Social Responsibilities & Business Ethics

Social Responsibility refers to the obligation of a business to take decisions and perform actions that are desirable in terms of the objectives and values of our society. It involves voluntarily contributing to social well-being beyond profit motives.

Difference:

• Legal Responsibility is compulsory; a business must follow the law or face penalties.
• Social Responsibility is voluntary; it is done out of moral obligation and a desire to do good, even if not required by law.

Environment is the sum total of all resources (natural and man-made) and surroundings that surround us and affect our lives.

Environmental Pollution refers to the injection of harmful substances into the environment that results in the destruction of ecological balance and causes health hazards to human beings and other living organisms.

Business Ethics refers to the socially determined moral principles and standards that govern business activities. It defines what is right and wrong in the conduct of business.

Basic Elements:

• Top management commitment.
• Publication of a ‘Code’.
• Establishment of compliance mechanisms.
• Involving employees at all levels.
• Measuring results.

• (a) Air Pollution: Caused by the emission of harmful gases (like carbon monoxide), smoke, and chemicals from vehicles and factories into the air. It damages the ozone layer and causes respiratory diseases.
• (b) Water Pollution: Occurs when businesses dump chemical waste and toxic substances into rivers and streams, making the water unsafe for humans and aquatic life.
• (c) Land Pollution: Caused by dumping toxic waste on land, which degrades the quality of the soil and makes it unfit for agriculture.

The major areas of social responsibility are towards different interest groups (stakeholders):

• Shareholders: To provide a fair return on investment.
• Workers: To provide fair wages and safe working conditions.
• Consumers: To provide quality goods at reasonable prices.
• Government: To pay taxes honestly and follow laws.
• Community: To protect the environment and help in community development.

Under the Companies Act 2013, Corporate Social Responsibility (CSR) implies that certain companies must mandatorily spend at least 2% of their average net profits of the last three years on specified social activities (like eradicating hunger, promoting education, gender equality, etc.). It applies to companies with a net worth of ₹500 crore, turnover of ₹1000 crore, or net profit of ₹5 crore.

Arguments FOR Social Responsibility	Arguments AGAINST Social Responsibility
Justification for Existence: Business uses society’s resources, so it must serve society to justify its growth.	Violation of Profit Maximization: The primary goal of business is profit; social work distracts from this goal.
Long-term Interest: A socially responsible image builds trust, leading to long-term profits.	Burden on Consumers: Costs of social activities are often passed on to consumers as higher prices.
Avoidance of Govt Regulation: Voluntary social action prevents strict government interference and laws.	Lack of Social Skills: Businessmen are trained to manage profit, not solve complex social problems.
Maintenance of Society: If society suffers (crime, unrest), business cannot prosper.	Lack of Public Support: The public may not like business involvement in social programs.

• Threat of Public Regulation: Fear of strict government action forces businesses to be socially responsible voluntarily.
• Pressure of Labour Movement: Strong trade unions force management to pay fair wages and ensure welfare.
• Impact of Consumer Consciousness: Educated consumers demand quality products and fair trade practices.
• Development of Social Standards: New social standards consider legitimate business to be one that serves social needs, not just profit.
• Development of Business Education: Modern managers are educated on the social purpose of business.

This statement emphasizes that business cannot exist in isolation.

• Interdependence: Business draws inputs (labour, raw material) from society and sells outputs to society. It cannot survive without social support.
• Social License: Profit is necessary for survival, but the purpose is service. If a business ignores social values (e.g., pollutes environment, cheats customers), society will eventually reject it.
• Creation of Values: Business creates jobs, wealth, and innovations that uplift the standard of living, making it a key social institution.

Enterprises need pollution control for the following reasons:

• Reduction of Health Hazards: Pollution causes diseases like cancer and heart attacks. Control measures protect public health.
• Reduced Risk of Liability: Polluting firms can be held liable to pay massive compensation to victims.
• Cost Savings: Effective waste management and recycling can save costs and reduce wastage.
• Improved Public Image: An eco-friendly company enjoys a good reputation and customer loyalty.
• Legal Compliance: It is necessary to comply with environmental laws to avoid fines and closure.

• Top Management Commitment: Create a definite work culture for environmental protection.
• Clear Policies: Develop policies ensuring the purchase of quality raw materials and superior technology.
• Adherence to Laws: Strictly follow government rules regarding pollution control.
• Participation: Participate in government programs like planting trees and cleaning rivers.
• Periodic Assessment: Regularly check pollution control costs and benefits.
• Education: Arrange workshops to train employees and suppliers on pollution control.

• Top Management Commitment: The CEO and higher-level managers must lead by example and champion ethical behavior.
• Publication of a ‘Code’: A written document (Code of Conduct) covering areas like honesty, health, and safety must be distributed.
• Establishment of Compliance Mechanisms: Systems must be in place to ensure the code is followed (e.g., ethics committees, whistle-blowing systems).
• Involving Employees: Employees at all levels must be involved in making ethical policies, as they are the ones who implement them.
• Measuring Results: Although difficult, the firm must verify and audit to ensure ethical work is actually being done.

The guidelines under Section 135 of the Companies Act 2013 include:

• Applicability: Companies with Net Worth ₹500 cr+, Turnover ₹1000 cr+, or Net Profit ₹5 cr+.
• CSR Committee: A committee of 3 or more directors (one independent) must be formed to formulate the policy.
• Spending: The company must spend at least 2% of its average net profits of the preceding three financial years.
• Activities: The policy must include activities like eradicating hunger/poverty, promoting education, gender equality, environmental sustainability, and protecting national heritage (as per Schedule VII).
• Disclosure: If the company fails to spend the amount, it must specify the reasons in its Board Report.

(Draft Example):
Students: Will complete work honestly, respect peers, and keep the class clean.
Teachers: Will grade fairly without bias and treat all students with respect.
Principal: Will ensure a safe environment and listen to grievances openly.

(Research Hint):
Responsible: Tata Steel (Community development), Wipro (Education initiatives), Infosys (Foundation work).
Irresponsible: Look for companies recently fined for pollution or labor violations in news reports.

(Example Structure for ITC Ltd):
Initiative: e-Choupal (Agriculture).
Impact: Empowered 4 million farmers.
Environment: Solid Waste Recycling program.
Education: Primary education support in rural areas.