Class 11-commerce NCERT Solutions Business Studies Chapter 6 - Social Responsibility of Business and Business Ethics

Social responsibility of business refers to an obligation of a businessman to act for the benefit of society. This is because the business does not run on its own; it requires resources of society to carry on its activities. It is essential that a healthy relationship in maintained between society and the business.

Thus, comparing both responsibilities, it can be noted that social responsibility is a much broader concept than legal responsibility because it involves a voluntary act which is not forced by law and is taken up by people on their own for society's betterment.

The environment means things around us. It includes surroundings and resources which consist of living and non-living things which hamper our existence and quality of life.

However, in recent times, there has been an increase in industrial activity and population. This increase has resulted in the exploitation of resources, degradation, deforestation, pollution and depletion of raw materials. Also, there has been a considerable amount of change in the physical, chemical and biological characteristics of land, air and water. This change is called environmental pollution.

Environmental pollution is classified into four types of pollution-water, land, noise and air pollution.

Business ethics refers to morals which govern the activities of business. It deals with the relationship between business objectives, practices and techniques and the good of society.

Basic elements of business ethics are

1. Top management commitment
2. Publication of code
3. Establishment of compliance mechanism
4. Employees' involvement at all levels
5. Measurement of results 

1. Air pollution refers to inclusion of harmful components into the air thereby lowering its quality. The main causes are smoke and chemicals emitted from factories and vehicles.
2. Water pollution is any change in the water quality which makes it unsuitable for use by humans and by other living organisms. It is due to various factories dumping their waste into rivers, lakes, ponds and streams.
3. Land pollution is the contamination of land by pollutants which reduce its productivity. It is due to dumping of various toxic wastes (industrial, urban, fertilisers, biomedical) into the land. 

Major areas of social responsibility of business:

1. Responsibility towards shareholders/investors: A business organisation has the responsibility to ensure that shareholders or investors get fair and regular returns on their investment. It also needs to provide them with accurate and full information regarding its position and working.
2. Responsibility towards workers/employees: A business organisation is responsible towards its workers/employees. It should provide them fair opportunities for growth and development, safe working environment, fair compensation and benefits.
3. Responsibility towards consumers: A business organisation should take utmost care of its customers. It should make sure that good-quality goods are delivered to consumers. To keep them satisfied, the organisation should handle consumer grievances effectively and quickly. Proper preventive measures need to be taken with respect to adulteration and poor service towards consumers.
4. Responsibility towards the government and community: An organisation needs to follow the rules and regulations of the nation and pay taxes on time. It should see that it is not harming the environment in any manner. This would help it to create a proper image in society. 

Corporate Social Responsibility implies a concept, whereby companies decide voluntarily to contribute to a better society and a cleaner environment – a concept, whereby the companies integrate social and other useful concerns in their business operations for the betterment of its stakeholders and society in general in a voluntary way.

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. 1. The new rules, which are applicable from the fiscal year 2014-15 onwards, also require companies to setup a CSR committee consisting of their board members, including at least one independent director. 2. The Act encourages companies to spend at 2% of their average net profit in the previous three years on CSR activities. 3. The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act. 4. Only CSR activities undertaken in India will be taken into consideration. 5. Activities meant exclusively for employees and their families will not qualify under CSR

Arguments for social responsibilities:

1. Existence and growth: The main reason for existence of business is to provide goods and services which satisfy human wants. The main motive of business is profit maximisation, but it also needs to fulfil its responsibility towards society. This is because fulfilling social obligation helps in the growth of business.
2. Long-term interest of an organisation: A business organisation by fulfilling its social obligation tends to build a good image and earn maximum amount of profits. On the other hand, if business fails to comply with its responsibilities towards customers, workers, government officials and investors, then it tends to lose customers and reputation in the market. Thus, long-term interest of an organisation is in realising social responsibilities.
3. Avoiding government regulation: Every business faces government intervention and regulation which limit its freedom. Thus, it is best for businesses to voluntarily assume social obligations so that government intervention can be avoided.
4. Resource availability: Business organisations can help in solving problems effectively as they have the necessary human resources and finance. They have the pool of managerial talent and capital resources which can prove beneficial in tackling society's problems.

Arguments against social responsibilities:

1. Violation of profit maximisation objective: In general, a business solely exists for profits. Therefore, forcing a business to take on social responsibility goes against its objective.
2. Burden on consumers: As stated, a business purely exists for profit; therefore, most businesses try to shift the burden of fulfilling social responsibility to consumers. 

Forces responsible for increasing concern of business enterprises towards social responsibility:

1. Threat of public regulation: Democratically elected government is assigned the responsibility of welfare of society. However, when organisations exploit the environment, the government takes appropriate action against them so as to safeguard people's interests. This forces organisations to work towards social responsibility.
2. Pressure of labour movement: The labour sector has become more organised because of an increase in the quality of education level. This has resulted in labourers launching labour movements to ensure the welfare and safety of workers. This movement has gained so much power that it has forced businessmen to disregard hiring and firing at will, thereby respecting labourers and their skills.
3. Impact of consumer consciousness: Consumers nowadays are fully aware of their rights and responsibilities because of increase in consumer awareness campaigns and media power. As a result, it has become essential for business firms to follow customer-oriented policies and provide good-quality products to customers at acceptable rates.
4. Development of social standard for business: Businesses can no longer be considered money-making institutions as they are also responsible for social welfare. This is because businesses are now solely considered on the basis of social standards.
5. Development of business education: With the development of business education, consumers, investors, employees or owners have grown sensitive towards social responsibility. Many of them take personal responsibility to fulfil the obligation of social welfare.
6. Relationship between social interest and business interest: There has been realisation by firms that business interest and social interest complement each other. It is society which permits businesses to carry on with their activities. Thus, there is a need for business to maintain a balance between business and society for it to exercise its activities smoothly. 

