honestly paying taxes prevention/installing pollution A business enterprise should do devices in the factory, and sincerely business and earn money in ways that attending to customer complaints are fulfill the expectations of the society. examples of socially desirable practices Every individual living in society has which improve the image of enterprises certain obligations towards society. and also make them profitable. In He has to respect social values and fact, it is through socially responsible norms of behaviour. A business and ethically upright behaviour that enterprise is permitted by society to business enterprises can get durable carry on industrial or commercial success. activities and thereby earn profits. But it is obligatory on part of the business 6.2 Concept of Social Responsibility enterprise not to do anything, that is undesirable from society’s point Social responsibility of business refers of view. Manufacture and sale of to its obligation to take those decisions and perform those actions which are adulterated goods, making deceptive desirable in terms of the objectives and advertisements, not paying taxes which values of our society. The assumption are due, polluting the environment and of social responsibilities by business exploiting workers are some examples enterprises implies that they respect of socially undesirable practices which the aspirations of society and would may increase the profit of enterprises try their best to contribute to the but which have adverse effect on society achievement of these aspirations along at large. On the other hand, supplying with their profit interests. This idea is good quality goods, creating healthy in contrast to the common notion that 2024-25 Chapter 6.indd 134 9/2/2022 2:11:36 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 135 business exists only for maximising run for the benefit of its owners who profits for its owners and it is irrelevant may desire to get as much profit to talk of public good. It follows that a as is possible or else, it needs to be responsible business, and indeed any responsible for serving the interest responsible member of society, must of other sections of society such as act with due concern for the effects on customers, employees, suppliers, the lives of other people. government and community? The In this sense, social responsibility very concept of social responsibility is broader than legal responsibility implies that it is essentially an ethical of business. Legal responsibility may issue, since it involves the question be fulfilled by mere compliance with of what is morally right or wrong in the law. Social responsibility is more relation to the firm’s responsibilities. than that. It is a firm’s recognition Social responsibility also has an of social obligations even though element of voluntary action on the not covered by law, along with the part of the business person who may obligations laid down by law. In other feel free to perform or not to perform such responsibilities. They may also words, social responsibility involves exercise their freedom for deciding an element of voluntary action on the the extent to which they would like part of business people for the benefit to serve various sections of society. of society. In fact, all business people do not feel equally responsible towards society. 6.3 Need for Social Responsibility There has been a debate, for some time What is the right thing to do when now whether business should assume it comes to social responsibility? social responsibilities or not. Some Should a business enterprise be people strongly believe that a firm’s Corporate Social Responsibility Corporate sustainability refers to the role that companies can play in meeting the agenda of sustainable development and entails a balanced approach to economic progress, social progress and environmental protection. There is no single universally accepted definition of CSR, each definition that currently exists underpins the impact that businesses have on society at large and the societal expectations of them. i. The European Commission defines CSR as “the responsibility of enterprises for their impacts on society”. ii. The World Business Council for Sustainable Development defines CSR as “the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, as well as, of the community and society at large”. 2024-25 Chapter 6.indd 135 9/2/2022 2:11:36 PM  136 BUSINESS  STUDIES In India, the concept of CSR is governed by Clause 135 of the Companies Act, 2013, which was passed by both the Houses of the Parliament, and had received the assent of the President of India on 23 August 2013. The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more. 1. The new rules, which are applicable from the fiscal year 2014-15 onwards, also require companies to setup a CSR committee consisting of their board members, including at least one independent director. 2. The Act encourages companies to spend at 2% of their average net profit in the previous three years on CSR activities. 3. The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act. 4. Only CSR activities undertaken in India will be taken into consideration. 