Chapter 6 Social Responsibility of Business and Business Ethics Solutions
Question - 1 : - What do you understand by social responsibility of business? How is it different from legal responsibility?
Answer - 1 : -
Social responsibility refers to the duties and responsibilities of business enterprises towards society and its members. It implies the obligation on an enterprise to conduct activities that are favourable from the viewpoint of society. As any business makes use of society’s resources in the form of human and physical capital, it becomes the moral duty and responsibility of the businesspersons to work for the betterment of society.
Social responsibility differs from legal responsibility on various grounds. Social responsibility is a much wider concept than legal responsibility. This is because, by mere compliance with the law, any legal responsibility can be fulfilled—for instance, paying taxes on time and reducing the emission of pollutants. On the other hand, social responsibility is an obligation on business enterprises to work for the welfare of society—for example, generating employment opportunities to the physically challenged and providing equal employment opportunities to women.
Question - 2 : - What is environment? What is environmental pollution?
Answer - 2 : -
By environment, we mean our surroundings, which have an impact on our lives. It is the sum total of the surroundings and resources, including both biotic resources ( i.e., living creatures such as plants and animals) and abiotic resources (i.e., non-living things, such as air, water and land) that effect our existence and quality of life. However, because of the rapid increase in population and industrialisation, the excessive use of resources has resulted in their degradation and depletion. Also, the discharge of harmful substances into the environment has contributed towards pollution. Environmental pollution can be classified into the following four types.
(a) Air pollution: It is caused by the emission of harmful gases into the atmosphere.
(b) Water pollution: It is caused by the discharge of industrial and household wastes into the rivers, thereby degrading the quality of water.
(c) Land pollution: This is caused by dumping toxic wastes on land, which in turn damages it, making it unfit for agriculture.
(d) Noise pollution: It is caused by the noise from factories and vehicles, which may cause serious health problems such as loss of hearing or mental disorders.
Question - 3 : - What is business ethics? Mention the basic elements of business ethics?
Answer - 3 : -
Business ethics refer to the values and principles that govern the behaviour of individuals in an organisation such that the business activities are desirable from the viewpoint of society. The main purpose of business ethics is to guide managers and other employees to perform their jobs in a manner that is socially acceptable.
The following are some of the elements of business ethics.
(a) Top management commitment: Top-level officers, such as CEO's and senior managers, must strongly follow the ethical codes and guide the other employees in adopting such behaviour.
(b) Publication of a ‘code’: Enterprises must clearly define the ethical code of conduct, which would include quality standards, laws governing production and health and safety standards for the employees.
(c) Establishment of compliance mechanism: In addition to standards, an enterprise must also devise a mechanism through which compliance with the code of conduct can be measured.
(d) Involvement of employees at all levels: The successful implementation of ethical standards requires the involvement of all the employees at all levels.
(e) Measurement of results: Although it is difficult to measure the end results of implementation of ethical standards, the top management should take steps to measure the degree of compliance with the ethical codes.
Question - 4 : - Briefly explain (a) Air pollution, (b) Water pollution and (c) Land pollution.
Answer - 4 : -
(a) Air pollution: This kind of pollution is caused by the emission of harmful gases into the atmosphere. Smoke and chemicals emitted by factories and vehicles degrade the air quality and causes air pollution.
(b) Water pollution: Discharge of industrial and household wastes into rivers, streams or lakes causes degradation of the water quality. Over time, the increase in water pollution often results in the deaths of several animals and poses serious threats to human beings.
(c) Land pollution: This is caused due to the dumping of toxic material and wastes on land, which in turn damages the quality of land, making it unfit and unproductive for agriculture and crop plantation.
Question - 5 : - What are the major areas of social responsibility of business?
Answer - 5 : -
The following are the major areas of social responsibility of businesses.
(a) Economic responsibility: Business enterprises are economic units that exist to make profits. Therefore, it is the responsibility of every business enterprise to undertake economic activities such as producing goods and services according to the needs and wants of consumers and selling them at reasonable prices.
(b) Legal responsibility: It is the responsibility of every business to respect the laws and regulations of the country in which it operates, as laws are formed for the betterment of society.
(c) Ethical responsibility: This responsibility implies that a business enterprise should follow only those business practices that are in line with the social values that are desirable from the viewpoint of society. This includes respecting religious sentiments and producing quality products.
(d) Discretionary responsibility: This responsibility is completely voluntary in nature. It means that a business enterprise may choose to open a charitable school or hospital for the poor, grant aid to people affected by natural calamities, provide employment opportunities to the physically challenged and so on.
Question - 6 : - State the meaning of Corporate Social Responsibility as per the Companies Act 2013.
Answer - 6 : -
Corporate social responsibility in general refers to the responsibilities and duties of the businesses towards the society. The Corporate Social Responsibility in India as governed by the Companies Act, 2013 (under Clause 135) applies to those companies which have an annual turnover of Rs. 1,000 crore and more, or those having a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more. The meaning of CSR as per Companies Act, 2013 can be understood with the help of the activities that can be undertaken by the companies as per the Schedule under the Companies Act which include eradicating extreme hunger and poverty, promoting gender inequality and empowering women, ensuring environmental sustainability, etc.
