Social Responsibilities of Business (SRB)

Social Responsibility of Business Social Responsibility of Business refers to all that business does for the benefit of the society, over and above the statutory requirement. Social Responsibility of Business refers to all that business does for the benefit of the society, over and above the statutory requirement. Operation of business affect a wide spectrum of areas, and it even impacts people who are not connected with the enterprise. The shareholders, the suppliers, the consumers, the local community and the society at large are all affected by the way an enterprise functions. Operation of business affect a wide spectrum of areas, and it even impacts people who are not connected with the enterprise. The shareholders, the suppliers, the consumers, the local community and the society at large are all affected by the way an enterprise functions. Hence it is expected that a business enterprise would be socially responsible so that there is a balance of forces between those with opposing interests. Hence it is expected that a business enterprise would be socially responsible so that there is a balance of forces between those with opposing interests.

Nature of Social Responsibility of Business Nature of SRB can be classified into two categories: Nature of SRB can be classified into two categories: 1. The manner in which a business carries out its business. This in turn involves, accepting that business in not solely a profit- making occupation but it is a social function with some duties towards society. These involve obeying the law of the land, producing good quality products, paying fair wages, dividends to shareholders, paying taxes, taking up investments and increase industrialisation in backward areas etc. 1. The manner in which a business carries out its business. This in turn involves, accepting that business in not solely a profit- making occupation but it is a social function with some duties towards society. These involve obeying the law of the land, producing good quality products, paying fair wages, dividends to shareholders, paying taxes, taking up investments and increase industrialisation in backward areas etc. Promoting social welfare, even directly sometimes. Promoting social welfare, even directly sometimes.

Social Orientation of Business The extent of social orientation of business vary across companies and over time. The extent of social orientation of business vary across companies and over time. Some models try to describe the evolution and extent of social orientation of companies. Some models try to describe the evolution and extent of social orientation of companies. CARROLL’S MODEL CARROLL’S MODEL Carroll’s model defines corporate social responsibility as the entire range of obligations that business has to society. And there are basic 4 obligations Carroll’s model defines corporate social responsibility as the entire range of obligations that business has to society. And there are basic 4 obligations Economic: which involves efficient operation for satisfying economic needs of the society and generation of surplus for rewarding shareholders and investing for development. Economic: which involves efficient operation for satisfying economic needs of the society and generation of surplus for rewarding shareholders and investing for development.

Carroll’s Model Legal: Obeying the law of the country of operation Legal: Obeying the law of the country of operation Ethical: Company should not resort to unethical practices, like bribing, extortion, unfair competitive practices Ethical: Company should not resort to unethical practices, like bribing, extortion, unfair competitive practices Discretionary: Refers to voluntary contributions of business to various social clauses. Discretionary: Refers to voluntary contributions of business to various social clauses.

Akerman’s Model According to this model there are three phases in the development of social responsiveness of a company. According to this model there are three phases in the development of social responsiveness of a company. These three phases through which companies commonly tend to pass in developing a response to social issues are: These three phases through which companies commonly tend to pass in developing a response to social issues are: Phase I: Company becomes aware of a particular social problem Phase I: Company becomes aware of a particular social problem Phase II: Company hires staff specialists or engages external consultants to study the problem and suggest ways of dealing with it Phase II: Company hires staff specialists or engages external consultants to study the problem and suggest ways of dealing with it

Phase III: Implementation – Company integrates the policy into its ongoing operations. This comes slowly & not often until forced by the government or public opinion. Phase III: Implementation – Company integrates the policy into its ongoing operations. This comes slowly & not often until forced by the government or public opinion. Late implementation or no responsiveness may create problems that may become legal in nature as well. Late implementation or no responsiveness may create problems that may become legal in nature as well. According to Ackerman the best way is to response to a social issue at the earliest. According to Ackerman the best way is to response to a social issue at the earliest. “Act early in the life cycle of any social issue in order to enjoy the largest amount of managerial discretion over the outcome.” “Act early in the life cycle of any social issue in order to enjoy the largest amount of managerial discretion over the outcome.”

