CHAPTER-1

SOCIAL RESPONSIBILITIES OF BUSINESS

1. MEANING OF SOCIAL RESPONSIBILITY
 Adolph Berle: Social responsibility is the manager responsiveness to public consensus
 Keith Davis: Social responsibility refers to 2 types of business obligations:
1. Socio-Economic Obligation: Every business sees the economic consequences of its actions, which
does not focus on public welfare.
Ex: Promote employment, maintains competition
2. Socio-Human Obligation: Every business sees to nurture and develop human values.
Ex: Motivation, coordination, team work

2. SOCIAL RESPONSIBILITY OF BUSINESS TOWARDS DIFFERENT

GROUPS
 Business enterprises have responsibility towards:
1.Towards the Consumer and the Community
2.Towards Employees and Workers
3. Towards Shareholders and Other Businesses
4.Towards the state
1. Towards the Consumer and the Community
 Production of cheap and better-quality goods and services by developing new skills, innovations
and techniques, by locating factories and markets at proper places.
 Levelling out seasonal variations in employment and production.
 Deciding priorities of production in the country's interest and conserving natural resources.
 Providing social audit.
 Making real consumer needs as the criterion for selecting messages to be given by product
advertisements. Example: Toothpaste is bought not to kill bacteria but to create white teeth. This
kind of advertising promotes over-consumption, forces consumers to constantly compare
themselves negatively with others, creates in them dissatisfaction with the old products.
 Preventing creation of monopolies. Monopolies are bad in that they make the community face high
prices, short supply and inferior quality of goods.
 Providing after sale services.
 Ensuring hygienic disposal of wastes after production and voluntarily assisting in making the town
 environment satisfying.
 Achieving better public relations by giving to the community, true, adequate and easily intelligible
information about its working.
 Supporting programmes like supporting education. Slum clearance and similar other programs.

2. Towards Employees and Workers

 Fair wages to employees, which is possible only when the businessman is willing to accept a
voluntary on his own profits.
 Selection, training and promotion irrespective of race, religion.
 Social security measures and good quality of work life.
 Good human relationship i.e., maintaining industrial peace, educating workers to produce their
own leadership.
 Freedom, self-respect and self-realization.
 Recognition of talented workers and provide appreciation through incentives.

3. Towards Shareholders and Other Businesses

 Promoting good governance through internal accountability and transparency.
 Fairness in relations with competitors. Competition with rival businessmen should always be fair
and healthy. Businessmen sometimes treat their rivals as enemies and try to harm each other.

4. Towards the state

 Keeping away active participation in and direct identification with any political party.
 Observing all the laws of land which may have the following objectives:
a. To provide direction to the economic and business life of the community.
b. To bring about harmony between the limited enterprise interest and social interest.
c. To provide safeguard against wrong business practices.
d. To compel business to play fair to all participants
e. To enforce maximum production lines.
f. To allocate limited resources according to social priorities and preferences.
g. To implement rural uplift and secure balanced.
h. To enforce distributive justice.
i. To prevent week partners in business getting exploitation.
3. SOCIAL AUDIT
 A social audit is a systematic study and evaluation of the organization’s social performance as
distinguished from its economic performance. The term "social performance" refers to any
organizational activity that effects the general welfare of society.
 BENEFITS
1. It supplies data for comparison with the organization’s social policies and standards. The
management can determine how well it is living up to its social objectives.
2. It develops a sense of social awareness among all employees. In the process of preparing reports
and responding to evaluations, employees become more aware of the social implications of their
actions.
3. It provides data for comparing the effectiveness of different types of programmes.
4. It provides data about the cost of social programmes, so that the management can relate this data
to budgets, available resources, company objectives, etc.
5. It provides information for effective response to external groups which make demands on the
organization.
 LIMITATIONS
1. They are difficult to measure.
2. Their classification under "good" or "bad" is not universally accepted. In other words, the same
social result may be classed as "good" according to one opinion, and as "bad" according to an-
other.
3. Most of them occur outside the organization, making it difficult for the organization to secure
data from these outside sources.

