20 Social Responsibility- Meaning, Scope and Importance

 

 

1. Learning Outcome

 

2. Introduction

 

3. Meaning and Definition

 

4.  Features of Social Responsibility of Business

 

5.  Factors responsible for the realization of social responsibility

 

6.  Scope of Social Responsibility

 

7. Why Social Responsibility of business?

 

8. Social issues for business

 

9. Importance of Social Responsibility

 

10.  Summary

 

 

1.    Learning Outcome:

 

After completing this module, the students will be able to:

  • Understand the concept of social responsibility
  • Describe factors responsible for realisation of social responsibility Discuss scope of social responsibility
  • Explain need and importance of social responsibility

 

2. Introduction

 

In today’s time, social responsibility of business/managers/management has emerged as one of the most talked about subjects worldwide. Organisations operate within the framework of a society and hence, many social issues impinge on the operation of organisations. Management should feel concerned about these issues. It is in the best interest of organisation itself as that organisation which discharges social obligations enjoys a better public image.

 

3.Meaning and Definition

 

Social responsibility (SR) implies duties and obligations of business towards society. Kenneth R. Andrews defined social responsibility as ‘‘intelligent and objective concern for the welfare of society that restrains individual and corporate behaviour from ultimately destructive activities, no matter how immediately profitable, and leads to the direction of positive contributions to human betterment, variously as the latter may be defined.’’

 

Thus, social responsibility means some actions taken by the managers/ management for the betterment of society. The society comprises of people performing different roles at different times like employees, shareholders, government, suppliers, consumers and general public.

 

Management should work to come up to the expectations of these people and serve their various interests in best possible manner.

 

4.  Features of Social Responsibility of Business

 

Social responsibility depicts behaviour of management.

 

SR involves the fulfilment of obligations to various groups directly or indirectly concerned with the functioning of an organisation.

 

Social norms and expectations influence standards set for fulfilling obligations to various concerned parties.

 

Earlier the performance of social responsibility was voluntary for all organisations. Now, under Companies Act 2013, it is mandatory for companies of certain size.

 

SR involves economic, social, legal and ethical responsibilities.

 

5. Factors Responsible for the Realization of Social Responsibility

 

Today the business is expected to be more responsive to the needs of society. Some of the important factors responsible for the realization of social responsibility of management/ business/managers are explained as follows:

 

  • Market Forces: In today’s cut throat competition, only those organisations can survive which offer quality goods at reasonable prices. Organisations which do not bother about needs of consumers, their buying capacity and preferences may find it difficult to sell their products in the market. For the survival of business, organisations are required to continuously strive to fulfil customer requirements by thoroughly understanding their needs and desires.
  • Legal Forces: Various legislations have come into force to make organisations responsive to society. Now, business houses cannot ignore the interest of employees, customers and society at large. Factories Act, Payment of Wages Act, Employees State Insurance Act and Industrial Disputes Act are some of the Acts which have been framed for the security and welfare of employees. Government has enacted laws for controlling pollution from industrial units, fixing prices of various products and maintaining standards as regards quality, weight and measures of products. Consumer Protection Act 1986 has empowered consumers. No organisation can cheat or harass consumers. Organisations are now compelled to work according to prescribed guidelines.

 

Apart from enactment of various legislations, their strict enforcement has made business houses more responsive to various sections of society.

 

  • Emergence of Professional Managerial Class: Organisations are now owned and managed by different people. The job of management is entrusted to professional managers. These managers are themselves employees. They have different perspective towards management. They know the ground realities, have sympathy with others and therefore try to solve problems of employees in a compassionate way.
  • Trade Unions: The bargaining power of workers has increased due to emergence of trade unions. Workers, who were earlier considered as weaker section, have now emerged more powerful. They have say in policy matters of management directly affecting them through their representatives. Trade union protects the interest of its members. Workers can put pressure on management for increase in wages, job security and better working conditions. Management tries to take care of genuine interests of workers to avoid industrial dispute and maintain peace at work. Thus, the development of trade unions has made management to think about employee welfare.
  • Public Scrutiny: General public has started taking interest in the working of various corporate houses. People are demanding transparency in business dealings as huge public money is invested in these companies. People evaluate the performance of companies on the basis of various social welfare activities undertaken by them. Accounts of joint stock companies are available for public scrutiny, that means, anyone from public can study these accounts available with Registrar of Companies on the payment of nominal fees. The exposure of company’s performance to public has made companies more conscious about their working and responsibilities. They try to present a better picture of their concerns by undertaking social welfare measures.

 

6.  Scope of Social Responsibility OR Responsibility of Business towards Different Sections of Society

 

Social responsibilities include various responsibilities viz. economic, social, legal and ethical. Thus, scope of SR can be well explained by discussing obligations of business to different sections of society.

 

Business is expected to safeguard the interest of following groups or sections of the society:

 

Shareholders: Shareholders invest money in the companies. Their hard-earned money should be judiciously used. They should be given fair return on their investment. They should be provided correct and timely information about the affairs of company so that they can understand real position of the company and security of their funds.