Factors Influencing Extent of Social Orientation of Business Values and Visions of promoters and top management. Values and Visions of promoters and top management. Attitude of the members of the Board, who decide major policies and resource allocation Attitude of the members of the Board, who decide major policies and resource allocation Attitude of various stakeholders like shareholders, creditors, employees Attitude of various stakeholders like shareholders, creditors, employees Societal Factors Societal Factors Government and Laws: Government and Laws: Competitors Competitors Resources Resources

Responsibilities to Different Sections Responsibility to Shareholders: This is the primary responsibility to shareholders as they are the owners. Growth, innovation and earning profit, therefore remains necessary for fulfilling this social responsibility. Responsibility to Shareholders: This is the primary responsibility to shareholders as they are the owners. Growth, innovation and earning profit, therefore remains necessary for fulfilling this social responsibility. Responsibility to Employees: Success of an enterprise depends on the employees’ cooperation and involvement. Therefore payment of fair wages, provision of best possible work environment, establishment of fair work standards and norms, provision of labour welfare facilities, appreciation and recognition for special skills and abilities etc. Responsibility to Employees: Success of an enterprise depends on the employees’ cooperation and involvement. Therefore payment of fair wages, provision of best possible work environment, establishment of fair work standards and norms, provision of labour welfare facilities, appreciation and recognition for special skills and abilities etc.

Responsibilities to Different Sections Responsibility to Community: Preventing environmental pollution, and preserving ecological balance, rehabilitating people displaced by the business, assisting in overall development of locality, development of backward areas, promotion of research and development, promoting growth of ancillaries and small scale industries etc. Responsibility to Community: Preventing environmental pollution, and preserving ecological balance, rehabilitating people displaced by the business, assisting in overall development of locality, development of backward areas, promotion of research and development, promoting growth of ancillaries and small scale industries etc. Responsibility to Consumers: To improve quality, reduce prices by increasing efficiency, through research and developmental activities, providing required after-sales service, to avoid misleading through improper adv, provide proper information about the adverse effects, risks of the products. Responsibility to Consumers: To improve quality, reduce prices by increasing efficiency, through research and developmental activities, providing required after-sales service, to avoid misleading through improper adv, provide proper information about the adverse effects, risks of the products.

Arguments for Social Responsibility Business which survives using the resources of society has a responsibility to society. Business which survives using the resources of society has a responsibility to society. Changed public Expectations of Business Changed public Expectations of Business Social Responsibility, like recycling of waste, may have favourable financial impact. Social Responsibility, like recycling of waste, may have favourable financial impact. Better Environment of Business Better Environment of Business Public image Public image To avoid Govt. Regulation To avoid Govt. Regulation Balance of responsibility with power Balance of responsibility with power Moral responsibility & Citizen Argument Moral responsibility & Citizen Argument Globalization Globalization

Arguments against Social Responsibility Profit maximization- the question of efficiency Profit maximization- the question of efficiency Society has to pay the additional cost Society has to pay the additional cost Lack of social skills Lack of social skills Social overhead costs Social overhead costs Lack of accountability Lack of accountability Responsibility towards stakeholders Responsibility towards stakeholders

Barriers to social responsibility The Individual Manager The Individual Manager Focus on profit Focus on profit Lack of Industry support Lack of Industry support

Consumerism Organised endeavour of consumers to protect their rights is called Consumerism. Organised endeavour of consumers to protect their rights is called Consumerism. Consumer Rights Consumer Rights Right against exploitation by unfair trade practices, Right against exploitation by unfair trade practices, Right to protection of health and safety from goods consumed Right to protection of health and safety from goods consumed Right to be informed about the quality and standards, Right to be informed about the quality and standards, Right to be heard in case of grievances Right to be heard in case of grievances Right to have genuine grievances addressed Right to have genuine grievances addressed

