Business Studies

Code: Bus. 215

Grade – XI
By:- Prakash Bhandari
Unit – 10
BUSINESS ETHICS AND SOCIAL
RESPONSIBILITY
LH: - 3
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Introduction to Business Ethics

Business ethics means the application of ethics in business.
Business ethics are moral principles that guide the way a
business behaves. The same principles that determine an
individual's actions also apply to business. Acting in an ethical
way involves distinguishing between “right” and “wrong” and
then making the “right” choice. It is relatively easy to identify
unethical business practices.
However, it is not always easy to create similar hard-and-fast
definitions of good ethical practice. A company must make a
competitive return for its shareholders and treat its employees
fairly. A company also has wider responsibilities. It should
minimize any harm to the environment and work in ways that
do not damage the communities in which it operates. This is
known as corporate social responsibility.
According to Crane, “Business ethic is the study of business
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
Ethical Principles for Business
The fundamental principles of business ethics are as follows:
1) Fulfill consumer’s expectations.
2) Encourage fair competition.
3) Good relationship with employees.
4) Avoid monopoly.
5) Accept social responsibility.
6) Optimum utilization of resources.
7) Focus on service.
8) Ensure accuracy.
9) Regular tax payment.
10) Consideration of rules and laws.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Social Responsibility of Business

A business enterprise should do business and earn money in ways
that fulfill the expectations of the society. Every individual living in
society has certain obligations towards society. He/ She must
respect social values and norms of behavior. A business enterprise
is permitted by society to carry on industrial or commercial
activities and thereby earn profits. But it is obligatory on part of
the business enterprise not to do anything, that is undesirable
from society’s point of view.
On the other hand, supplying good quality goods, creating healthy
working environment, honestly paying taxes, prevention/
installing pollution devices in the factory, and sincerely attending
to consumer complaints are examples of socially desirable
practices which improve the image of enterprises and make them
profitable. In fact, it is through socially responsible and ethically
decent behavior that business enterprises can get durable
success.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
Area of Social Responsibility of Business
Once the social objective of business is recognized, it is important to
know to whom and for what business and its management are
responsible. Obviously, a business unit must decide in which areas it
should carry out social goals. Some of the specific responsibilities may
be outlined as under.
1) Responsibility towards the shareholders or owners: A business
enterprise has the responsibility to provide a fair return to the
shareholders or owners on their capital investment and to ensure the
safety of such investment. The corporate enterprise on a company
form of organization must also provide the shareholders with regular,
accurate and full information about its working as well as schemes of
future growth. The company discharges its responsibility towards the
investors in the following ways.
 Ensuring optimal utilization of capital or loan.
 Paying dividend and interest on time.
 Providing periodical information to the investors about its business.
 Making sincere relations with investors.
 Ensuring participation of investors in decision making process, etc.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
2) Responsibility towards the workers: Management of an
enterprise is also responsible for providing opportunities to the
workers for meaningful work. It should try to create the right kind
of working conditions so that it can win the cooperation of
workers. The enterprise must respect the democratic rights of the
workers to form unions. The worker must also be ensured of a fair
salary and wages and a fair deal from the management. The
management should discharge the following responsibilities
towards their employees.
 Establishing a sound relationship between management and
employees.
 Providing an opportunity to employees in decision making process.
 Paying a reasonable salary and wages on prescribe time.
 Providing training and development opportunities for their career
advancement.
 Maintaining a sound working environment.
 Dealing employees with humanity.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

3) Responsibility towards the consumers: Supply of right quality

and quantity of goods and services to consumers at reasonable
prices creates the responsibility of an enterprise towards its
customers. The enterprise must take proper provision against
pollution, poor quality, lack of desired service and good manners to
customers, misleading and dishonest advertising, and so on. They
must also have the right of information about the product, the
company and other matters having a bearing their purchasing
decision. The following are the ways that business managers
consider as the areas of responsibilities to consumers:
 Providing quality goods and services at a reasonable price.
 Maintaining accurate measurement and quality of goods
 Providing the right information about goods and services.
 Avoiding artificial scarcity.
 Addressing the needs and choice of the customers.
 Behaving in a good manner, etc.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

4) Responsibility towards the government: The government

plays the basic roles in the establishment, operation, and
development of business activities in the country, the
government provides a legal framework for business and
develops, infrastructure like road, electricity, water etc. to
support the economic activities of the businessperson.
Therefore, an enterprise must respect the laws of the country
and pay taxes regularly and honestly. The following are the
responsibilities that the business should discharge to the
government.
 Obeying the rules and regulations.
 Maintaining accurate accounts and paying proper tax in time.
 Supporting government to solve the problem of unemployment.
 Make the nation independent by developing and modernizing
business activities.
 Support the economic development of the nation, etc.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
5) Responsibility towards the community: Community are the
people where a business is established, and its activities are
performed. It must behave as a good citizen and act according to
the well accepted values of the society. It must protect the natural
environment and should avoid bad, waste, smoky chimneys, ugly
building, dirty working conditions, etc. It must also develop a
proper image in society through continuous interaction with various
groups of people. The business should discharge the following
responsibilities towards the community.
 Obey the customers, value and norms of the community.
 Controlling pollution and maintain health and hygiene.
 Participating in the development of education, health, awareness
program and sanitation sectors in the community.
 Equal treatment to the members of the community.
 Protecting environment.
 Crate employment opportunities, etc.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Approaches to social responsibility

Social responsibility is the thought that a company should
build relationships with both the society and the
environment where it's located. It means valuing those
relationships with society, customers, and employees, and
not being totally consumed with only maximizing profits.
The practicing managers, academicians, and researchers
hold different views regarding the social responsibilities of
business. One school of thought believes that business are
to earn profit not to primarily involve in social activities.
Other school of thought believes and advocates that
business are created and operated in the society;
therefore, they should be involved in social activities.
According to the second school of thought, business
organizations are the part of society.
The approaches of social responsibility are:
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
1) Social barrier: This approaches is considered as the
traditional approach of social responsibility, and it is lowest
degree of social responsibility. According to this approach ,
managers consider the profit earning as a primary objective of
a business. Therefore, they need not be involved in the social
cause.
2) Social obligation: The managers following this approach seem
to be like social delay regarding the profit motive of business
but differ in the honour of the laws concerning the social
responsibilities of business.
3) Social Response: Managers following this approach attempt
to fulfil the obligations posed by the rules, regulations, and
laws relating to the social side of the business.
4) Social Contribution: Managers believing in the concept of
social contribution give higher priority to accomplish social
responsibility. These managers are proven as active social
members and work for social changes. It is highest degree of
social responsibility.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Arguments for and Against Social

Responsibility
Social responsibility has been observed by different
people with different views. But, due to the
development of the concept, people are supporting
the social obligation. Arguments for social
responsibility are:
1) Business as an indispensable organ of society.
2) Long term existence.
3) Moral justification.
4) Creates image.
5) Government regulations.
 BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

Arguments for social responsibility are: There are

several arguments against the social responsibility
of business. Business want to escape from social
obligation by saying that discharging of the
socially responsible increase cost.
Arguments against social responsibility are:
1) Basic function of business.
2) Profit motive.
3) Business values.
4) Resource allocation.
5) Operational problems.