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NCERT Class 11 Business Studies Chapter 6 Social Responsibilities of Business and Business Ethics
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Social Responsibilities of Business and Business Ethics
Chapter: 6
| PART – Ⅰ |
| EXERCISES |
Short Answer Questions:
1. What do you understand about the social responsibility of business? How is it different from legal responsibility?
Ans: Social responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of our society. The assumption of social responsibilities by business enterprises implies that they respect the aspirations of society and would try their best to contribute to the achievement of these aspirations along with their profit interests.
In this sense, social responsibility is broader than legal responsibility of business. Legal responsibility may be fulfilled by mere compliance with the law. Social responsibility is more than that. It is a firm’s recognition of social obligations even though not covered by law, along with the obligations laid down by law. In other words, social responsibility involves an element of voluntary action on the part of business people for the benefit of society.
2. What is the environment? What is environmental pollution?
Ans: An Environment is everything that is around us, which includes both living and nonliving things such as soil, water, animals and plants, which adapt themselves to their surroundings.These include both internal factors, like employees and resources, and external factors, like customers and markets. Each of these contributes to a company’s working environment and can influence how the business functions.
Environmental pollution is the introduction of harmful substances into the environment, which can harm the environment and human health. Environmental pollution, unsafe workplaces, corruption in public institutions, and discriminatory practices in employment are some of these problems. Therefore, it is the moral obligation of business to get involved in solving these problems, instead of merely expecting that other social agencies will deal with them on their own.
3. What is business ethics? Mention the basic elements of business ethics.
Ans: Business ethics refer to the socially determined moral principles which should govern business activities. A few examples of business ethics are: charging fair prices from customers, using fair weights for measurement of commodities, giving fair treatment to workers and earning reasonable profits. A business person behaves ethically when her or his actions are upright and serve the interests of society.
Some of the basic elements of business ethics while running a business enterprise are as follows:
(i) Top management commitment: Top management has a crucial role in guiding the entire organisation towards ethically upright behaviour. To achieve results, the Chief Executive Officer (CEO) and other higher level managers need to be openly and strongly committed to ethical conduct.
(ii) Publication of a ‘Code’: Enterprises with effective ethics programmes do define the principles of conduct for the whole organisation in the form of written documents which is referred to as the “code”. This generally covers areas such as fundamental honesty and adherence to laws; product safety and quality; health and safety in the workplace; conflicts of interest; employment practices; fairness in selling/marketing practices; and financial reporting.
(iii) Establishment of compliance mechanisms: In order to ensure that actual decisions and actions comply with the firm’s ethical standards, suitable mechanisms should be established.
(iv) Involving employees at all levels: It is the employees at different levels who implement ethics policies to make ethical business a reality. Therefore, their involvement in ethics programmes becomes a must.
(v) Measuring results: Although it is difficult to accurately measure the end results of ethics programmes, the firms can certainly audit to monitor compliance with ethical standards. The top management team and other employees should then discuss the results for further course of action.
4. Briefly explain:
(a) Air Pollution.
Ans: Air pollution is the result of a combination of factors which lowers the air quality. It is mainly due to carbon monoxide emitted by automobiles which contributes to air pollution. Similarly, smoke and other chemicals from manufacturing plants pollute the air. Resultant air pollution has created a hole in the ozone layer leading to dangerous warming of the earth.
(b) Water pollution.
Ans: Water becomes polluted primarily from chemical and waste dumping. For years, business enterprises have been dumping waste into rivers, streams and lakes with little regard for the consequences. Water pollution has led to the death of several animals and posed a serious threat to human life.
(c) Land pollution.
Ans: Dumping of toxic wastes on land causes land pollution. This damages the quality of land making it unfit for agriculture or plantation. Restoring the quality of the land that has already been damaged is a big problem.
5. What are the major areas of social responsibility of business?
Ans: Social responsibility of business can broadly be divided into four categories, which are as follows:
(a) Economic responsibility: A business enterprise is basically an economic entity and, therefore, its primary social responsibility is economic i.e., to produce goods and services that society wants and sell them at a profit. There is little discretion in performing this responsibility.