4. BUSINESS ETHICS
 Business ethics is the application of moral principles to business problems. Ethics extend beyond the
question of legality and involve the goodness or badness of an act.
 An action may be legally right but ethically wrong. For example, a small village community located
twenty miles from the closest urban shopping area has a single grocer's shop. The owner of the shop
can charge extra price for his product though legally but not ethically.
 Discrimination against women in pay and promotion opportunities is also unethical, which continues
to exist despite there being the Equal Remuneration Act, 1976.
 One of the most commonly cited reasons for the lack of promotions of women is the effect a term
used for artificial barriers based on attitudinal or organizational bias that prevent qualified women
 from progressing in the organization into senior management level positions.
 How does a manager decide what is ethical or unethical? There are four important factors which
affect his decision.
 Government legislation.
 Business codes - But being voluntary in nature these codes, though pointed to with pride, are
usually ignored in practice.
 Pressure groups - For example, in recent years’ Indian carpet industry has been facing
consumer boycott from the west for employing child labor.
 Personal values of the manager himself - But a manager with strong personal values mostly
finds himself in a dilemma when an unethical course of action becomes his only choice to
achieve the company's goal.

5. CORPORATE GOVERNANCE
 The term "corporate governance" is used to denote the extent to which companies run in an open and
honest manner in the best interest of all stake-holders.
 The key elements of good corporate governance are transparency and accountability which
incorporates a system of checks and balances between all key players, viz., board of directors,
auditors and stake-holders.
 Major recommendations of this committee are as under:
 Non-executive directors whose most important role is to bring an independent judgement to bear
on issues of strategy, performance, resources, etc. should be picked through a formal selection
process on merits.
 Companies should have remuneration committees consisting wholly or mainly of non-executive
directors which should recommend to the board executive directors' emoluments.
 Companies should have audit committees consisting of minimum 3 non-executive directors to
report on any matter relating to financial management.
 Audit partners should be rotated and there should be fuller disclosure of non-audit work.
 This is a voluntary code and has only some moral requiring companies to mention in their annual
report whether they are following the code, and if not, why.
 Benefits of Good Corporate Governance
1. It creates overall market confidence and long-term trust in the company.
2. It leads to an increase in company's share prices.
3. It ensures the integrity of company's financial reports.
4. It maximizes corporate security by acting as a whistle blower.
 5. It limits the liability of top management by carefully articulating the decision-making process.
6. It improves strategic thinking at the top by inducting independent directors who bring a wealth of
experience and a host of new ideas.

6. CORPORATE GOVERNANCE IN INDIA

1. The Securities and Exchange Board of India (SEBI) monitors corporate governance of listed
companies in India which should comply the following rules:
 50% of board should consist of independent directors if the company has an executive
chairman. In case of non-executive chairman, 1/3rd of the board should consist of independent
directors.
 Following persons are not qualified for becoming independent directors:
 Shareholder with more than 2% shareholding in the company
 Former executive who left the company less than 3 years ago
 Partner of current legal, audit, and consulting firm
 Relative of promoter, an executive director or senior executive
2. The companies have introduced several provisions relating to corporate governance such as setting
up of audit committee.
3. The world council for corporate governance has instituted the Golden Peacock Award to foster
competition among companies to improve their quality of cooperate governance.
4. India has several bodies that rate companies for their credit-worthiness. Important amongst them are:
SRISIL (Credit Rating and Information Service of India Ltd.), ICRA (Information and Credit Rating
Agency of India Ltd.) and CARE (Credit Analysis and Research).

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 QUESTION BANK
MODULE 3 CHAPTER 1
1. Explain benefits and limitations of social audit. (Aug 2022, Jan 2021, Feb 2023, Mar 2022 – 10M)
*****
2. Discus corporate governance. Explain the benefits of corporate governance. (Jan 2021, Feb 2023 –
7M) *****
3. Explain corporate governance in India. (Aug 2022, Jul 2023 -10M) *****
4. How do u understand business ethics? What are the factors which affects the decision in ethical or
unethical? (Jan 2021 – 6M)
5. What is the meaning of social responsibility? Describe the social responsibilities of business towards
consumer and community. (Feb 2023 – 6M)
6. Describe the social responsibilities of business towards employee and worker. (Jul 2023 – 10M)
7. Describe the social responsibilities of business towards different group. (Mar 2022 -10M) *****

Dept. of ECE, MIT Thandavapura