SOCIAL RESPONSIBILITY OF BUSINESS

Environment for Business

Classical & contemporary views

According to the classical view, business has only economic objective and not other responsibility beyond that. The contemporary view of business is an ecological one according to which business is an integral part of the society to serve a social purpose.

Social orientations of business

Social responsibility models
Archie B Carroll defines corporate social responsibility as the entire range of obligations business has to society and has proposed a three dimensional conceptual model of corporate performance. According to him, following 4 categories of obligation of corporate performance:
Economic Legal Ethical discretionary

Social orientation of business (contd.)

Extent of social orientation and involvement
Anti-social Indifferent Peripheral Socially oriented Committed and very active

Factors affecting social orientation

Promoters and top management Board of directors Stakeholders & internal power relationship Societal factors Industry & trade associations Government & laws Political influences Competitors Resources Ethical influences

Responsibility to shareholders
To safeguard the capital of the shareholders To provide a reasonable dividend Consolidate & strengthen the share prices by innovation & growth Public image

Responsibility to employees
Payment of fair wages Provision of the best possible working conditions Establishment of fair work standards & norms Provision of labour welfare facilities to the extent possible & desirable Arrangements for proper training & education of workers Reasonable chance and proper system for accomplishment & promotion Proper recognition, appreciation and encouragement of special skills and capabilities of the workers Installation of an efficient grievance handling system An opportunity for participating in managerial decisions to the extent desirable

Responsibility to customers
To improve efficiency of the functioning of the business to
Increase productivity & reduce prices Improve quality Smoothen the distribution system

To do research & development, to improve quality & introduce better & new products To take appropriate steps to remove the imperfection in the distribution system, including black marketing or profiteering by middlemen To supply goods at reasonable prices even there is a sellers market

Responsibility to customers (contd.)

To provide required after sales service To ensure that the product supply has no adverse effect on consumers To provide sufficient information about the products, including their adverse effects, risks and care to be taken To avoid misleading the consumers by improper advertisements or otherwise To provide an opportunity for being heard and to redress genuine grievances To understand customer needs and to make necessary measures to satisfy these needs

Responsibility to community
Taking appropriate steps to prevent environmental pollution and to preserve the ecological balance Rehabilitating the population displaced by operation of business Assisting in overall development of society Taking steps to conserve scarce resources and developing alternatives, wherever possible Improving efficiency of the business operation Contributing to R&D Development of backward areas Promotion & ancillarization and small-scale industries Making possible promotion of further causes like education & population control Contributing to national effort to build up a better society

Gandhian Philosophy of Trusteeship

Gandhian philosophy of wealth management is based on the Sarvodya principles of truth, non-violence and trusteeship wherein class harmony between labour and management should reign supreme. According to Gandhiji, managers & proprietors of business firms are only the trustees of the wealth of society. He also believed that workers should work in harmony and in collaboration with the management.

The Indian Situation

Presents a mix picture Number of leading companies in India have shown recognition of the social responsibility of the corporate sector Some enterprises have taken pollution abatement measures, many still continue to be major offenders Sachar Committee

Arguments for Social Involvement of Business

Business which survives using the resources of the society has a responsibility to the society Business which is an integral part of the social system has to care for the varied needs of the society Social involvement of the business would foster a harmonious and healthy relationship between the society & business to the mutual benefit of both Social responsibilities like recycling of waste may have financial effects Social involvement may discourage additional government regulation & intervention Social involvement may create a better public image for the company which may help it in attracting customers, efficient personnel & investors

Arguments Against Social Involvement of Business

Business should confine to its own business Involvement in social activities could adversely affect the economic health of a business enterprise If the cost of the social involvement of the business is ultimately passed on to the consumers, there is no point in exalting it Many companies involve themselves in social activities for tax exemptions If it causes an increase in the price of its products, it could affect its competitiveness It could lead to an increase in the dominance or influence of business over society

Social Responsibility and profit

Managing & performing social responsibility not only yields profit but also results in competitive advantages:
Decreasing cost Brand loyalty and high sales

Strategic utility of social responsibility

Social responsibility can be used to gain strategic advantage and to increase market share.
E-choupal (ITC) Project Shakti (HUL)

Social Audit
Social audit is a tool for evaluating how satisfactorily a company has discharged its social responsibilities. It involves:
Identification of the firms activities having potential social impact Assessment and evaluation of the social costs and social benefits of such activities Measurement of the social costs and benefits Reporting the social performance of the firm

Objectives & benefits of social audit

Basic objective is to evaluate the social dimensions of the performance of the company To take measures to improve the social performance of the company on the basis of the feedback provided by social audit Increases the public visibility of the organization Helps boost the public image of the company if it reveals socially commendable performance

Methods of social audit

Social process audit
Also known as Programme Management audit, it involves determination of the objective of the social programmes & a social cost benefit analysis of the programme with a view to determining whether these objectives have been met.

Financial statement format audit

The social information is presented in the conventional financial format i.e., balance sheet &/or income statement.

Macro-micro social indicator audit Attempts to evaluate the micro indicators (companys performance) against a set of macro indicators such as national policies. Constituency group audit The preference & attitudes of various constituencies (like employees, creditors, suppliers & customers) are identified & measured and firms performance is evaluated against the criteria developed for each group.

Methods of social audit (contd.)

Partial social audit
Evaluates any particular aspects of social performance like energy conservation or ecological preservation.

Comprehensive social audit

Evaluates the total performance of the organization including social performance.

Corporate rating approach

An external evaluation of the companys performance by public groups like consumer organizations, social welfare organizations or media.

Obstacles to social audit

Yet to gain wide appreciation & acceptance Clear & generally accepted methodology for conducting social audit is not available No agreement as to the items to be included for social audit Difficult to quantify the social costs and benefits of different activities or items Resistance within the company because of time, effort & difficulty involved Resistance may also be due to fear of dismal or unsatisfactory picture that may be presented