5. Activities meant exclusively for employees and their families will not qualify under CSR. only social responsibility is towards its only through continuous service to owners. Some others, however, hold an society. Thus, assumption of social opposite view and argue that the firm responsibility by business provides has a social responsibility to serve all justifications for its existence and sections of society who are affected by growth. its decisions and actions. It would be (ii) Long-term interest of the firm: useful to understand the arguments A firm and its image stands to gain offered both in favour of and against the maximum profits in the long run when assumption of social responsibilities it has its highest goal as ‘service to by business. society’. When increasing number 6.3.1 Arguments for Social of members of society — including Responsibility workers, consumers, shareholders, government officials, feel that business (i) Justification for existence and enterprise is not serving its best growth: Business exists for providing interest, they will tend to withdraw goods and services to satisfy human needs. Though, profit motive is an their cooperation to the enterprise important justification for undertaking concerned. Therefore, it is in its own business activity, it should be looked interest if a firm fulfills its social upon as an outcome of service to responsibility. The public image of any the people. In fact, the prosperity firm would also be improved when it and growth of business is possible supports social goals. 2024-25 Chapter 6.indd 136 9/2/2022 2:11:36 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 137 (iii) Avoidance of government (vii) Better environment for doing regulation: From the point of view of business: If business is to operate in a business, government regulations a society which is full of diverse and are undesirable because they limit complicated problems, it may have freedom. Therefore, it is believed that little chance of success. Therefore, it businessmen can avoid the problem of is argued that the business system government regulations by voluntarily should do something to meet needs assuming social responsibilities, which before it is confronted with a situation helps to reduce the need for new laws. when its own survival is endangered (iv) Maintenance of society: The due to enormous social illnesses. A argument here is that laws cannot be society with fewer problems provides passed for all possible circumstances. better environment for a firm to People who feel that they are not conduct its business. getting their due from the business may resort to anti-social activities, (viii) Holding business responsible not necessarily governed by law. This for social problems: It is argued that may harm the interest of business some of the social problems have itself. Therefore, it is desirable that either been created or perpetuated business enterprises should assume by business enterprises themselves. social responsibilities. Environmental pollution, unsafe (v) Availability of resources with workplaces, corruption in public business: This argument holds that institutions, and discriminatory business institutions have valuable practices in employment are some of financial and human resources which these problems. Therefore, it is the can be effectively used for solving moral obligation of business to get problems. For example, business involved in solving these problems, has a pool of managerial talent and instead of merely expecting that other capital resources, supported by years social agencies will deal with them on of experience in organising business their own. activities. It can help society to tackle its problems better, given the huge 6.3.2 Arguments against Social financial and human resources at its Responsibility disposal. (vi) Converting problems into Major arguments against social opportunities: Related with the responsibility are: preceding argument is the argument (i) Violation of profit maximisation that business with its glorious history objective: According to this argument, of converting risky situations into business exists only for profit profitable deals, can not only solve maximisation. Therefore, any talk of social problems but it can also make social responsibility is against this them effectively useful by accepting objective. In fact, business can best the challenge. fulfill its social responsibility if it 2024-25 Chapter 6.indd 137 9/2/2022 2:11:36 PM  138 BUSINESS  STUDIES maximises profits through increased changes in the attitude of business efficiency and reduced costs. people has been the realisation that (ii) Burden on consumers: It is they have social obligations to fulfill argued that social responsibilities like besides ensuring their own existence pollution control and environmental through profitable activity. Of course, protection are very costly and often part of this realisation is not genuine require huge financial investments. and takes the form of lip service, which In such circumstances, businessmen is thought necessary to ensure the are likely to simply shift this burden of survival of private enterprise. But at social responsibility by charging higher the same time it cannot be denied that prices from the consumers instead of private business does partly realise bearing it themselves. Therefore, it and recognise the hard reality that a is unfair to tax the consumers in the privately owned firm has to meet the name of social responsibility. challenge of a democratic society, where (iii) Lack of social skills: All social all people have certain human rights problems cannot be solved the way and therefore, can demand responsible business problems are solved. In conduct from business. Unless the fact, businessmen do not have the business sets its house in order, changes its outlook and is prepared to necessary understanding and