NCERT Class 11 Business Studies Chapter 6 PDF

CHAPTER 6 S OCIAL RESPONSIBILITIES OF BUSINESS AND B USINESS ETHICS LEARNING OBJECTIVES After studying this chapter, you should be able to: explain the concept of social responsibility; discuss the need for social resp...

CHAPTER 6 S OCIAL RESPONSIBILITIES OF BUSINESS AND B USINESS 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. 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 145 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. He and also make them profitable. In fact, has to respect social values and norms it is through socially responsible and of behaviour. A business enterprise is ethically upright behaviour that permitted by society to carry on business enterprises can get durable industrial or commercial activities and success. thereby earn profits. But it is obligatory on part of the business enterprise not 6.2 CONCEPT OF SOCIAL RESPONSIBILITY to do anything, that is undesirable from society’s point of view. Manufacture Social responsibility of business refers and sale of adulterated goods, making to its obligation to take those decisions deceptive advertisements, not paying and perform those actions which are taxes which are due, polluting the desirable in terms of the objectives and environment and exploiting workers values of our society. The assumption are some examples of socially of social responsibilities by business undesirable practices which may enterprises implies that they respect increase the profit of enterprises but the aspirations of society and would try which have adverse effect on society at their best to contribute to the large. On the other hand, supplying achievement of these aspirations along good quality goods, creating healthy with their profit interests. This idea is 2019-20 146 BUSINESS STUDIES in contrast to the common notion that a business enterprise be run for the business exists only for maximising benefit of its owners who may desire to profits for its owners and it is irrelevant get as much profit as is possible or else, to talk of public good. It follows that a it needs to be responsible for serving responsible business, and indeed any the interest of other sections of society responsible member of society, must such as customers, employees, act with due concern for the effects on suppliers, government and community? the lives of other people. The very concept of social responsibility In this sense, social responsibility implies that it is essentially an ethical is broader than legal responsibility of issue, since it involves the question of business. Legal responsibility may be what is morally right or wrong in fulfilled by mere compliance with the relation to the firm’s responsibilities. law. Social responsibility is more than Social responsibility also has an that. It is a firm’s recognition of social element of voluntary action on the part obligations even though not covered by of the business person who may feel law, along with the obligations laid free to perform or not to perform such down by law. In other words, social responsibilities. They may also exercise responsibility involves an element of their freedom for deciding the extent to voluntary action on the part of business which they would like to serve various people for the benefit of society. sections of society. In fact, all business people do not feel equally responsible 6.3 N EED FOR SOCIAL RESPONSIBILITY towards society. There has been a What is the right thing to do when it debate, for some time now whether comes to social responsibility? Should business should assume social 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”. 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 147 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. responsibilities or not. Some people upon as an outcome of service to the strongly believe that a firm’s only social people. In fact, the prosperity and responsibility is towards its owners. growth of business is possible only Some others, however, hold an opposite through continuous service to society. view and argue that the firm has a social Thus, assumption of social responsibility to serve all sections of responsibility by business provides society who are affected by its decisions justifications for its existence and and actions. It would be useful to growth. understand the arguments offered (ii) Long-term interest of the firm: both in favour of and against the A firm and its image stands to gain assumption of social responsibilities maximum profits in the long run when by business. it has its highest goal as ‘service to 6.3.1 Arguments for Social society’. When increasing number of Responsibility members of society — including (i) Justification for existence and workers, consumers, shareholders, growth: Business exists for providing government officials, feel that business goods and services to satisfy human enterprise is not serving its best needs. Though, profit motive is an interest, they will tend to withdraw their important justification for undertaking cooperation to the enterprise business activity, it should be looked concerned. Therefore, it is in its own 2019-20 148 BUSINESS STUDIES interest if a firm fulfills its social of converting risky situations into responsibility. The public image of any profitable deals, can not only solve firm would also be improved when it social problems but it can also make supports social goals. them effectively useful by accepting the (iii) Avoidance of government challenge. regulation: From the point of view of (vii) Better environment for doing a business, government regulations are business: If business is to operate in a undesirable because they limit society which is full of diverse and freedom. Therefore, it is