Entrepreneurship development and Industrial Consultancy

Module 5. Business policy

Lesson 21
SOCIAL RESPONSIBILITIES OF BUSINESS

21.1 Introduction

Business is important component of society. Many business houses act as important social institutions. Their decisions and consequent actions are limited by society. Business units are responsible for providing employment to society; they take investment from society and supply goods and service to society. Business and society are inseparable and interdependent. If society does not provide positive support then it becomes difficult for business to carry out their operations smoothly. The business units which conduct their operations as the expense of the society can not achieve a long lasting success.

Business enterprise and society are interrelated. Business obtains resources like manpower, material from society and provides output (goods and services) to society. Due to this responsibility, business has a specific responsibility towards society. This responsibility is called Social Responsibility of Business (SRB). Business exists to earn profit. While earning profit, social responsibility calls for business houses to take decisions to protect and improve the welfare of society also, as each decision of a business enterprise has a social relevance with the society. Through SRB approaches, business enterprises are made responsible for their decisions/steps impacting the society in general. Social actions of business enterprises are systematic, periodic and the end uses are subject to social audit.

21.2 Classification of SRB Models

The SRB concept is viewed from macro and micro level. Macro analysis emphasizes that the government should decide social goals for society and micro analysis tend to emphasize the role or houses for the same.

21.2.1 Forces responsible for SRB

1. Government is one of the most important factors. Government formulates rules, laws for smooth functioning of business enterprises. Many of the laws are specially for protecting the society e.g. pollution emission norms.

2. Community’s demands also compel business enterprises to undertake some specific programmes for the society at large viz. establishing educational institutes especially for socially disadvantageous groups. To safeguard the environment is also a priority issue. Government also formulates standards in this matter e.g. Environment Protection Act of 1986 aims to protect and improve the environment and the prevention of hazards to all living things. Company’s shareholders also exert pressure on management of business enterprises to take decision in the interest of society. Organizations themselves also voluntarily take socially responsible steps to gain competitive advantage.

21.2.2 Need of SRB

As said earlier, business and society are interrelated. Business enterprise satisfies the needs of the society. Today expectations of the society from the business enterprises have changed. Therefore if business wants to remain viable for long run then it must respond positively to this expectation of the society. By doing so it creates better environment for society. For the business organization also, it creates better public image which helps to increase customer base. By proactively acting to carry out social responsibility, business enterprises are able to get hassel free government support. The saying ‘Prevention is better than cure’ is also applicable to SRB. The proactive approach of business houses towards society eliminates many dangerous ill effects.

21.2.3 Obstacles to social responsibility

The main aim of any business enterprise is to earn profit. Indulging in activities directly benefiting the society do not directly add to profit. Business houses consider it as an additional cost. Cost on social responsibility is a social cost which will not give immediate benefit to the business. At the same time business enterprises do not have any direct accountability to the society/people. Thus most of the business enterprises prefer not to invest in social responsibility activities. Social responsibility of business is concerned with solving social problems and managers of business enterprises are concerned with solving managerial problems involving economic criteria.

21.2.4 Scope of social responsibility

The business enterprises carry out their social responsibility roles for following stakeholders.

1. Employees: This is represented in the form of fair and just selection, fair wages, training, conducive work environment, safety and health, participative work management etc.

2. Consumers: This is represented by providing quality goods/services at responsible price, not indulging in manipulative practices leading to artificial shortages etc.

3. Governments: This is represented by compiling with all legal requirements, abiding by all the law regulating the business framed by government.

4. Owners: This covers managing the business enterprise profitably by professionals so that owners get sufficient, appropriate and regular return on their invested money.

5. Society: This is the most important stakeholder having too many, too complex problems. e.g. environmental pollution, acid rain, ozone depletion, destruction of rain forests, racial-ethnic and religious anomalies etc.

Thus by satisfying the needs of all stakeholders of society a business enterprise can become a socially responsible firm.

21.2.5 Advantages of SRB

SRB helps to build good brand image and company reputation. Competent employees are responsible for company’s success. It is recognized that SRB activities of company play a major role in improving recruitment policy and retention of quality employees. Cost reductions are obtained by the organization by adopting SRB practices. Such reductions are related to environment management of operation. The organizations that reduce pollution and hazardous waster, re use or recycle materials and conduct their operations with greater energy efficiency and more efficient use of water obtain significant cost savings. SRB leads to social risk mitigation and better risk management by providing intelligence which reveals those risks and by offering an effective means to respond to risks with an emphasis on managing relationships with stakeholders. Stakeholders can provide strategic intelligence regarding the organization’s risks around specific economic, social or environmental issues by giving signals, warning or inside information.

SRB can also lead to business advantage through innovations. Many innovations which can be helpful to both society as well as company can emerge while adopting SRB Practices. Financial institutions also consider social and environmental criteria while providing financial support to the organizations in the globalized world.