Social Responsibility of Business and Business Ethics Class 11 Notes

Social responsibility is defined as the obligation of business to maximise its positive impact and minimise its negative impact on the society in which it operates. The word obligation is the load-bearing one, because it distinguishes the idea from charity.

• Social responsibility means the obligation of the business, and not merely a charitable donation made out of surplus profit.
• Social obligation is different, because it is a legal obligation imposed by the law of the land, such as the payment of the tax, the compliance with the labour law and the pollution law.
• Social responsibility is a moral obligation and it goes beyond the law, so a firm that does only what the law requires has met its social obligation but not its social responsibility.
• The three levels of the business in society are the minimal one of obeying the law, the middle one of meeting the economic obligations of the firm, and the highest one of the social responsibility of contributing to the social and environmental objectives.
• The relationship between the two is one of inclusion, so the social obligation is included within the social responsibility, and the law is the floor of the social responsibility and not its ceiling.

The debate is genuinely two-sided in the examination, and the arguments are usually paired. A three-mark question expects an argument on each side, and a five-mark question expects the arguments against and then the arguments for, closing with a comparison.

• Against: the business is run for the profit of the owners, and a spending on the social causes that produces no return reduces the profit of the shareholders.
• Against: the business has been created for the economic activity, so it cannot substitute for the government in discharging the functions of the welfare state.
• Against: in a period of losses the funds of the firm are needed for the recovery, so the spending on the social causes at such a time is a waste.
• Against: the funds of the business are meant for the business, and the government collects the taxes for the welfare of the people, so the double spending wastes the resources of the economy.
• Against: the unfairness of the competition, because the business that spends on the social causes raises its cost and the business that does not is able to sell at a lower price, so the socially responsible firm is penalised.
• For: the business has a large share of the resources of the country and it has the obligation to use a part of them for the welfare of the people.
• For: the business has the skill and the experience needed for the development of the backward areas, and the welfare of the society is the responsibility of no other body if the business does not do it.
• For: the business has a vast capacity to expand the wealth of the country, and it will be able to do so only if the society is healthy and the resources are used well.
• For: social responsibility improves the public image of the business, and it is a form of the promotion of the business in the long run, and it helps to retain the loyalty of the employees.

Business ethics are the principles and the standards that determine the morally acceptable behaviour in the business, and the chapter treats it as distinct from the personal ethics of the individual.

• Business ethics are the principles that decide whether an action is morally right in the business context, and the question of whether the same act is right in one case and wrong in another is the ethical dilemma.
• The sources of business ethics are the consumer, the employee, the government and the owner of the business, and each is examined in turn.
• The consumer as a source: the customers expect the firm to be fair in the price and in the quality of the goods, to give them a product that is safe, and to provide a fair remedy when the goods do not perform.
• The employee as a source: the employees expect a fair wage and a safe place of work, and they expect the employer not to treat them unfairly, so the unethical practice of a firm is judged by how it treats its own people.
• The government as a source: the law of the land is a source of the business ethics, because the firm must comply with the legislation on the pollution, on the labour, on the consumer protection and on the taxation, and the expectations of the government define what the firm may not do.
• The owner or the management as a source: the personal values of the owner and the culture of the organisation decide the practice of the firm, and the ethical or the unethical practice of a firm is largely a reflection of the value system of its management.
• The elements of the business ethics are the five conditions that have to be present if the ethics are to be more than a phrase, and the first of them is the top management commitment, because if the management itself does not practise the ethics the rest of the firm will not follow them.
• The second element is the publication of a code of conduct, which is a written statement of the behaviour that the firm expects, of the dealings with the customer, the supplier, the employee and the state, and the code gives a definable standard to which the conduct can be held.
• The third element is the establishment of the compliance mechanisms, that is the processes of the checking and the audit by which the firm finds out whether its rules are being followed, and the fourth element is the involvement of the employees at all the levels, because a code that is imposed from the top alone is weaker than a code that the employees have helped to make and own.
• The fifth element is the measuring of the results, that is the review of the ethical performance as a part of the performance of the firm, so that the ethics are not left to the intention but are checked and reported, and a code with the commitment, the publication, the compliance, the involvement and the measurement is the complete code of the syllabus.

The chapter then collects the practices that the four sources object to, and the list is the standard catalogue the questions draw on.

• Dishonest and unethical practices: making a false claim about the product, the adulteration of goods, the under-weighing of the commodity, the over-charging of the customer, and the use of the false weights and measures.
• The practices relating to the employees: the payment of wages below the prescribed minimum, the discrimination in the recruitment or in the promotion, the sexual harassment of the working women, and the unsafe working conditions.
• The practices relating to the society: the emission of the effluents into the river and the emission of the smoke, the dumping of the waste in the open, the noise pollution, and the advertisement that is false and exaggerated.
• The practices relating to the government: the concealment of the production under the laws of the excise and the customs, the evading of the income tax, the taking of a bribe, and the obtaining of a licence by a fraud.
• The practices relating to the shareholders: the manipulation of the share prices, the manipulation of the accounts, the payment of the dividend out of the capital, and the non-payment of the declared dividend.
• The practices relating to the customers: the cheating of the customer on the quality, the price and the weight, the false advertisement, and the failure to provide the after sales service.