believed that complicated problems, it may have little businessmen can avoid the problem of chance of success. Therefore, it is government regulations by voluntarily argued that the business system assuming social responsibilities, which should do something to meet needs 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 getting conduct its business. their due from the business may resort (viii) Holding business responsible to anti-social activities, not necessarily for social problems: It is argued that governed by law. This may harm the some of the social problems have either interest of business itself. Therefore, it been created or perpetuated by is desirable that business enterprises business enterprises themselves. should assume 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 has involved in solving these problems, a pool of managerial talent and capital instead of merely expecting that other resources, supported by years of social agencies will deal with them on 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 Responsibility financial and human resources at its disposal. Major arguments against social (vi) Converting problems into responsibility are: opportunities: Related with the (i) Violation of profit maximisation preceding argument is the argument objective: According to this argument, that business with its glorious history business exists only for profit 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 149 maximisation. Therefore, any talk of profit maximisation? Or, do they social responsibility is against this support social goals? The fact is that objective. In fact, business can best one of the most important recent fulfill its social responsibility if it changes in the attitude of business maximises profits through increased people has been the realisation that efficiency and reduced costs. they have social obligations to fulfill (ii) Burden on consumers: It is argued besides ensuring their own existence that social responsibilities like pollution through profitable activity. Of course, control and environmental protection part of this realisation is not genuine are very costly and often require huge and takes the form of lip service, which financial investments. In such is thought necessary to ensure the circumstances, businessmen are likely survival of private enterprise. But at the to simply shift this burden of social same time it cannot be denied that responsibility by charging higher prices private business does partly realise and from the consumers instead of bearing recognise the hard reality that a it themselves. Therefore, it is unfair to privately owned firm has to meet the tax the consumers in the name of social challenge of a democratic society, responsibility. where all people have certain human (iii) Lack of social skills: All social rights and therefore, can demand problems cannot be solved the way responsible conduct from business. business problems are solved. In fact, Unless the business sets its house in businessmen do not have the necessary order, changes its outlook and is understanding and training to solve prepared to play its legitimate role as social problems. Therefore, according an organ of society, it has little chance to this argument, social problems of success. It will be useful here to go should be solved by other specialised into some of the reasons and factors, agencies. which have forced and persuaded (iv) Lack of broad public support: businessmen to consider their Here the argument is that the public in responsibilities and the conditions general does not like business which were favourable to the development of business concern with involvement or interference in social social responsibility. Some of the more programmes. Therefore, business important among them are: cannot operate successfully because of (i) Threat of public regulation: lack of public confidence and Democratically elected governments of cooperation in solving social problems. 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 business institutions operate in a for and against social responsibility, socially irresponsible manner, action is one may wonder what the businessmen taken to regulate them for safeguarding do in reality. Do they concentrate on people’s interest. This threat of public 2019-20 150 BUSINESS STUDIES regulation is one important reason due (v) Developmen t o f b u s i n e s s to which business enterprise feels education: Development of business concerned with social responsibility. education with its rich content of social (ii) Pressure of labour movement: responsibility has made more and Over the last century or so, labour has more people aware of the social become far more educated and purpose of business. Educated organised. Accordingly, labour persons as consumers, investors, movement for extracting gains for the employees, or owners have become working class throughout the world more sensitive towards social issues has become very powerful. This has than was the case earlier, when such forced business enterprises to pay due education was not available. regard to the welfare of workers instead (vi) Relationship between social of following a policy of ‘hire and fire’ interest and business interest: under which they could deal with Business enterprises have started workers at their will. realising the fact that social interest and (iii) Impact of consumer business interest are not contradictory. consciousness: Development of Instead, these are complementary to education and mass media and each other. The feeling that business increasing competition in the market can grow only through exploitation of have made the consumer conscious of society has given way to the belief that his right and power in determining long-term