training play its legitimate role as an organ of to solve social problems. Therefore, society, it has little chance of success. according to this argument, social It will be useful here to go into some problems should be solved by other of the reasons and factors, which have specialised agencies. forced and persuaded businessmen to (iv) Lack of broad public support: consider their responsibilities and the Here the argument is that the public conditions which were favourable to in general does not like business the development of business concern involvement or interference in social with social responsibility. Some of the programmes. Therefore, business more important among them are: cannot operate successfully because (i) Threat of public regulation: of lack of public confidence and Democratically elected governments cooperation in solving social problems. of today are expected to act as welfare states whereby they have to take care 6.3.3 Reality of Social Responsibility of all sections of society. Thus, where On the basis of the above arguments for business institutions operate in a and against social responsibility, one socially irresponsible manner, action is may wonder what the businessmen taken to regulate them for safeguarding do in reality. Do they concentrate people’s interest. This threat of public on profit maximisation? Or, do they regulation is one important reason support social goals? The fact is that due to which business enterprise feels one of the most important recent concerned with social responsibility. 2024-25 Chapter 6.indd 138 9/2/2022 2:11:36 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 139 (ii) Pressure of labour movement: (v) Development of business Over the last century or so, labour education: Development of business has become far more educated education with its rich content of social and organised. Accordingly, labour responsibility has made more and movement for extracting gains for the more people aware of the social purpose working class throughout the world of business. Educated persons as has become very powerful. This has consumers, investors, employees, or forced business enterprises to pay owners have become more sensitive due regard to the welfare of workers towards social issues than was the instead of following a policy of ‘hire case earlier, when such education was and fire’ under which they could deal not available. with workers at their will. (vi) Relationship between social (iii) Impact of consumer interest and business interest: consciousness: Development of Business enterprises have started realising the fact that social interest and education and mass media and business interest are not contradictory. increasing competition in the market Instead, these are complementary to have made the consumer conscious each other. The feeling that business of his right and power in determining can grow only through exploitation market forces. The principle of caveat of society has given way to the belief emptor (or let the buyer beware) has that long-term benefit of business lies been substituted by the principle in serving the society well. So also, of ‘customer is king’. Business a useful institution like business is enterprises have started following recognised as an essential element of customer-oriented policies. a modern civilised society. (iv) Development of social standard (vii) Development of professional, for business: Businesses are no managerial class: Professional longer considered merely money crazy management education in universities entities, which can be allowed to mint and specialised management institutes money at any cost and get away with have created a separate class of any kind of business practices. New professional managers who have got social standards consider economic an altogether different attitude towards activity of business enterprises as social responsibility as compared to legitimate but with the condition that the earlier class of owner manager. they must also serve social needs. No Professional managers are more business can be done in isolation from interested in satisfying a multiplicity of society. It is the society that permits interest groups in society for running business to exist and grow and it their enterprises successfully than is on the basis of social standards merely following profit goals. that business functioning is to be These and a number of other social ultimately judged. and economic forces have combined 2024-25 Chapter 6.indd 139 9/2/2022 2:11:36 PM  140 BUSINESS  STUDIES together to make business a socio- that is expected by society but economic activity. Business is no not codified in law. For example, longer a mere occupation; it is an respecting the religious sentiments economic institution that has to and dignity of people while reconcile its short-term and long advertising for a product. There is range economic interests with the an element of voluntary action in demands of the society in which it performing this responsibility. functions. Essentially, it is this which (d) Discretionary responsibility: gives rise to the general and specific This refers to purely voluntary social responsibilities of business. obligation that an enterprise While there is no denial of the fact that assumes, for instance, providing business is essentially an economic charitable contributions enterprise and that it must ultimately to educational institutions or justify itself on economic performance, helping the affected people during it is also true that business is an