(b) Legal responsibility: Every business has a responsibility to operate within the laws of the land. Since these laws are meant for the good of the society, a law abiding enterprise is a socially responsible enterprise as well.
(c) Ethical responsibility: This includes the behaviour of the firm that is expected by society but not codified in law. For example, respecting the religious sentiments and dignity of people while advertising for a product.
(d) Discretionary responsibility: This refers to purely voluntary obligation that an enterprise assumes, for instance, providing charitable contributions to educational institutions or helping the affected people during floods or earthquakes.
6. State the meaning of Corporate Social Responsibility as per the Companies Act 2013.
Ans: Corporate sustainability refers to the role that companies can play in meeting the agenda of sustainable development and entails a balanced approach to economic progress, social progress and environmental protection.
There is no single universally accepted definition of CSR, each definition that currently exists underpins the impact that businesses have on society at large and the societal expectations of them.
Long Answer Questions:
1. Build up arguments for and against social responsibilities.
Ans: Arguments for Social Responsibility:
(i) Justification for existence and growth: Business exists for providing goods and services to satisfy human needs. Though profit motive is an important justification for undertaking business activity, it should be looked upon as an outcome of service to the people.
(ii) Long-term interest of the firm: A firm and its image stands to gain maximum profits in the long run when it has its highest goal as ‘service to society’. When an increasing number of members of society including workers, consumers, shareholders, government officials, feel that business enterprise is not serving its best interest, they will tend to withdraw their cooperation to the enterprise concerned.
(iii) Avoidance of government regulation: From the point of view of a business, government regulations are undesirable because they limit freedom. Therefore, it is believed that businessmen can avoid the problem of government regulations by voluntarily assuming social responsibilities, which helps to reduce the need for new laws.
(iv) Maintenance of society: The argument here is that laws cannot be passed for all possible circumstances. People who feel that they are not getting their due from the business may resort to anti-social activities, not necessarily governed by law. This may harm the interest of business itself.
(v) Availability of resources with business: This argument holds that business institutions have valuable financial and human resources which can be effectively used for solving problems. For example, business has a pool of managerial talent and capital resources, supported by years of experience in organising business activities.
(vi) Converting problems into opportunities: Related with the preceding argument is the argument that business with it’s glorious history of converting risky situations into profitable deals, can not only solve social problems but it can also make them effectively useful by accepting the challenge.
(vii) Better environment for doing business: If business is to operate in a society which is full of diverse and complicated problems, it may have little chance of success. Therefore, it is argued that the business system should do something to meet needs before it is confronted with a situation when its own survival is endangered due to enormous social illnesses.
(viii) Holding business responsible for social problems: It is argued that some of the social problems have either been created or perpetuated by business enterprises themselves. Environmental pollution, unsafe workplaces, corruption in public institutions, and discriminatory practices in employment are some of these problems.
Major arguments against social responsibility are:
(i) Violation of profit maximisation objective: According to this argument, business exists only for profit maximisation. Therefore, any talk of social responsibility is against this objective. In fact, business can best fulfil its social responsibility if it maximises profits through increased efficiency and reduced costs.
(ii) Burden on consumers: It is argued that social responsibilities like pollution control and environmental protection are very costly and often require huge financial investments. In such circumstances, businessmen are likely to simply shift this burden of social responsibility by charging higher prices from the consumers instead of bearing it themselves.
(iii) Lack of social skills: All social problems cannot be solved the way business problems are solved. In fact, businessmen do not have the necessary understanding and training to solve social problems. Therefore, according to this argument, social problems should be solved by other specialised agencies.
(iv) Lack of broad public support: Here the argument is that the public in general does not like business involvement or interference in social programmes. Therefore, business cannot operate successfully because of lack of public confidence and cooperation in solving social problems on the basis of the above arguments for and against social responsibility, one may wonder what the businessmen do in reality.