benefit of business lies in market forces. The principle of caveat serving the society well. So also, a emptor (or let the buyer beware) has useful institution like business is been substituted by the principle of recognised as an essential element of a ‘customer is king’. Business enterprises modern civilised society. have started following customer - oriented policies. (vii) Development of professional, (iv) Development of social standard m a n a g e r i a l c l a s s : Professional for business: Businesses are no longer management education in universities considered merely money crazy entities, and specialised management institutes which can be allowed to mint money at have created a separate class of any cost and get away with any kind of professional managers who have got an business practices. New social altogether different attitude towards standards consider economic activity of social responsibility as compared to the business enterprises as legitimate but earlier class of owner manager. with the condition that they must also Professional managers are more serve social needs. No business can be interested in satisfying a multiplicity of done in isolation from society. It is the interest groups in society for running society that permits business to exist their enterprises successfully than and grow and it is on the basis of social merely following profit goals. standards that business functioning is These and a number of other social to be ultimately judged. and economic forces have combined 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 151 together to make business a socio- that is expected by society but not economic activity. Business is no longer codified in law. For example, a mere occupation; it is an economic respecting the religious sentiments institution that has to reconcile its and dignity of people while short-term and long range economic advertising for a product. There is interests with the demands of the an element of voluntary action in society in which it functions. performing this responsibility. Essentially, it is this which gives rise to (d) Discretionary responsibility. the general and specific social This refers to purely voluntary responsibilities of business. While there obligation that an enterprise is no denial of the fact that business is assumes, for instance, providing essentially an economic enterprise and charitable contributions to that it must ultimately justify itself on educational institutions or economic performance, it is also true helping the affected people during that business is an organ of society and floods or earthquakes. It is the as such it must justify its continuance responsibility of the company by fulfilling its roles and responsibilities management to safeguard 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: 6.5 S OCIAL RESPONSIBILITY TOWARDS (a) Economic responsibility: A D IFFERENT INTEREST GROUPS business enterprise is basically an economic entity and, therefore, its Once the social objective of business is primary social responsibility is recognised, it is important to know to economic i.e., produce goods and whom and for what the business and services that society wants and sell its management are responsible. them at a profit. There is little Obviously, a business unit has to discretion in performing this decide in which areas it should carry responsibility. out social goals. Some of the specific (b) Legal responsibility: Every responsibilities and enterprise may be business has a responsibility to outlined as under: operate within the laws of the land. (i) Responsibility towards the Since these laws are meant for the shareholders or owners: A business good of the society, a law abiding enterprise has the responsibility to enterprise is a socially responsible provide a fair return to the shareholders enterprise as well. or owners on their capital investment (c) Ethical responsibility: This and to ensure the safety of such includes the behaviour of the firm investment. The corporate enterprise on 2019-20 152 BUSINESS STUDIES a company form of organisation must chimneys, ugly buildings dirty working also provide the shareholders with conditions. It must also develop a regular, accurate and full information proper image in society through about its working as well as schemes continuous interaction with various of future growth. groups of people. (ii) Responsibility towards the workers: Management of an enterprise 6.6 B USINESS 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 so serious issue that confronts business that it can win the cooperation of managers and decision makers. The workers. The enterprise must respect environment is defined as the totality the democratic rights of the workers to of man’s surroundings — both natural form unions. The worker must also be and man-made. These surroundings ensured of a fair wage and a fair deal are also in the nature of resources, that from the management. are useful for human life. The (iii) Responsibility towards the resources may also be called natural consumers: Supply of right quality resources like land, water, air, fauna and quantity of goods and services to and flora and raw materials; or man- consumers at reasonable prices made resources such as cultural constitutes the responsibility of an heritage, socio-economic institutions enterprise toward its customers. The and the people. It is widely recognised enterprise must take proper precaution that the quality of the environment is against adulteration, poor quality, lack fast deteriorating particularly due to of desired service and courtesy to industrial activity. This is a common customers, misleading and dishonest sight around major cities like Kanpur, advertising, and so on. They must also