organ floods or earthquakes. It is the of society and as such it must justify responsibility of the company its continuance by fulfilling its roles management to safeguard and responsibilities of society. the capital investment by avoiding speculative activity and 6.4 Kinds of Social Responsibility undertaking only healthy business Social responsibility of business can ventures which give good returns broadly be divided into four categories, on investment. which are as follows: (a) Economic responsibility: A 6.5 Social Responsibility Towards business enterprise is basically Different Interest Groups an economic entity and, therefore, its primary social responsibility Once the social objective of business is economic i.e., produce goods is recognised, it is important to know and services that society wants to whom and for what the business and sell them at a profit. There is and its management are responsible. little discretion in performing this Obviously, a business unit has to responsibility. decide in which areas it should carry (b) L e g a l r e s p o n s i b i l i t y : Every out social goals. Some of the specific business has a responsibility to responsibilities and enterprise may be operate within the laws of the land. outlined as under: Since these laws are meant for the (i) Responsibility towards the good of the society, a law abiding shareholders or owners: A business enterprise is a socially responsible enterprise has the responsibility to enterprise as well. provide a fair return to the shareholders (c) Ethical responsibility: This or owners on their capital investment includes the behaviour of the firm and to ensure the safety of such 2024-25 Chapter 6.indd 140 9/2/2022 2:11:36 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 141 investment. The corporate enterprise and should avoid bad, effluent, smoky on a company form of organisation chimneys, ugly buildings dirty working must also provide the shareholders conditions. It must also develop a with regular, accurate and full proper image in society through information about its working as well continuous interaction with various as schemes of future growth. groups of people. (ii) Responsibility towards the workers: Management of an enterprise 6.6 Business and Environmental is also responsible for providing Protection opportunities to the workers for meaningful work. It should try to create Protection of the environment is a the right kind of working conditions serious issue that confronts business managers and decision makers. The so that it can win the cooperation of environment is defined as the totality workers. The enterprise must respect of man’s surroundings — both natural the democratic rights of the workers to and man-made. These surroundings form unions. The worker must also be are also in the nature of resources, ensured of a fair wage and a fair deal that are useful for human life. The from the management. resources may also be called natural (iii) Responsibility towards the resources like land, water, air, fauna consumers: Supply of right quality and flora and raw materials; or man- and quantity of goods and services made resources such as cultural to consumers at reasonable prices heritage, socio-economic institutions constitutes the responsibility of an and the people. It is widely recognised enterprise toward its customers. that the quality of the environment is The enterprise must take proper fast deteriorating particularly due to precaution against adulteration, poor industrial activity. This is a common quality, lack of desired service and sight around major cities like Kanpur, courtesy to customers, misleading and Jaipur, Delhi, Panipat, Kolkata, dishonest advertising, and so on. They and others, in various states of our must also have the right of information country. Their emissions are seriously about the product, the company and affecting the health of the people. other matters having a bearing on their Pollution — the injection of harmful purchasing decision. substances into the environment is, (iv) Responsibility towards the in fact, largely the result of industrial government and community: An production. Since some waste is enterprise must respect the laws of inevitable in the use of materials the country and pay taxes regularly and energy, the manufacturers face and honestly. It must behave as a a great challenge in minimising the good citizen and act according to the adverse impact of this waste by using well accepted values of the society. It proper technologies. Protection of the must protect the natural environment environment is good for all of us. 2024-25 Chapter 6.indd 141 9/2/2022 2:11:37 PM  142 BUSINESS  STUDIES Pollution changes the physical, Wastes contain pollutants which are chemical and biological characteristics the materials of chemicals that have of air, land and water. Pollution been discarded during the process of harms human life and the life of production or consumption. Pollution other species. It also degrades living is caused by these pollutants which are conditions while wasting or depleting released into the environment beyond raw material resources. The country’s its assimilation capacity. Among cultural heritage is also affected and the various sources of pollution, it is becoming increasingly difficult industry is a major generator of waste to protect all historical monuments. in terms of both its quantity and Pollution exists because the toxicity. Business activities such as environment can absorb only a limited production, distribution, transport, amount