Question - 7 : - Build up argument for and against social responsibilities.
Answer - 7 : -
The case in favour of taking up social responsibilities
(a) Existence and growth: Business enterprises exist to make profits by providing goods and services to consumers. Thus, we can say that their long-term growth prospect depends not only on their profits but also on how efficiently they serve society. Therefore, taking up social responsibilities supports the existence and growth of a business enterprise.
(b) Avoidance of government intervention: Business enterprises should always work in line with society’s values and ethics. This would help them fulfil their social responsibilities, which in turn would make them less prone to government intervention.
(c) Better environment for doing business: Businesses make use of society’s resource of human capital. Thus, by providing employment to people, they help solve the social problem of unemployment and poverty, thereby creating a favorable environment for business.
The case against taking up social responsibilities
(a) Violation of profit maximisation objectives: It is argued that a business enterprise exists to make a profit. Thus, if it engages itself in solving social problems, then it may not have enough resources to meet its primary objective of profit maximisation.
(b) Burden on consumers: It is argued that when a business enterprise is engaged in solving social problems such as environment pollution and unemployment, its expenditures increase. This increased financial burden is ultimately passed on to the consumers in the forms of higher prices of products.
(c) Lack of social skills: Businesspersons are basically trained to solve business-related problems such as minimising cost, maximising profits and increasing sales. However, they are not specialised in solving social problems. Thus, it is argued that social problems must be solved only by specialised agencies, which have the required training and skills.
Question - 8 : - Discuss the forces which are responsible for increasing concern of business enterprises towards social responsibility.
Answer - 8 : -
The following are the forces which are responsible for increasing the concern of business enterprises for social responsibility.
(a) Threat of public regulation: The government is meant to safeguard the interests of society. Thus, in case the government feels that a business enterprise is behaving in a manner that is not socially desirable, then it can regulate the operations of that enterprise accordingly.
(b) Pressure of labour movement: The increase in capital mobility over time has increased the pressure on business enterprises to pay attention to the welfare of workers, by providing them with healthy working conditions along with good remuneration.
(c) Impact of consumer consciousness: As consumers today are aware of their rights and responsibilities, they take their decisions more rationally. Thus, business enterprises are made to work more efficiently and produce better products at reasonable rates to satisfy their customers.
(d) Development of social standards: Business enterprises are not mere profit-making entities. For their long-term growth and existence, they require to fulfil the new standards of social welfare.
(e) Development of business education: The spread of education over time has made consumers, investors, employees and owners more of social problems, thereby making them more sensitive to social issues.
(f) Relationship between social interest and business interest: No business enterprise can work in isolation from society. Thus, there should be a balance between business interests and social interests, such that the business can grow by doing the maximum good to society.
(g) Development of a professional managerial class: Every business professional pursues the goal of profit maximization. But today’s professional managers make efforts to satisfy the interests of all members of society.
Question - 9 : - 'Business is essentially a social institution and not merely a profit making activity'. Explain.
Answer - 9 : -
The primary objective of any business enterprise is profit maximisation. This is because profit acts as a measure of success and at the same time is the main source of income for an enterprise. Also, profits are often used to finance the expansion projects of a business enterprise. However, it is argued that business enterprises are not mere profit-making entities. They are considered as social institutions, too, as they are created by society. As every business makes use of society’s resources in terms of human and physical capital, it cannot work in isolation from society. That is, its operations are affected by social problems such as unemployment and poverty. Thus, a need arises to create a balance between the business interests and social interests of a business enterprise, such that it can grow by doing the maximum good to society. Hence, we say that a business enterprise is a social institution and not merely a profit-making entity. In this regard, the following are some of the responsibilities that must be fulfilled by an enterprise:
(a) Paying taxes on time
(b) Paying fair wages to employees.
(c) Supplying quality products at reasonable prices to customers
(d) Cooperating with the government in solving social problems, such as unemployment, poverty and illiteracy.
Question - 10 : - Why do the business enterprises need to adopt pollution control measures?
Answer - 10 : -
Pollution control is necessary for preserving and improving the quality of environmental resources. As business activities such as production, transportation, distribution, storage and consumption are often assumed to cause the maximum destruction to society’s resources, a need arises for adopting pollution control measures. The following are some of the reasons why business enterprises need to adopt pollution control measures.
(a) Reduced heath hazards: Pollutants in the environment cause diseases such as cancers and respiratory problems. Thus, pollution control measures will not only help in reducing the incidence of diseases but also help people enjoy a good and healthy life.
(b) Reduced risk of liability: Enterprises are often held responsible for polluting the environment and are asked to compensate. Pollution control helps in reducing the risk of such liabilities.
(c) Cost savings: Efficient pollution control mechanisms help in reducing the cost of waste disposal and the cost of cleaning up production plants. This in turn helps firms to reduce their costs.
(d) Improved public image: An increase in the education level has made people more aware about environmental problems. As a result, they have started realising the need to protect the environment. Thus, business enterprises which adopt pollution control measures enjoy a good reputation in society.
(e) Other social benefits: Pollution control helps a firm to enjoy various other benefits such as cleaner surroundings, better quality of life for its employees as well as owners and increased availability of good quality resources.