Jaipur, Delhi, Panipat, Kolkata, and have the right of information about the others, in various states of our product, the company and other country. Their emissions are seriously matters having a bearing on their affecting the health of the people. purchasing decision. Pollution — the injection of harmful (iv) Responsibility towards the substances into the environment is, in government and community: An fact, largely the result of industrial enterprise must respect the laws of the production. Since some waste is country and pay taxes regularly and inevitable in the use of materials and honestly. It must behave as a good energy, the manufacturers face a great citizen and act according to the well challenge in minimising the adverse accepted values of the society. It must impact of this waste by using proper protect the natural environment and technologies. Protection of the should avoid bad, effluent, smoky environment is good for all of us. 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 153 Pollution changes the physical, materials of chemicals that have been chemical and biological characteristics discarded during the process of of air, land and water. Pollution harms production or consumption. Pollution human life and the life of other species. is caused by these pollutants which are It also degrades living conditions while released into the environment beyond wasting or depleting raw material its assimilation capacity. Among the resources. The country’s cultural various sources of pollution, industry heritage is also affected and it is is a major generator of waste in terms becoming increasingly difficult to of both its quantity and toxicity. protect all historical monuments. Business activities such as production, Pollution exists because the distribution, transport, storage, environment can absorb only a limited consumption of goods and services are amount of pollutants and wastes. known to be the most critical sources Some hazardous wastes or toxic of environmental pollution problems. by-products and chemicals are termed Many business enterprises have been as hazardous pollutants because they responsible for causing (i) air, (ii) water have toxic characteristics that the (iii) land, and (iv) noise pollution. These types of pollution are environment can not assimilate. discussed as follows: Pollution thus causes risks to (i) Air pollution: Air pollution is the environmental quality, human health result of a combination of factors which and damage to natural and man-made lowers the air quality. It is mainly due resources. Protection of the to carbon monoxide emitted by environment is directly related to the automobiles which contributes to air control of pollution. pollution. Similarly, smoke and other chemicals from manufacturing plants 6.6.1 Causes of Pollution pollute the air. Resultant air pollution It must be recognised that all sectors has created a hole in the ozone layer of our society viz., industry, leading to dangerous warming of government, agriculture, mining, the earth. energy, transportation, construction, (ii) Water pollution: Water becomes and consumers generate waste. Wastes polluted primarily from chemical and contain pollutants which are the waste dumping. For years, business 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 2019-20 154 BUSINESS STUDIES enterprises have been dumping waste pollution generating activities. into rivers, streams and lakes with little Business enterprises cannot remain regard for the consequences. Water unaffected by environmental pollution has led to the death of several destruction. They need to take suitable animals and posed a serious threat to measures for pollution control not human life. merely to avoid criticisms against them (iii) Land pollution: Dumping of toxic but also to enjoy other benefits of such wastes on land causes land pollution. measures. Some of the important This damages the quality of land reasons which make a case for pollution 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 is There is increasing evidence that many a big problem. diseases like cancer, heart attacks and (iv) Noise pollution: Noise caused by lung complications are caused by the running of factories and vehicles 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, a healthy life on earth. malfunctioning of the heart and (ii) Reduced risk of liability: It is mental disorder. possible that an enterprise is held liable to pay compensation to people affected 6.6.2 Need for Pollution Control by the toxicity of gaseous, liquid and solid wastes it has released into the Pollution prevention or control is environment. Therefore, it is sound needed to preserve precious business policy to install pollution environmental resources and to control devices in its premises to reduce improve the environmental quality so the risk of liability. that the preserved resources can be (iii) Cost savings: An effective pollution utilised for the benefit of mankind and control programme is also needed to the improvement of health and well- save costs of operating business. Cost being of the people. The amount of savings are particularly noticeable damage to a particular medium (air, when improper production technology water, land) varies according to the type results in greater wastes which leads of pollutant, the amount of pollutant to higher cost of waste disposal and disposed of, and the distance from the cost of cleaning the plants. source of pollution. But all pollutants (iv) Improved public image: As alter the quality of the environment and society becomes increasingly conscious render it, to some degree, unfit to of environmental quality, a firm’s preserve normal life. People are now policies and practices for controlling raising their