UNIT II – BUSINESS & SOCIETY

Objectives of Business Social Responsibility of Business (CSR) Social Audit Government and Business Corporate Governance

Today the operations of business enterprises affect a wide spectrum. The resources they make use of are not limited to those of the proprietors and the impact of their operations is felt also by many a people who are in no way connected with the enterprises. The shareholders, the suppliers of resources, the consumers, the employees, the local community and society at large are affected by the way an enterprise functions. Hence a business enterprise has to be socially very responsive so that a social balance may be struck between the opposing interests of these groups.

There has been a growing acceptance of the plea that business should be socially responsible in the sense that the business enterprise, which makes use of the resources of society and depends on society for its functioning, should discharge its duties and responsibilities in enhancing the welfare of the society of which it is an integral part.

IntroductionBusiness is an integral part of the society. With earning profits business must also keep in view the social aspiration and observe the discipline of the society.

No businessman can now afford to be money mad or gross materialistic. He can no longer exist for longer period if his policies are just self centered. Business has to catch a number of objectives which are needed in every area where performance and result directly or vitally effect its survival.

Thus, a businessman has to be very dynamic in his approach, upto-date in knowledge and progressive in views. Success in business cannot be achieved without proper selection of right objectives. Selection of objectives is a very difficult task for businessman. We shall now discuss the objectives of business. Business has mainly two types of objectives:-

1. Profit motive which is essential for its survival.2. Social motive which is also very important for the

whole community.

Objectives of Business

Profit Social

Profit

Survival

Growth & Expansion

Motivation

Measurement ofEfficiency

Prestige &Goodwill

Research &Development

Social contributionto cost &welfare

Social

Responsibility to

Shareholder

Responsibility to

Employee

Responsibilityto

Consumer

Responsibilityto

Community

Responsibility to Shareholder

Stay in Business

Safeguard capital of Shareholder

Provide reasonable dividends

Stable Prices

Good public image

Responsibility to Employee

Fair Wages

Better Working Condition

Growth and Expansion

Self Development of Worker

Partnership in Prosperity of Business

Good Trade Union System

Responsibility to Consumer

Better Products

Cheaper Products

Avoid Misleading Consumer

Supplied Goods do not have Adverse Effect

Heartier Grievances

Responsibility to Community

Better Environment

More Employment

Research and Development

Improved Efficiency

Develop Backward Area

Promote Educate and Pollution Control

Better Society

The Indian SituationThe Indian business sector presents a mix picture as far as social responsibility is concerned. J.R.D Tata was among the first in designing and conducting the first ever social audit in India.

Social audit is undertaken in countries like U.S.A., U.K, Japan and some more western countries. The subject has not yet obtained the status of science and hence there is no unanimity in their objectives. However, there is a growing concern for consumer protection, environment, pollution control etc

The modern concept of business is, thus, a very broad one. Business is viewed as subsystem of the total social system.

Three ideas are significant in addition to the systems idea. The three ideas are ValuesViability Public visibility.

Social Responsibility of Business

According to Steiner & Steiner, social responsibility is:• Each business must take into account the situation in which it

finds itself in meeting stakeholder expectations.• Business is an economic entity.• Business should recognize that in the long-run,it should benefit

everyone.• The social responsibility is directly related to social power to

influence outcome.• Social responsibility is based upon the size of the company.• Social responsibility absorbs some investment.

Social Orientation of Business

Carroll has defined social responsibility on a three dimensional conceptual model.

1. Economic obligation.2. Legal obligation.3. Ethical obligation.4. Discretionary obligation.

Social Orientation of Business

William E Halal’s return-on-resource model of corporate performance recognizes the fact that no corporate social posture will be value-free. The 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.

Social Orientation of Business

Ackerman’s model states that there are three phases in the development of social responsiveness of a company.

1. The top management recognizes the existence of social problem.

2. The company appoints staff specialists or external consultants.

3. Implementation of social responsibility programs.

Extent of Social Orientation

• Anti-social.• Indifferent.• Peripheral.• Socially oriented.• Committed & Very active.

Factors Affecting Social Orientation

• Promoters & Top management.• Board of Directors.• Stakeholders & Internal Power relationships.• Societal factors.• Industry& trade associations.• Government.• Competitors• Political influences.• Resources• Ethical influences.

Factors Affecting Social Orientation-Ethical Influences.

• The Golden rule.• The utilitarian principle.• Kant’s categorical imperative.• The Professional ethic.• The TV test.

Responsibilities

• Shareholders.

• Employees.

• Consumers.

• Community.

Arguments against Social Involvement

• Business should confine itself to its own work.• Economic health of the company gets affected.• Cost of social involvement gets passed on to

consumers.• Social activities are done to get tax-exemption.• Leads to increase in dominance or influence over

society.