 

The Companies Act requires full disclosure of material facts in company’s published statements. Window dressing of accounts and suppressing of important information from shareholders will hinder the growth of company. Potential investors will change their decisions of investing funds due to distrust created by company. Existing shareholders will think to sell their securities or switch over to other companies for future investments. Therefore, to attract more investments, there is a need to keep shareholders fully informed about state of affairs of company.

 

Employees: Management should change its perspective towards employees. Employees are important vehicle to drive company to success. Organisation cannot prosper without whole-hearted co-operation of employees. Therefore, they should be treated as human beings having emotions and feelings.

 

The employees should be allowed participation in decision-making through their representatives in board of directors. They may be consulted in decisions affecting their interests. This approach will help in knowing their viewpoint and effective implementation of decisions.

 

Employees should be motivated by providing them incentives for raising productivity. Their wages or salary should be increased from time to time by giving due consideration to cost of living and other factors. Organisation should provide fair treatment to all employees. Their grievances should be redressed at the earliest. Thus, management should try to provide physical, economic, mental and social satisfaction to employees.

 

Consumers: The existence of organisations depends on consumers. Consumer creates demand and organisations supply goods as per consumer demand. Business enterprises should consider consumer needs, preferences and paying capacity while making manufacturing policies. Consistent efforts should be made to provide goods at reasonable prices. Various attributes of the product relating to design, safety, durability, quality and efficacy affect consumer satisfaction. Therefore, product should meet these parameters as per customer requirements.

 

There is a need to follow ethical marketing practices. Consumers should not be misled by wrong claims and false information about products through advertisement or other sources. Marketing policies should aim at educating and helping consumers rather than cheating them.

 

Government: Business enterprises should pay their taxes well in time to enable government to generate funds for various activities. They should not manipulate accounts to evade tax rather declare their incomes correctly. There are various legislations formulated by the government for regulation and control of business. Organisations should ensure effective implementation of various laws. They should not buy political favour by any means. When government seeks proposals while planning to enact new laws for business, business houses should send their proposals or suggestions on such laws and help government in making these laws successful.

 

Society: Industrial development brings a number of problems with it. Various timely measures should be taken by the organisations so that society is not adversely affected by industrial development. There are complaints of air, water and soil pollution due to industrial wastes and processes. Every business unit should treat its wastes properly so as to render them harmless for society. Environmental issues have become major area of concern all over the world. Business enterprises are expected to play a positive role in conserving resources and controlling pollution. Natural resources, used as inputs by business houses, are depleting at a faster rate. It is the duty of business enterprises to make judicious use of these resources. They should help in developing some alternatives so that these scarce resources can be saved.

 

Industrialization results in slums. Workers, their families and general public are put to discomfort. Business enterprises should set up units at such places where sufficient space is available for developing colonies.

 

Management should spend some portion of its profits for the upliftment of society by providing and promoting civic and educational facilities. It should carry out developmental programmes and set examples for others.

 

Management is also required to follow ethical business practices.

 

7. Why Social Responsibility of business?

 

There is difference of opinion about social responsibility of business. Thinkers and practitioners have given their own viewpoints. Some views are in favour of social responsibility while others are against it.

 

Arguments in Favour of Social Responsibility

 

  • Subsystem of Society: Business is the subsystem of society. It must respond positively to the needs of society otherwise it will be compelled to do so through government regulations. Organizational decisions should be taken in a way which provides welfare to the organisation as well as to other subsystems of the society. When in a system, a particular subsystem becomes powerful, other subsystems look for support from it. Same is true in case of business also. It is usually seen that people take more interest in working of successful companies as these companies have greater impact on community. These companies try to maintain a favourable image in public mind by taking care of public interest.
  • Long Term Self Interest of Business: Performing social responsibilities is in the interest of business also. Healthy environment, civic amenities and education facilities make people healthy, knowledgeable and empowered. They become good employees, good customers and good neighbours. Better social set up results in better work climate and growth of business. The avoidance of social obligations harms the interests of business itself.
  • Moral Justification: Employees and customers are part of the society. A business entirely depends on these sections of society for its prosperity. Moreover, society also provides other inputs to the business. It becomes the moral duty of business enterprises to share its prosperity with those who helped in attaining it by fulfilling social obligations. They should help society in overcoming problems of unemployment, illiteracy, poverty, pollution etc.
  • Social-Cultural Norms: Business enterprises need to be responsive to socio-cultural norms of a country. In India, values and social and cultural norms like honesty, co-operation, welfare of all, social equality, consumer service etc. have a rich heritage. Obviously, business following these norms and promoting better opportunities and healthy industrial relations will enjoy better social image. However, a business enterprises working against these norms and values will invite resistance and criticism from society.
  • Protection of Shareholders’ Interests: Companies can protect shareholders’ interests by performing social obligations. People have good image of those companies which are responsive to social interests. This enhances companies’ reputation in stock market and raises value of their shares. It results in security and growth of shareholders’ funds.
  • Problem Creator to Act as Problem Resolver: Most of the problems are created by business enterprises. They should come forward and take pride in resolving various social issues.