voice loudly against wastes will increasingly influence 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 155 people’s attitude towards its working. by controlling pollutants at the source. A firm that promotes the cause for In most cases, a modification or change environment will be able to enjoy a good in the process of production, redesign reputation and will be perceived as a of equipment, substituting poor quality socially responsible enterprise. materials with better ones or other (v) Other social benefits: Pollution innovative approaches could greatly control results in many other benefits reduce or even eliminate pollution like clearer visibility, cleaner buildings, entirely. Some of the specific steps which better quality of life, and the availability can be taken by business enterprises of natural products in a purer form. for environmental protection are as stated below: 6.6.3 R o l e o f B u s i n e s s i n (i) A definite commitment by top Environmental Protection management of the enterprise to create, maintain and develop Since the quality of the environment is work culture for environmental important for all of us, we have a protection and pollution prevention. collective responsibility to protect it (ii) Ensuring that commitment to from being spoiled. Whether it is environmental protection is shared government, business enterprises, throughout the enterprise by all consumers, workers, or other members divisions and employees. of society, each one can do something (iii) Developing clear-cut policies and to stop polluting the environment. programmes for purchasing good Government can enact laws to ban quality raw materials, employing hazardous products. Consumers, superior technology, using workers and the members of society scientific techniques of disposal can avoid using certain products and treatment of wastes and and doing things that are not developing employee skills for the environment friendly. purpose of pollution control. The business enterprises should, (iv) Complying with the laws and however, take the lead in providing their regulations enacted by the own solutions to environmental Government for prevention of problems. It is the social responsibility pollution. (v) Participation in government of every business to take steps not only programmes relating to to check all sorts of pollution but also management of hazardous to protect environmental resources. substances, clearing up of polluted Business enterprises are leading rivers, plantation of trees, and creators of wealth, employment, trade checking deforestation. and technology. They also command (vi) Periodical assessment of pollution huge financial, physical and human control programmes in terms of resources. They also have the know- costs and benefits so as to increase how to solve environmental pollution the progress with respect to problems with a preventive approach environmental protection. 2019-20 156 BUSINESS STUDIES (vii) Arranging educational workshops beings whose decisions and actions and training materials to share may not always be in accordance with technical information and experience the expectations of society. An with suppliers, dealers and enterprise may be good in terms of customers to get them actively economic performance (like revenue, involved in pollution control costs and profits) but poor in terms of programmes. social performance like supplying products of reasonable quality and at 6.7 B USINESS ETHICS reasonable prices. This raises the question of what is right or wrong from From the social point of view, business society’s point of view. The answer to exists to supply goods and services to this question is important because the people. From the individual point business enterprises are products of of view, the primary objective of a and are influenced by society. They business firm is to earn profit. One may have to interpret and adjust to the expect that the individual goals of the preferences or values of society. The firm would not be in conflict with the subject matter of ethics is concerned objectives of society. However, with establishing linkages between business enterprises are run by human individual good and social good. 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). 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 157 6.7.1 C ONCEPT OF BUSINESS ETHICS interests of society. This, of course, also applies to those not in business. The The word ‘ethics’ has its origin in the essential difference is perhaps that Greek word ‘ethics’ meaning character; businesspersons by virtue of their norms, ideals or morals prevailing in a widespread control over society’s group or society. Ethics is concerned resources have a much greater effect with what is right and what is wrong in on what happens in a society than human behaviour judged on the basis persons in other areas of activity do. of a standard form of conduct/ehaviour Business people and politicians are of individuals, as approved by society expected to have higher standards over in a particular field of activity. Ethics and above other people. This is perhaps may be viewed as the entire body of the price they pay for being allowed to moral values that society attaches to make decisions on behalf of society. the actions of human beings. Ethics can There is a growing realisation all also refer to codes or other system for over the world that ethics is vitally controlling means so that they serve important for every business and for human ends. Ethical standards are the progress of any society. Ethical often enacted into laws. But ethical business is good business. Ethical behaviour is just and fair conduct business behaviour improves public which goes beyond observing laws and image, earns people’s