Business Studies: Class 11 — Chapter 6: Social Responsibilities of Business and Business Ethics

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.

It is broader than legal responsibility. While legal responsibility is about mere compliance with the law, social responsibility is a voluntary recognition of social obligations even if not covered by law.

In India, CSR is governed by Clause 135 of the Companies Act, 2013. It applies to companies meeting any of the following thresholds:

• Annual turnover of Rs. 1,000 crore or more
• Net worth of Rs. 500 crore or more
• Net profit of Rs. 5 crore or more

Key provisions include:

1. Setting up a CSR committee with at least one independent director.
2. Spending at least 2% of average net profits of the preceding three years on CSR activities.
3. Activities must be aligned with Schedule VII of the Act and undertaken in India.

Modern businesses are forced to recognize social obligations due to several external forces:

• Threat of public regulation: Democratic governments regulate irresponsible businesses to safeguard public interest.
• Pressure of labour movement: Organized and educated labor forces demand welfare and fair treatment.
• Impact of consumer consciousness: The shift from "caveat emptor" (buyer beware) to "customer is king" has made businesses customer-oriented.
• Development of business education: Education has made consumers, investors, and managers highly sensitive to social issues.
• Professionalization of management: Professional managers focus on satisfying multiple interest groups rather than just owners.

• Economic responsibility: The primary responsibility to produce goods and services demanded by society and sell them at a profit.
• Legal responsibility: The obligation to operate within the laws and regulations of the land.
• Ethical responsibility: Behavior expected by society that is not codified in law (e.g., respecting religious sentiments in advertising).
• Discretionary responsibility: Purely voluntary obligations, such as charitable donations or helping during natural disasters.

• Shareholders or Owners: Providing a fair and regular return on investment, ensuring safety of capital, and providing accurate information.
• Workers: Providing meaningful work, fair wages, safe working conditions, and respecting democratic rights to form unions.
• Consumers: Supplying right quality and quantity of goods at reasonable prices, avoiding adulteration, and preventing misleading advertisements.
• Government and Community: Complying with laws, paying taxes honestly, protecting the natural environment, and acting as a good citizen.

Pollution is the injection of harmful substances into the environment, largely caused by industrial production. The four major types are:

• Air pollution: Caused by carbon monoxide from vehicles and smoke/chemicals from factories, leading to ozone depletion and global warming.
• Water pollution: Caused by dumping chemical wastes into water bodies, threatening marine and human life.
• Land pollution: Caused by dumping toxic wastes, rendering land unfit for agriculture.
• Noise pollution: Caused by running factories and vehicles, leading to hearing loss and mental disorders.

Businesses must control pollution for several critical reasons:

• Reduction of health hazards: Preventing diseases like cancer, heart attacks, and lung complications.
• Reduced risk of liability: Avoiding heavy compensation payouts for environmental damage.
• Cost savings: Efficient waste management and superior technology reduce operating and disposal costs.
• Improved public image: Enhancing reputation as a socially responsible enterprise.

Businesses should take the lead by committing top management to eco-friendly policies, complying with environmental laws, and training employees. The Government of India has enacted several laws to protect the environment:

• The Wildlife Protection Act, 1972
• The Water (Prevention and Control of Pollution) Act, 1974
• The Air (Prevention and Control of Pollution) Act, 1974
• The Environment (Protection) Act, 1986

Business ethics refers to the socially determined moral principles that govern business activities. It establishes the link between individual good and social good, going beyond mere legal compliance.

Examples include charging fair prices, using accurate weights, and treating workers fairly.

To foster ethics at the workplace, an enterprise must implement these core elements:

1. Top management commitment: Leaders and CEOs must openly and continuously guide the organization toward ethical conduct.
2. Publication of a 'Code': Defining written principles of conduct covering honesty, safety, and fairness.
3. Establishment of compliance mechanisms: Creating systems for training, auditing, and reporting unethical behavior.
4. Involving employees at all levels: Engaging workers in ethics discussions to make policies a reality.
5. Measuring results: Monitoring compliance and auditing ethical standards to plan future actions.