An ethical dilemma is a situation in which an individual is confronted with a conflict between the ethical values he holds, and the chapter gives the example of the honest sales manager who has been asked to conceal the defect of a product in order to make the sales.

• The situation: the individual is pulled in two directions at the same time, and each of the two choices means the violation of one of the values he holds.
• In the case of the sales manager, one alternative is to reject the request and refuse to sell, which protects the customer but also costs the firm the order and the manager his job, and the other is to accept the request, which saves the job and increases the sales but injures the customer.
• Dilemmas are of two kinds, the ethical dilemma involving the individual himself as in the case of the manager who must choose between his job and his conscience, and the organisational dilemma involving the organisation, as when the pressure comes from the superior and the individual must decide how far to resist it.
• The business should have a code of conduct, an ethics committee to deal with the ethical dilemmas that arise in the course of the business, and a mechanism by which the individual can report the violation without being punished for it.
• The code of conduct should be evolved with the consultation of the employees and not merely imposed on them, it should be unambiguous and specific, it should state the sanctions for the violation, and it should be applicable to every employee at every level.
• The ethics committee should be a standing body with the members drawn from the various levels of the organisation, and its function is to advise on the ethical issue, to receive the complaints of the violation and to recommend the corrective action.

The stakeholder part of the chapter re-uses the same idea of responsibility, but applies it to each party with whom the firm deals, and this is where a comparison question is most often set.

• Towards the investors, the responsibility is to give them a fair return on the capital they have placed in the business and to keep them informed about the working of the enterprise, so that they can take an informed decision about buying or selling the shares.
• Towards the employees, the responsibility is to pay them a fair wage, to provide them the conditions of work that are safe and humane, to give them the training, and to protect them against the sexual harassment and the discrimination at the place of work.
• Towards the customers, the responsibility is to supply the goods of the stated quality, to charge a fair price, to give the accurate information about the product in the advertisement, and to provide the remedy when the goods do not perform.
• Towards the society, the responsibility is the payment of the taxes in full and on time, the conservation of the natural resources, the protection of the environment, and the welfare of the community in which the plant is located.
• Towards the government, the responsibility is to comply with the laws and the regulations of the land, to pay the taxes honestly, and not to seek the favour of the authorities by any improper means.
• Towards the environment, the responsibility is to control the emissions, to treat the effluent before it is discharged, to dispose of the waste without contaminating the surroundings, and to make the product economical in the use of the scarce resources.

The syllabus asks for the role of the business in the protection of the environment as a separate point, because the responsibility towards the environment is the one that the business has not always accepted on its own, and the role is the list of the actions that the firm can take, and the actions run from the technology to the awareness.

• The first role is the use of the environment friendly technology and the two-way treatment of the industrial waste, that is the treatment of the effluent before it is discharged into the river and the treatment of the smoke before it is released into the air, so the waste does not reach the surroundings in its poisonous form.
• The second role is the prevention of the pollution of the water and of the air at the source, that is the control of the emissions at the point of the production, and the shift to the production processes that are cleaner, so the firm does not have to pay for the cleaning of the damage after it has been done.
• The third role is the conservation and the management of the natural resources, that is the economical use of the energy, the water and the raw material, so that the production does not exhaust the resources that the coming generations will need, and this is the idea of the sustainable development.
• The fourth role is the practice of the three Rs, the reduce, the reuse and the recycle, by which the firm reduces the material that it uses, reuses the containers and the packing, and recycles the scrap and the waste, and it also comes from the supply chain, since the firm can demand the green packing from its suppliers.
• The fifth role is the afforestation around the plant and the maintenance of the green cover of the area, and the sixth role is the making of the product that is friendly to the environment itself, the product that uses less energy, that is not made of the harmful material, and that can be disposed of or recycled without polluting.
• The seventh role is the creation of the awareness among the employees, the suppliers and the public, through the training, the packaging, the message and the participation in the programmes of the environment day, so that the conduct of the thousands of the persons who touch the firm is changed along with the conduct of the firm.
• The eighth role is the conduct of the environment audit and the disclosure of the results, that is the checking of how much the firm pollutes, the setting of the targets to reduce it, and the report of the progress to the public, and this is the role that converts the promise into the practice, and it is supported by the laws of the land, the Water Act, the Air Act and the Environment Protection Act, which the firm cites as the floor of its own conduct.