A business's main motto is to earn and maximise profits as profits are the main source of income. However, organisations' decisions and actions are highly in accord with society because of their usage of society's resources. Therefore, businesses cannot work in seclusion from society. This has forced businesses to show concern towards society.  Hence, businesses fulfil the expectations of society by maintaining an ideal environment. In other words, a business gives equal importance and consideration to social responsibilities along with profit making.

Also, a healthy relationship between business and society is required, so as to create a balance between business interests and social interests. A business needs to handle various social responsibilities such as resolving consumer complaints, supplying good-quality products, creating healthy working environment, cooperating with the government in solving social problems of unemployment, poverty and illiteracy and prevention of pollution. This helps the business to sustain a better public image and earn higher profits in the long run.

Hence, we can clearly say that 'business is essentially a social institution and not merely a profit-making activity'. 

One of the major reasons for environmental pollution in today's time is various business enterprises. Their activities affect the environment to a great extent, thereby leading to environmental destruction. Therefore, for a business to achieve sustainable development, it needs to invest in pollution control measures. These are 

1. Reduction in health hazards: Implementation of pollution control policies helps keep a tab on various diseases (cancer, heart attack) which are caused as a result of pollution. Thus, control helps maintain healthy life on Earth.
2. Reduced risk of liability: Whenever there is any kind of environmental damage or human resource damage caused by the release of toxic solid, liquid or gaseous waste from factories, the polluting firm has to pay a hefty fine. Thus, if pollution control devices are installed, they could refrain from paying any kind of compensation to anyone affected by pollution, thereby also saving the environment.
3. Cost savings: Following an effective pollution programme, eco-friendly production technologies and pollution control schemes would help in decreasing pollution waste. This would automatically reduce the cost of cleaning industrial plants which could bring down the overall cost incurred by an organisation.
4. Improved public image: Awareness regarding environmental protection has made people realise the value of the environment. It has made businesses recognise the need of environment protection on their part. As a result, they have adopted various pollution control measures to help them maintain a clean image of their businesses in the public's mind.
5. Other social benefits: Pollution control also helps companies in other social benefits such as better quality of life for themselves, their families and their employees. 

The environment belongs to all of us. Therefore, it becomes our collective responsibility to protect and preserve the environment at any cost. However, businessmen have a greater moral and ethical obligation to protect the environment being the leaders in creation of wealth, technology, employment and trade. Also, they have better knowledge regarding the preventive measures of controlling pollutants at the source.

Some steps which can be taken by an organisation to protect the environment from the dangers of pollution: 

1. Commitment by top-level management: An organisation and its management should be committed to create, sustain and maintain a work culture which believes in environmental protection or a pollution-free environment.
2. Shared by all employees: The management of an organisation should make sure that every employee must honour the commitment made regarding environment protection. Also, employees should themselves commit to keep the environment protected and clean.
3. Clear-cut policies: An organisation should devise clear-cut policies which clearly emphasise on purchasing good-quality raw materials and eco-friendly products, using superior scientific techniques and developing employment skills with the aim to control pollution.
4. Laws: Rules and regulations by the government for environment protection need to be obeyed with utmost sincerity.
5. Government programmes: An organisation should take part in various government-initiated programmes with respect to deforestation, cleaning up of polluted rivers and tree plantation.
6. Arranging workshops: Workshops should be arranged at regular intervals to create awareness among employees regarding the dangers of pollution and its prevention. 

Elements of business ethics:

1. Top management commitment: They play a vital role in influencing the entire organisation towards ethically right behaviour. Therefore, top-level management such as the CEO, Board of Directors and managers must be strongly committed towards ethical conduct in the organisation.
2. Publication of code: Code refers to a formal written document-a code of conduct which comprises principles, morals and standards of an organisation. It includes ethics for various areas such as health and safety of employees, employment practices, etc.
3. Establishment of compliance mechanism: There is a need for establishing a compliance mechanism. It ensures that ethical standards of the organisation are followed to the core. If any employee experiences unethical behaviour, he/she should have the liberty to report the same to the management.
4. Employee involvement at all levels: Inclusion of employees at all levels is a must to implement ethical policies in an organisation. This is because it is employees who have to follow the code a maximum number of times.
5. Measure of results: Although it is difficult to measure the results of ethical processes, necessary arrangements should be made to monitor and verify compliance with ethical standards. Any unethical behaviour in an organisation must be handled with serious actions. 

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.

i. The European Commission defines CSR as “the responsibility of enterprises for their impacts on society”. ii. The World Business Council for Sustainable Development defines CSR as “the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, as well as, of the community and society at large”.

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. 1. The new rules, which are applicable from the fiscal year 2014-15 onwards, also require companies to setup a CSR committee consisting of their board members, including at least one independent director. 2. The Act encourages companies to spend at 2% of their average net profit in the previous three years on CSR activities. 3. The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act. 4. Only CSR activities undertaken in India will be taken into consideration. 5. Activities meant exclusively for employees and their families will not qualify under CSR.