2. Discuss the forces which are responsible for increasing concern of business enterprises toward social responsibility.
Ans: Once the social objective of business is recognised, it is important to know to whom and for what the business and its management are responsible. Obviously, a business unit has to decide in which areas it should carry out social goals.
Some of the specific responsibilities and enterprise may be outlined as under:
(i) Responsibility towards the shareholders or owners: A business enterprise has the responsibility to provide a fair return to the shareholders or owners on their capital investment and to ensure the safety of such investment. The corporate enterprise on a company form of organisation must also provide the shareholders with regular, accurate and full information about its working as well as schemes of future growth.
(ii) Responsibility towards the workers: Management of an enterprise is also responsible for providing opportunities to the workers for meaningful work. It should try to create the right kind of working conditions so that it can win the cooperation of workers. The enterprise must respect the democratic rights of the workers to form unions. The worker must also be ensured of a fair wage and a fair deal from the management.
(iii) Responsibility towards the consumers: Supply of the right quality and quantity of goods and services to consumers at reasonable prices constitutes the responsibility of an enterprise toward its customers. The enterprise must take proper precaution against adulteration, poor quality, lack of desired service and courtesy to customers, misleading and dishonest advertising, and so on. They must also have the right of information about the product, the company and other matters having a bearing on their purchasing decision.
(iv) Responsibility towards the government and community: An enterprise must respect the laws of the country and pay taxes regularly and honestly. It müst behave as a good citizen and act according to the well accepted values of the society. It must protect the natural environment and should avoid bad, effluent, smoky chimneys, ugly buildings and dirty working conditions. It must also develop a proper image in society through continuous interaction with various groups of people.
3. ‘Business is essentially a social institution and not merely a profit making activity’. Explain.
Ans: Business is mainly a social institution and not a profit-making activity since it entails a sense of social responsibility. Social responsibility refers to making decisions and performing the actions that are desirable in terms of the objectives and values of our society and business profits. But business is not merely a profit making activity , it is essentially a social institution because it is the creation of society . Business activities cannot be pursued in isolation from society. If a business fails to pursue social responsibility , the society will either force it to do so or may no longer permit it to survive. Business is considered an economic activity because it involves buying and selling of goods and services with the aim of earning profits. Since business has a monetary motive involved, it is an economic activity. Business is mainly a social institution and not a profit-making activity since it entails a sense of social responsibility.
(a) Economic responsibility: A business enterprise is basically an economic entity and, therefore, its primary social responsibility is economic i.e., to produce goods and services that society wants and sell them at a profit. There is little discretion in performing this responsibility.
(b) Legal responsibility: Every business has a responsibility to operate within the laws of the land. Since these laws are meant for the good of the society, a law abiding enterprise is a socially responsible enterprise as well.
(c) Ethical responsibility: This includes the behaviour of the firm that is expected by society but not codified in law. For example, respecting the religious sentiments and dignity of people while advertising for a product. There is an element of voluntary action in performing this responsibility.
(d) Discretionary responsibility: This refers to purely voluntary obligation that an enterprise assumes, for instance, providing charitable contributions to educational institutions or helping the affected people during floods or earthquakes. It is the responsibility of the company management to safeguard the capital investment by avoiding speculative activity and undertaking only healthy business ventures which give good returns on investment.
4. Why do the enterprises need to adopt pollution control measures?
Ans: They need to take suitable measures for pollution control not merely to avoid criticisms against them but also to enjoy other benefits of such measures.
Some of the important reasons which make a case for pollution control are as follows:
(i) Reduction of health hazards: There is increasing evidence that many diseases like cancer, heart attacks and lung complications are caused by pollutants in the environment. Pollution control measures can not only check the seriousness of such diseases but can also be supportive of a healthy life on earth.
(ii) Reduced risk of liability: It is possible that an enterprise is held liable to pay compensation to people affected by the toxicity of gaseous, liquid and solid wastes it has released into the environment. Therefore, it is sound business policy to install pollution control devices in its premises to reduce the risk of liability.