 

Arguments Against Social Responsibility

  • Diverting Attention from Business Objectives: Business enterprises are established with the primary objective of profit maximization. It should not shift its focus from the main objective. Otherwise, its survival will be difficult. Moreover, welfare of employees and other sections of society is possible only when organisation is earning profits. Other argument is that for fulfillment of social obligations, huge funds are required and such expenditure adversely affects financial position of an organisation.
  • Increase in Prices: Organisation needs funds for its working. When it undertakes social activities, its huge funds are used. To generate more funds, the organisation increases prices of the product. Thus, in reality, the burden of social obligation is borne by consumers in the form of increased prices for goods or services.
  • Lack of Skill: Businessmen may not have required skills to understand and solve social problems. They may not be able to decide which social programme should be undertaken first.
  • Difficult to Assess Direct Impact: Management is accountable to owners for business performance. It is required to use owners’ funds in any project after making cost-benefit analysis so that profitability is increased. When funds are used by management for social activities, it is difficult to assess the direct benefit accruing to business through these initiatives.
  • Dominance of Business Values: Business houses by performing social obligations may try to influence society for their own purposes. Such influence on society may create various economic, social and political problems in the long run.
  • Reduction in Competitiveness: Organisations usually plough back their profits as it is the cheapest source of finance. When these profits are required to be used for social activities, organisations have to acquire funds from costly sources. To meet these expenses, it has to increase price which is not a desirable step in this era of competition. Thus, performing social activities even if funds do not warrant, result in reduction in competitiveness of organisation in the market.

 

8. Social issues for Business

 

Various experts opine that business should do something for the society on which it is wholly dependent for various inputs and outputs. It must pay attention to various social issues. Business can help society in number of ways:

 

Equal employment opportunities Promotion of education

Charity

Setting up hospitals

Creating infrastructure and civic amenities

Research and innovations

Controlling use of harmful products Protection of environment

 

9.  Importance of Social Responsibility

 

Fulfilment of social obligation by an organisation is beneficial for the society and the organisation itself. It results in upliftment of society on one hand and growth of business enterprises on the other hand. The specific benefits accruing by discharging social responsibility have been discussed as under:

 

Importance for Society

 

It helps in creation of balanced social structure.

 

Educational facilities improve literacy rate. Education creates awareness about various rights and laws. Educated person can find a better job. It, thus, helps in removing various social evils like poverty, dowry system, domestic violence, male dominance etc.

 

Better civic amenities improve quality of life.

 

It helps in removing regional disparities by setting up units in underdeveloped areas.

 

Pollution control and environment protection measures help in creation of healthy society.

 

Better quality goods at reasonable cost makes goods affordable for more persons. It thus, raises standard of living of people.

 

More job opportunities are created as a result of growth of company. This helps in improving economic condition of people. Moreover, increase in per capita income and national income lead to development of a country.

 

Importance for Organisation

 

There is increase in productivity and profitability due to better physical, social and mental health of employees.

 

It results in better corporate image. Good public image helps in increasing earnings of business as people prefer to purchase products of an organisation that engages itself in various social welfare activities. Further, reputed organisations find it easy to attract talented and honest employees.

 

There is increase in market value of securities. Socially responsible companies attract investors and provide them good return on their investments.

 

It enhances employee satisfaction. Better working conditions and other facilities motivate employee to work hard. It reduces absenteeism and labour turnover.

 

Employee-oriented activities like fair treatment, equal opportunities, promotions, training etc. help them grow professionally.

 

Firms undertaking social activities get easy approval for their business projects or other legal clearances for business purpose as government tries to recognize their social efforts by expediting their government approval processes.

 

SR activities contribute to firm’s survival and prosperity.

 

Companies become cost-effective due to best utilisation of resources. Idle stock, idle machines, idle labour minimize to a great extent due to quick clearance of stock and committed workforce.

 

10. Summary

 

Social responsibility (SR) implies duties and obligations of business towards society. As business enterprise uses various resources that belong to society, therefore, it owes responsibility to society. The society comprises of people performing different roles at different times like employees, shareholders, government, suppliers, consumers and general public. Management should work to come up to the expectations of these people and serve their various interests in best possible manner. Market forces, legal forces, emergence of professional managers, trade unions and public scrutiny are some of the factors responsible for the realization of social responsibilities by business houses. Business is expected to safeguard the interest of various sections of the society by undertaking activities like providing better working conditions and facilities to employees, protecting environment, provision of better quality goods at reasonable price, paying taxes at right time etc. There is difference of opinion about social responsibility of business. Some views are in favour of social responsibility while others are against it. Those favouring social responsibility argue that (i) it creates better public image, (ii) it protects shareholders’ interest, (iii) business uses resources of society, (iv) government does not have sufficient funds to undertake social welfare activities. Those who are against social responsibility argue that (i) it increases prices, (ii) business-minded people may lack social skill,(iii) SR deviates organisation from primary goal of profit maximization. Whatever may be the arguments put forth, it is well recognized fact that undertaking social responsibility is beneficial for the society as well as for the organisation itself.