Consumerism Movement to inform consumers & protect them from business malpractices Movement to inform consumers & protect them from business malpractices Focus Areas – inferior & dangerous merchandise, unfair business practices, & false or misleading advertisements Focus Areas – inferior & dangerous merchandise, unfair business practices, & false or misleading advertisements Malpractices - Artificial scarcity, price hikes, distorted advertisements, product quality Malpractices - Artificial scarcity, price hikes, distorted advertisements, product quality

Consumer Protection Act Consumer Protection Act, 1986 – enacted by the Central Govt. (modified by the Amendment Act 1993) Consumer Protection Act, 1986 – enacted by the Central Govt. (modified by the Amendment Act 1993) Protects against unfair trade practices, unsatisfactory services & defective goods Protects against unfair trade practices, unsatisfactory services & defective goods Special forums at district, state & central levels to deal exclusively with consumer complaints & issues. Special forums at district, state & central levels to deal exclusively with consumer complaints & issues. Compensation to be awarded to the affected consumers Compensation to be awarded to the affected consumers Most progressive, comprehensive & unique legislation Most progressive, comprehensive & unique legislation A revolution in the field of consumers’ rights A revolution in the field of consumers’ rights

Objectives of the Central Council Protects the following rights Protects the following rights  Right to be protected against marketing of goods & services which are hazardous to life & property  Right to be informed about quality, quantity, potency, purity, standard & price of goods & services so as to protect the consumer against unfair trade practices Right to be assured, wherever possible, access to a variety of goods at competitive prices Right to be assured, wherever possible, access to a variety of goods at competitive prices

Right to be heard and assured that consumer’s interests will receive due consideration at appropriate forums Right to be heard and assured that consumer’s interests will receive due consideration at appropriate forums Right to seek redressal against unfair trade practices or unscrupulous exploitation of consumers Right to seek redressal against unfair trade practices or unscrupulous exploitation of consumers Right to consumer education Right to consumer education

Consumer Disputes Redressal Agencies The Protection Act provides for a: The Protection Act provides for a: Three tier consumer redressal system – district, state and national level Three tier consumer redressal system – district, state and national level  District forum  State Commission  National Commission: Established by the govt. in 1988

Consumer Complaints A complaint, in relation to any goods sold or delivered or any service provided may be filed with the redressal agency by – A complaint, in relation to any goods sold or delivered or any service provided may be filed with the redressal agency by – a) The consumer to whom such goods are sold or delivered or such service provided b) Any recognized consumer association, c) One or more consumers having a common interest d) The Central or State Govt.

Remedial Action If the consumer disputes redressal agency is satisfied that any of such allegations contained in the complaint is true, it shall issue an order to the opposite party directing him to take one or more of the following things, namely: If the consumer disputes redressal agency is satisfied that any of such allegations contained in the complaint is true, it shall issue an order to the opposite party directing him to take one or more of the following things, namely: To remove the defect pointed To remove the defect pointed To replace goods To replace goods To compensate with high award To compensate with high award Price return Price return To remove defects To remove defects To discontinue unfair trade and not repeat them To discontinue unfair trade and not repeat them Not to offer hazardous goods for sale Not to offer hazardous goods for sale To withdraw goods from sale offer To withdraw goods from sale offer To provide for adequate costs to parties To provide for adequate costs to parties

Cost of Consumer Protection Economic costs – costs of manufacturing safety devices incurred by the firm. E.g. – safety belts, pollution control devices Economic costs – costs of manufacturing safety devices incurred by the firm. E.g. – safety belts, pollution control devices Social costs – incurred in three ways – loss of freedom of choice (increased protection implies dependence on the system), fear of product liability discourages innovation Social costs – incurred in three ways – loss of freedom of choice (increased protection implies dependence on the system), fear of product liability discourages innovation Opportunity Costs – “Disproportionate Concern with Consumer Protection may divert attention and resources away from social problems which should have equal or perhaps greater priority” Opportunity Costs – “Disproportionate Concern with Consumer Protection may divert attention and resources away from social problems which should have equal or perhaps greater priority”