Social Responsibility of Business

Social responsibility is the obligation of the decision makers to take decisions which protect and improve the welfare of the society as a whole along with their own interests.Social responsibility means the intelligent & objective concern for the welfare of society and leads in the direction of human welfare.

Carrolls model:

Carroll has proposed a three dimensional conceptual model of corporate performance. A firm has the following four categories of obligations of corporate performance:a)Economicb)Legalc)Ethicald)DiscretionaryFirm being an economic activity, the main responsibility is economic along with complying with the legal responsibilities.Ethical responsibilities are norms which the society expects the business concern to observe even though they are not mandated by law.While discretionary responsibilities refer to the voluntary contribution of the business to the social cause like involvement in community development etc. Carroll points out that these four categories are not mutually exclusive and presented them as a pyramid of CSR.

DISCRETIONARY Responsibilities Be a good Corporate Citizen. Contribute resources to the community; improve quality of life.

ETHICAL Responsibilities Be ethical.Obligation to do what is right, just and fair; Avoid harm.

LEGAL ResponsibilitiesObey the Law Law is societys codification of right and wrong;Play by the rules

ECONOMIC ResponsibilitiesBe Profitable The foundation upon which all others rest

Carrolls ModelThe Pyramid of Social Responsibility

Halals model:Halals return on resources model of corporate performance points out that a firm can only attempt to unite the diverse interests of various social groups to form a workable coalition engaged in creating value for distribution among members of the coalition. Beyond a certain level of economic activity the social issues at stake become conflicting.

Ackermans model:There are three phases. The first phase is one when top management recognizes the existence of a social problem and acknowledges the companys policy by making it an oral or written statement.The second phase is characterized by the company appointing staff specialists to study the problem and provide recommendations.The third phase involves the implementation of the social responsibility programmes.

Promoters, Directors and Top Management: The values and vision of promoters and top management is a key influencing factor.Stakeholders: Attitude of various stakeholders like shareholders, creditors, employees etc. also affect the social orientation of a company.Societal Factors: Social orientation could also be affected by the expectation of the society from the Corporation. Eg: A resourceful firm located in a poor community may be expected to contribute to the development of education facilities of the locality etc.Industry and Trade Associations: They influence the behaviour of firms by establishing professional and ethical codes and norms.Government and Laws: Laws to curb corruption, unfair practices etc. and the governments view of social responsibility also acts as an influencing factor.Political Influences:CompetitorsResources

Society and Business are interdependent There is a clear conviction within sections of the public that business has an obligation towards the societyBetter environment for business would be conducive for future success of the OrganizationPublic Image: Socially responsible behavior creates a positive public image for Business.Business has the resources and Power: Business has a reservoir of capital and expertise that is could leverageLet Business tryPrevention is better than Cure. Social involvement of business would foster a harmonious and healthy relationship between society and business to the mutual benefit of both.Shareholder interest: Business will prosper from an improved social environmentAvoidance of Governmental Regulation: If business is perceived as meeting its social obligations, costly and restrictive governmental regulations can be avoided.Social responsibility like recycling of waste may have favorable financial effects

Profit Maximization: Economic efficiency of business should be the top priority and the sole mission of business. In this situation decisions are controlled by their desire to maximize profits for the shareholders while reasonable complying with law.Society has to pay the Cost: Costs of social responsibility will be passed on to the society and eventually it is the society which has to bear them.Lack of social skills: Business managers are goods at solving matters relating to business and not very effective at solving social problems as their outlook is primarily economic.Business has enough Power: Business already has enough social power and the society should not take any steps which give it more power as it could mould social values.Social Overhead Costs: Cost of social responsibility will not immediately benefit the business. Why spend money on an object, benefits of which will be realized only in future.Lack of accountability: Businessmen have no direct accountability to the people. Unless the society can develop mechanisms which establish direct lines of social accountability from the business to the public, business must not stay away from social activities.Friedmans Views: Friedman asserted that if managers spend corporate funds on projects not intended to maximise profits, the efficiency of the market mechanism will be undermined and resources will be misallocated within the economy.Many companies involve themselves in social activities because of the tax exemptions on the income spent on social purposes.

Businesses response to social responsibility tend to fall within four categories:Social Opposition: View taken by business is that they have no obligation to the society in which they operate.

Social obligation: Companies believe that they have an obligation to obey the law.

Social response: Position taken by companies which believe that their social responsibilities are as dictated by law and will on selective basis go beyond the legal requirements. These units may volunteer to participate in limited socially responsible efforts, but not until they are convinced that the benefits outweigh the costs.

Social contribution: Position taken by Companies which believe that they have a deep obligation to serve the society.

Shareholders: The primary business of a business is to stay in business. To safeguard the capital of the shareholders and to provide reasonable dividends and returns to its shareholders.

Employees : The success of the organization depends largely on the morale of the employees. Employee morale depends on employer-employee relationship. The responsibility of the organization to the workers include:Payment of fair wagesProvision of best possible working conditionsEstablishment of fair work standardsProvision of labor welfare activitiesArrangement of proper training of workers.Reasonable chances of promotionProper recognition, appreciation etc.Installation of an effective grievance handling system

Consumers:The consumer is the king and is the foundation of any business venture. Important responsibilities of the business to the customers are:Improve efficiency so as to increase productivity and reduce prices, improve quality and smoothen the distribution system so as to make the products easily available.To do research and development so as to improve qualityTo supply goods at reasonable prices, even in case of a sellers marketTo provide after sales seviceTo ensure that the product supplied has no adverse effect.To provide sufficient information about the productTo avoid misleading customers by improper advertising etc.

Community:Taking steps to prevent environmental pollutionRehabilitating the population displaced by the operation of the businessAssisting in the overall development of the localityTaking steps to conserve scarce resources and develop alternativesImprove the fficiency of the business operationContribute to R & DDevelopment of backward areasPromotion of ancillary and small scale industriesContributing to welfare activities like promotion of education etc.

To abide by the laws of the land. To pay taxes honestly. To avoid corrupting. To encourage fair trade. To avoid monopoly.

Meaning: Social audit is a tool for evaluating how satisfactorily a company has discharged its social responsibilities. Social audit enables the public as well as the company to evaluate the social performance of the company. Social audit involves:Identification of the firms activities having potential social impactAssessment and evaluation of the social costs and social benefits of such activitiesMeasurement of the social costs and benefitsReporting

Objectives and Benefits of Social Audit:Evaluate the social dimension of the performance of the company.Take measures to improve the social performance of the company on the basis of feedback provided by the social audit.Social audit increases the public visibility of the organization.In case the social audit reveals a sociialy commendable performance, it helps boost the public image of the company.