(iii) Cost savings: An effective pollution control programme is also needed to save costs of operating business. Cost savings are particularly noticeable when improper production technology results in greater wastes which leads to higher cost of waste disposal and cost of clearing the plants.
(iv) Improved public image: As society becomes increasingly conscious of environmental quality, a firm’s policies and practices for controlling wastes will increasingly influence people’s attitude towards its working. A firm that promotes the cause of the environment will be able to enjoy a good reputation and will be perceived as a socially responsible enterprise.
(v) Other social benefits: Pollution control results in many other benefits like clearer visibility, cleaner buildings, better quality of life, and the availability of natural products in a purer form.
5. What steps can an enterprise take to protect the environment from the dangers of pollution?
Ans: Some of the specific steps which can be taken by business enterprises for environmental protection are as stated below:
(i) A definite commitment by top management of the enterprise to create, maintain and develop work culture for environmental protection and pollution prevention.
(ii) Ensuring that commitment to environmental protection is shared throughout the enterprise by all divisions and employees.
(iii) Developing clear-cut policies and programmes for purchasing good quality raw materials, employing superior technology, using scientific techniques of disposal and treatment of wastes and developing employee skills for the purpose of pollution control.
(iv) Complying with the laws and regulations enacted by the Government for prevention of pollution.
(v) Participation in government programmes relating to management of hazardous substances, clearing up of polluted rivers, plantation of trees, and checking deforestation.
(vi) Periodical assessment of pollution control programmes in terms of costs and benefits so as to increase the progress with respect to environmental protection.
(vii) Arranging educational workshops and training materials to share technical information and experience with suppliers, dealers and customers to get them actively involved in pollution control programmes.
6. Explain the various elements of business ethics.
Ans: Some of the basic elements of business ethics while running a business enterprise are as follows:
(i) Top management commitment: Top management has a crucial role in guiding the entire organisation towards ethically upright behaviour. To achieve results, the Chief Executive Officer (CEO) and other higher level managers need to be openly and strongly committed to ethical conduct. They must give continuous leadership for developing and upholding the values of the organisation.
(ii) Publication of a ‘Code’: Enterprises with effective ethics programmes do define the principles of conduct for the whole organisation in the form of written documents which is referred to as the “code”. This generally covers areas such as fundamental honesty and adherence to laws; product safety and quality; health and safety in the workplace; conflicts of interest; employment practices; fairness in selling/marketing practices; and financial reporting.
(iii) Establishment of compliance mechanisms: In order to ensure that actual decisions and actions comply with the firm’s ethical standards, suitable mechanisms should be established. Some examples of such mechanisms are: paying attention to values and ethics in recruiting and hiring; emphasising corporate ethics in training; auditing performance regularly to analyse the degree of compliance; and instituting communication systems to help employees report incidents of unethical behaviour.
(iv) Involving employees at all levels: It is the employees at different levels who implement ethics policies to make ethical business a reality. Therefore, their involvement in ethics programmes becomes a must.For example, small groups of employees can be formed to discuss the important ethics policies of firms and examine attitudes of employees towards these policies.
(v) Measuring results: Although it is difficult to accurately measure the end results of ethics programmes, the firms can certainly audit to monitor compliance with ethical standards. The top management team and other employees should then discuss the results for further course of action.
7. Discuss the guidelines enumerated by the Companies Act 2013 for Corporate Social Responsibility.
Ans: In India, the concept of CSR is governed by Clause 135 of the Companies Act, 2013, which was passed by both the Houses of the Parliament, and had received the assent of the President of India on 23 August 2013.
The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more.
(i) The new rules, which are applicable from the fiscal year 2014-15 onwards, also require companies to set up a CSR committee consisting of their board members, including at least one independent director.
(ii) The Act encourages companies to spend at 2% of their average net profit in the previous three years on CSR activities.
(iii) The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act.
(iv) Only CSR activities undertaken in India will be taken into consideration.
(v) Activities meant exclusively for employees and their families will not qualify under CSR.