of pollutants and wastes. storage, consumption of goods and Some hazardous wastes or toxic services are known to be the most by-products and chemicals are termed critical sources of environmental pollution problems. Many business as hazardous pollutants because enterprises have been responsible for they have toxic characteristics that causing (i) air, (ii) water (iii) land, and the environment can not assimilate. (iv) noise pollution. P o llu t io n t h u s c a u s e s r is k s t o These types of pollution are environmental quality, human health discussed as follows: and damage to natural and man- (i) Air pollution: Air pollution is the made resources. Protection of the result of a combination of factors which environment is directly related to the lowers the air quality. It is mainly control of pollution. due to carbon monoxide emitted by automobiles which contributes to air 6.6.1 Causes of Pollution pollution. Similarly, smoke and other I t m u s t b e r e c o g n is e d t h a t a ll chemicals from manufacturing plants sectors of our society viz., industry, pollute the air. Resultant air pollution government, agriculture, mining, has created a hole in the ozone layer energy, transportation, construction, leading to dangerous warming of and consumers generate waste. the earth. Environmental Problems The United Nations has identified eight problems that cause damage to the natural environment. These are:   (i) Ozone depletion      (v) Freshwater quality and quantity (ii) Global warming    (vi) Deforestation (iii) Solid and hazardous wastes (vii) Land degradation (iv) Water pollution (viii) Danger to biological diversity 2024-25 Chapter 6.indd 142 9/2/2022 2:11:37 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 143 (ii) Water pollution: Water becomes environment and render it, to some polluted primarily from chemical and degree, unfit to preserve normal life. waste dumping. For years, business People are now raising their voice enterprises have been dumping waste loudly against pollution generating into rivers, streams and lakes with activities. Business enterprises cannot little regard for the consequences. remain unaffected by environmental Water pollution has led to the death destruction. They need to take suitable of several animals and posed a serious measures for pollution control not threat to human life. merely to avoid criticisms against (iii) Land pollution: Dumping of them but also to enjoy other benefits of toxic wastes on land causes land such measures. Some of the important pollution. This damages the quality of reasons which make a case for pollution land making it unfit for agriculture or control are as follows: plantation. Restoring the quality of the (i) Reduction of health hazards: land that has already been damaged There is increasing evidence that many is a big problem. diseases like cancer, heart attacks (iv) Noise pollution: Noise caused by and lung complications are caused the running of factories and vehicles by pollutants in the environment. is not merely a source of annoyance Pollution control measures can not but is also a serious health hazard. only check the seriousness of such Noise pollution can be responsible diseases but can also be supportive of for many diseases like loss of hearing, malfunctioning of the heart and a healthy life on earth. mental disorder. (ii) Reduced risk of liability: It is possible that an enterprise is held liable 6.6.2 Need for Pollution Control to pay compensation to people affected by the toxicity of gaseous, liquid and Pollution prevention or control is solid wastes it has released into the needed to preserve precious environment. Therefore, it is sound environmental resources and to business policy to install pollution improve the environmental quality control devices in its premises to so that the preserved resources can reduce the risk of liability. be utilised for the benefit of mankind (iii) Cost savings: An effective pollution and the improvement of health and control programme is also needed to well-being of the people. The amount save costs of operating business. Cost of damage to a particular medium (air, water, land) varies according to savings are particularly noticeable the type of pollutant, the amount of when improper production technology pollutant disposed of, and the distance results in greater wastes which leads to from the source of pollution. But all higher cost of waste disposal and cost pollutants alter the quality of the of cleaning the plants. 2024-25 Chapter 6.indd 143 9/2/2022 2:11:37 PM  144 BUSINESS  STUDIES (iv) Improved public image: As creators of wealth, employment, trade society becomes increasingly conscious and technology. They also command of environmental quality, a firm’s huge financial, physical and human policies and practices for controlling resources. They also have the know- wastes will increasingly influence how to solve environmental pollution people’s attitude towards its working. problems with a preventive approach A firm that promotes the cause for by controlling pollutants at the source. environment will be able to enjoy a In most cases, a modification or good reputation and will be perceived change in the process of production, as a socially responsible enterprise. redesign of equipment, substituting (v) Other social benefits: Pollution poor quality materials with better control results in many other benefits ones or other innovative approaches like clearer visibility, cleaner buildings, could greatly reduce or even eliminate