confidence and government regulations. It means trust, and leads to greater success. adhering to moral principles, being Ethics and profits go together in the long guided by particular values, and run. Ethics alone, and not government behaving in a way people ought to act. or laws, can make a society great. An The set of principles called ethics may ethically responsible enterprise develops be written or unwritten codes or a culture of caring for people and principles governing a professional or environment and commands a high human activity. degree of integrity in dealing with others. Business ethics concerns itself with Ethical activity is indeed valuable in the relationship between business itself, for its own sake, because it objectives, practices, and techniques enhances the quality of our lives and and the good of society. Business that of the work we do. ethics refer to the socially determined moral principles which should govern 6.7.2 Elements of Business Ethics business activities. A few examples of business ethics are: charging fair prices Since ethical business behaviour is good from customers, using fair weights for for both the business enterprise and measurement of commodities, giving society, it makes sense to discuss how the fair treatment to workers and earning enterprises can foster ethics in their day- reasonable profits. A businessperson to-day working. Some of the basic behaves ethically when her or his elements of business ethics while running actions are upright and serve the a business enterprise are as follows: 2019-20 158 BUSINESS STUDIES (i) Top management commitment: established. Some examples of such Top management has a crucial role in mechanisms are: paying attention to guiding the entire organisation towards values and ethics in recruiting and ethically upright behaviour. To achieve hiring; emphasising corporate ethics in results, the Chief Executive Officer training; auditing performance (CEO) and other higher level managers regularly to analyse the degree need to be openly and strongly of compliance; and instituting committed to ethical conduct. They communication systems to help must give continuous leadership for employees report incidents of unethical developing and upholding the values behaviour. of the organisation. (iv) Involving employees at all (ii) Publication of a ‘Code’: levels: It is the employees at different Enterprises with effective ethics levels who implement ethics policies to programmes do define the principles of make ethical business a reality. conduct for the whole organisation in Therefore, their involvement in ethics the form of written documents which programmes becomes a must. For is referred to as the “code”. This example, small groups of employees generally covers areas such as can be formed to discuss the important fundamental honesty and adherence to ethics policies of firms and examine laws; product safety and quality; health attitudes of employees towards these and safety in the workplace; conflicts policies. of interest; employment practices; (v) Measuring results: Although it is fairness in selling/marketing practices; difficult to accurately measure the end and financial reporting. results of ethics programmes, the firms (iii) Establishment of compliance can certainly audit to monitor mechanisms: In order to ensure that compliance with ethical standards. The actual decisions and actions comply top management team and other with the firm’s ethical standards, employees should then discuss the suitable mechanisms should be results for further course of action. 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 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 159 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 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. 2019-20 160 BUSINESS STUDIES 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. EXERCISES Multiple Choice Questions 1. Social responsibility is a. Same as legal responsibility b. Broader than legal responsibility c. Narrower than legal responsibility d. None of them 2019-20 SOCIAL RESPONSIBILITIES OF BUSINESS AND BUSINESS ETHICS 161 2. If business is to operate in a society which is full of diverse and complicated problems, it may have a. Little chance of success b. Great chance of success c. Little chance of failure d. No relation with success or failure. 3. Business people have the skills to solve a. All social problems b. Some social problems b. No social problems d. All economic problems 4. That an enterprise must behave as a good citizen is an example of its responsibility towards a. Owners b. Workers c. Consumers d. Community 5. Environmental protection can best be done by the efforts of a. Business people b. Government c. Scientists d. All the people 6. Carbon monoxide emitted by automobiles directly contributes to a. Water pollution b. Noise pollution c. Land pollution d. All the people 7. Which of the following can explain the need for pollution control? a. Cost savings b. Reduced risk of liability c. Reduction of health hazards d. All of them 8. Which of the following is capable of doing maximum good to society? a. Business success b. Laws and regulations c. Ethics d. Professional management 9. Ethics is important for a. Top management b. Middle-level managers c. Non-managerial employees d. All of them 10. Which of the following alone can ensure effective ethics programme in a business enterprise? a. Publication of a code b. Involvement of employees c. Establishment of compliance d. None of them mechanisms Short Answer Questions 1. What do you understand by social responsibility of business? How is it different from legal responsibility? 2019-20 162 BUSINESS STUDIES 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.) 2019-20