Social Audit

Social audit is a tool for evaluating how satisfactorily a company has discharged its social responsibilities.It enables the public as well as the compny to evaluate the social performance of the company.

Social Audit

Social Audit involves:1. Identification of the firm’s activities having

potential social impact.2. Assessment and evaluation of the social

costs and social benefits of such activities.3. Measurement of the social costs & benefits.4. Reporting the social performance.

Objectives & Benefits Of Social Audit

• Evaluation of social dimensions of performance.

• Take measures to improve social performance based on feedback.

• Public visibility of the organization is enhanced.

• Boost the public image of the company.

Methods of Social Audit

• Social process audit.• Financial Statement format audit.• Macro-Micro social indicator audit.• Constituency Group audit.• Partial social audit.• Comprehensive audit.• Corporate rating approach.

GOVERNMENT AND BUSINESS

The Government play an important role in almost every national economy of the world. The two most powerful institutions in society today are business and government; where they meet on common ground-amicably or otherwise-together they determine public policy, both foreign and domestic, for a nation.

Different Roles of Government

Government normally play four important roles in an economy, viz.

i. Regulationii. Promotioniii. Entrepreneurshipiv. Planning

The extent and nature of these roles in a given situation depend on a number of factors. Some salient features of these roles are outlines below:

Regulatory Role: The reservation of industries to small scale, public and co-operative sectors, licensing system etc. regulate the entry. Regulations of product mix, promotional activities etc. amount to regulation of the conduct of business. Results of business operations may be regulated by such measures as ceilings on profit margins, dividend etc. The state may also regulate the relationship between enterprises.

Government regulation of the economy may be broadly divided into:

i. Direct controls; andii. Indirect controls

Indirect Controls are usually exercised through various fiscal and monetary incentives and disincentives or penalties.

Direct Controls is discretionary in nature. They can be applied selectively from firm to firm and industry to industry, at the discretion of the state.

Industrial controls include prevention of the market structure from becoming monopolized, the development of small and new entrepreneurs, balanced regional development, etc.

Promotional Role: The promotional role played by the Government is very important in developed countries as well as in the developing countries.

Considering the whole of its activities, government does more to assist and to help develop industrial, labor, agricultural, and consumers interests than it does to regulate them.

In developing countries where the infrastructural facilities for development are inadequate and entrepreneurial activities are scarce, the promotional role of the Government assumes special significance.

The state will have to assume direct responsibility to build up and strengthen the marketing, institutions for training and guidance and other promotional activities.

The promotional role of the State also encompasses the provision of various fiscal, monetary and other incentives, including measures to cover certain risks, for the development of certain priority sectors and activities.

Entrepreneurial Role: In many economies, the state also plays the role of an entrepreneur – establishing and operating business enterprises and bearing the risks. A number of factors such as socio-political ideologies; dearth of private entrepreneurship; neglect of certain sectors, like the unprofitable sectors, by the private entrepreneurs; absence of or inadequate competition in certain segments and the resultant exploitation of consumers, etc. have contributed to the growth of state owned enterprises (SOEs) in many countries.

Planning Role: Especially in the developing countries, the state plays a very important role as a planner. The need for economic planning is very well implied in the famous ‘scarcity definition’ of Economics. As Robbins points out in his ‘scarcity’ definition the main business of the science of Economics is the optimum allocation of the scarce resources between the competing ends.

The resources that are readily available are quite insufficient to meet all the ends. The resource constraints demand that some of the purposes should go unserved. This calls for the determination of the more urgent needs or national priorities and the optimal allocation of

Corporate Governance

Governance is the process whereby people in power make decisions that create, destroy or

maintain social systems, structures and processes.It is the process whereby people in power direct, monitor and lead corporations,

and thereby create, modify, or destroy the structures where they operate. It hinges

primarily on complete transparency, integrity and accountability of the management.

Prerequisites for Good Corporate Governance

• A proper system consisting of clearly defined and adequate structure of roles, authority and responsibility.

• Vision,principles and norms which indicate development path, normative considerations.and guidelines and norms for performance.

• A proper system for guiding, monitoring, reporting and control.

Government Action Should focus on:

• Fairness: protecting shareholder rights and ensuring the enforceability of contracts with resource providers.

• Transparency: requiring timely disclosure of adequate information on corporate financial performance.

• Accountability: clarifying governance rules and responsibilities and supporting voluntary efforts to ensure the alignment of managerial and shareholder interests.

• Responsibility: ensuring corporate compliance with the other laws and regulations that reflect society’s values, including a broad sensitivity to the objectives of the society in which corporations operate.

J.R.D. Tata has incorporated in TISCO’s article of association the social and moral responsibility in 1970.

Conclusion