better quality of life, and the availability pollution entirely. Some of the specific of natural products in a purer form. steps which can be taken by business enterprises for environmental protection 6.6.3 Role of Business in are as stated below: Environmental Protection (i) A definite commitment by top management of the enterprise Since the quality of the environment to create, maintain and develop is important for all of us, we have work culture for environmental a collective responsibility to protect protection and pollution prevention. it from being spoiled. Whether it is (ii) Ensuring that commitment to government, business enterprises, environmental protection is consumers, workers, or other members shared throughout the enterprise of society, each one can do something by all divisions and employees. to stop polluting the environment. (iii) Developing clear-cut policies Government can enact laws to ban and programmes for purchasing hazardous products. Consumers, good quality raw materials, workers and the members of society employing superior technology, can avoid using certain products using scientific techniques of and doing things that are not disposal and treatment of wastes environment friendly. and developing employee skills for The business enterprises should, the purpose of pollution control. however, take the lead in providing (iv) Complying with the laws and their own solutions to environmental regulations enacted by the problems. It is the social responsibility Government for prevention of of every business to take steps not only pollution. to check all sorts of pollution but also (v) Participation in government to protect environmental resources. programmes relating to Business enterprises are leading management of hazardous 2024-25 Chapter 6.indd 144 9/2/2022 2:11:37 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 145 substances, clearing up of and customers to get them actively polluted rivers, plantation of involved in pollution control trees, and checking deforestation. programmes. (vi) Periodical assessment of pollution control programmes in terms 6.7 Business Ethics of costs and benefits so as to From the social point of view, business increase the progress with respect exists to supply goods and services to environmental protection. to the people. From the individual (vii) Arranging educational workshops point of view, the primary objective of and training materials to share a business firm is to earn profit. One technical information and may expect that the individual goals experience with suppliers, dealers of the firm would not be in conflict Environmental Protection in India (Steps by the Government) 1. Laws: The directive principles of state policy in the Constitution of India lay emphasis on protection of environment. Some of the laws enacted are as under: i. The Wildlife Protection Act, 1972 ii. The Water (Prevention and Control of Pollution) Act, 1974 amended in 1974 and 1988 iii. The Air (Prevention and Control of Pollution) Act, 1974 amended in 1974 and 1988 iv. The Environment (Protection) Act, 1986 v. The Forests (Conservation Act, 1980 amended in 1988 vi. The Hazardous Wastes Act, 1989 2. Regulations: Administrative orders/policy guidelines have been laid down by the government. A separate Department of Environment, Government of India was created in 1980. 3. Certain regulatory bodies or quasi-judicial authorities have been established such as: National Afforestation and Eco-development Board, and National Wastelands Development Board 4. Manufacturing units have been closed in cities. High Court of Delhi ordered shifting of manufacturing units out of Delhi and closing them. Similarly, courts have ordered removal of foundaries from Agra city, and shifting of manufacturing factories from Kanpur. 5. Various programmes on environment education, and seminars on creating awareness and resource are being organised regularly. 6. Government has also laid down Environment Action Plan (EAP). 2024-25 Chapter 6.indd 145 9/2/2022 2:11:37 PM  146 BUSINESS  STUDIES with the objectives of society. However, conduct which goes beyond observing business enterprises are run by human laws and government regulations. It beings whose decisions and actions means adhering to moral principles, may not always be in accordance being guided by particular values, with the expectations of society. An and behaving in a way people ought to enterprise may be good in terms of act. The set of principles called ethics economic performance (like revenue, may be written or unwritten codes or costs and profits) but poor in terms principles governing a professional or of social performance like supplying human activity. products of reasonable quality and Business ethics concerns itself at reasonable prices. This raises the with the relationship between business question of what is right or wrong from objectives, practices, and techniques society’s point of view. The answer to and the good of society. Business this question is important because ethics refer to the socially determined business enterprises are products of moral principles which should govern and are influenced by society. They business activities. A few examples of have to interpret and adjust to the business ethics are: charging fair prices preferences or values of society. The from customers, using fair weights for subject matter of ethics is concerned measurement of commodities, giving with establishing linkages between fair treatment to workers and earning individual good and social good. reasonable profits. A businessperson behaves ethically when her or his 6.7.1 Concept of Business Ethics actions are upright and serve the interests of society. This, of course, The word ‘ethics’ has its origin in the also applies to those not in business. Greek word ‘ethics’ meaning character; The essential difference is perhaps norms, ideals or morals prevailing in a that businesspersons by virtue of group or society. Ethics is concerned their widespread control over society’s with what is right and what is wrong resources have a much greater effect in human behaviour judged on the on what happens in a society than basis of a standard form of conduct/ persons in other areas of activity do. ehaviour of individuals, as approved by Business people and politicians are society in a particular field of activity. expected to have higher standards Ethics may be viewed as the entire over and above other people. This is body of moral values that society perhaps the price they pay for being attaches to the actions of human allowed to make decisions on behalf beings. Ethics can also refer to codes of society. or other system for controlling means There is a growing realisation all so that they serve human ends. Ethical over the world that ethics is vitally standards are often enacted into laws. important for every business and for But ethical behaviour is just and fair the progress of any society. Ethical 2024-25 Chapter 6.indd 146 9/2/2022 2:11:37 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 147 business is good business. Ethical which is referred to as the “code”. business behaviour improves public This generally covers areas such as image, earns people’s confidence and fundamental honesty and adherence trust, and leads to greater success. to laws; product safety and quality; Ethics and profits go together in health and safety in the workplace; the long run. Ethics alone, and not conflicts of interest; employment government or laws, can make a practices; fairness in selling/marketing society great. An ethically responsible practices; and financial reporting. enterprise develops a culture of caring (iii) Establishment of compliance for people and environment and mechanisms: In order to ensure that commands a high degree of integrity actual decisions and actions comply in dealing with others. Ethical activity with the firm’s ethical standards, is indeed valuable in itself, for its own suitable mechanisms should be sake, because it enhances the quality established. Some examples of such of our lives and that of the work we do. mechanisms are: paying attention to values and ethics in recruiting and 6.7.2 Elements of Business Ethics hiring; emphasising corporate ethics in training; auditing performance Since ethical business behaviour is regularly to analyse the degree good for both the business enterprise of compliance; and instituting and society, it makes sense to discuss communication systems to help how the enterprises can foster ethics employees report incidents of unethical in their day-to-day working. Some of behaviour. the basic elements of business ethics (iv) Involving employees at all while running a business enterprise levels: It is the employees at different are as follows: levels who implement ethics policies (i) Top management commitment: to make ethical business a reality. Top management has a crucial role Therefore, their involvement in ethics in guiding the entire organisation programmes becomes a must. For towards ethically upright behaviour. example, small groups of employees To achieve results, the Chief Executive can be formed to discuss the important Officer (CEO) and other higher level ethics policies of firms and examine managers need to be openly and attitudes of employees towards these strongly committed to ethical conduct. policies. They must give continuous leadership (v) Measuring results: Although it for developing and upholding the is difficult to accurately measure the values of the organisation. end results of ethics programmes, the (ii) Publication of a ‘Code’: firms can certainly audit to monitor Enterprises with effective ethics compliance with ethical standards. programmes do define the principles The top management team and other of conduct for the whole organisation employees should then discuss the in the form of written documents results for further course of action. 2024-25 Chapter 6.indd 147 9/2/2022 2:11:37 PM  148 BUSINESS  STUDIES Ground Rules of Ethics The following are some of the universal virtues which every human being should imbibe, develop and practise to be ethical in life: (a) Be trustworthy (b) Have respect for others (c) Own responsibility (d) Be fair in dealings (e) Be caring towards the well-being of others (f) Prove to be a good citizen — through civil virtues and duties Key Terms Social responsibility Water pollution Business ethics Environment Noise pollution Legal responsibility Environmental protection Air pollution Ethics Pollution Land pollution Code of ethics SUMMARY Concept of social responsibility: Social responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of our society. Need for social responsibility: Need for social responsibility of business arises both because of firm’s interest and the interest of society. However, there are arguments both for and against social responsibility. Arguments for social responsibility: Major arguments are: (i) justification for existence and growth, (ii) long-term interest and image of the firm, (iii) avoidance of government regulation, (iv) maintenance of orderly society, (v) availability of resources with business, (vi) converting problems into opportunity, (vii) better environment for doing business, and (viii) holding the business responsible for social problems. Arguments against social responsibility: Major arguments against social responsibility are: (i) violation of profit maximisation objective, (ii) burden on consumers, (iii) lack of social skills and (iv) lack of broad public support. Reality of social responsibility: Reality of social responsibility is that, despite differing arguments relating to social responsibility, business enterprises are concerned with social responsibility because of the influence of certain external forces. These forces are: (i) threat of public regulation, (ii) pressure of labour movement, (iii) impact of consumer consciousness, (vi) development 2024-25 Chapter 6.indd 148 9/2/2022 2:11:37 PM  SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 149 of social standard for businessmen, (v) development of business education, (vi) relationship between social interest and business interest, and (vii) development of professional, managerial class. Social responsibility towards different interest groups: Business enterprises have responsibility towards (i) shareholders or owners, (ii) workers, (iii) consumers and (iv) government and community giving fair return on and safety of investment to shareholders, providing opportunities to workers for meaningful work, supplying right quality and quantity of goods and services to consumers and paying to the government, and protecting natural environment are some of the social responsibilities of business. Business and environment protection: Protection of the environment is a serious issue that confronts managers and decision makers. The environment is defined as the totality of man’s surroundings — both natural and man-made. Pollution — the injection of harmful substances into the environment is, in fact, largely the result of industrial production. Pollution has harmful effects both for human life and the life of other species. Causes of Pollution: Among the various sources of pollutions, industry is a major generator of waste in terms of both its quantity and toxicity. Many business enterprises have been responsible for causing air, water, land and noise pollution. Need for pollution control: Important reasons which make a case for pollution control are: (i) reduction of health hazards, (ii) reduced risk of liability, (iii) cost savings (iv) improved public image, and (v) other social benefits. Role of business in environmental protection: Each member of society can do something to protect the environment. The business enterprises should, however, take the lead in providing their own solutions to environmental problems. Some of the steps that they can take are: top management commitment, clear-out policies and programmes, abiding by government regulations, participation in government programmes, periodical assessment of pollution control programmes, and proper education and training of concerned people. Concept of business ethics: Ethics is concerned with what is right and what is wrong in human behaviour judged on the basis of socially determined standards of behaviour. Business ethics concerns itself with relationship between objectives, practices, and techniques and the good of society. Ethics is important for every business. Elements of business ethics: An enterprise can foster ethics at the workplace by following basic elements of business ethics, such as (i) top management’s commitment, (ii) publication of a establishment of compliance mechanism, (iv) involving employees at all levels and (v) measuring results. 2024-25 Chapter 6.indd 149 9/2/2022 2:11:37 PM  150 BUSINESS  STUDIES EXERCISES Short Answer Questions 1. What do you understand by social responsibility of business? How is it different from legal responsibility? 2. What is environment? What is environmental pollution? 3. What is business ethics? Mention the basic elements of business ethics. 4. Briefly explain (a) Air Pollution, (b) Water pollution, and (c) Land pollution. 5. What are the major areas of social responsibility of business? 6. State the meaning of Corporate Social Responsibility as per the Companies Act 2013. Long Answer Questions 1. Build up arguments for and against social responsibilities. 2. Discuss the forces which are responsible for increasing concern of business enterprises toward social responsibility. 3. ‘Business is essentially a social institution and not merely a profit making activity’. Explain. 4. Why do the enterprises need to adopt pollution control measures? 5. What steps can an enterprise take to protect the environment from the dangers of pollution? 6. Explain the various elements of business ethics. 7. Discuss the guidelines enumerated by the Companies Act 2013 for Corporate Social Responsibility. Projects/Assignments 1. Develop and put in writing a code of ethics for use in the classroom. Your document should include guidelines for students, teachers, and the principal. 2. Using newspapers, magazines and other business references, identify and describe at least three companies that you think are socially responsible and three that you think are socially irresponsible. 3. Choose a company and prepare a report on Corporate Social Responsibility undertaken by it. (Hint : Swachh Bharat Abhiyan, Budding Artists Fund, start-ups, Education, Skill India, women and other marginalised groups.) 2024-25 Chapter 6.indd 150 9/2/2022 2:11:37 PM