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Social Responsibility of Business - Coggle Diagram
Social Responsibility of Business
Introduction
A business should aim to earn money in a way that it fulfils society's expectations.
Just as people have an obligation to follow social rules and norms, businesses (being entities) too have an obligation towards society (To not do anything undesirable by the society).
Businesses may earn a higher profit by not following these norms, but lasting (durable) success can only be achieved if a business fulfils its responsibility towards society.
Obligations to each stakeholder:
Customers:
Supplying unadulterated good quality products.
Employees:
Healthy work environment and fair wages.
Government:
Pay taxes, obey the law and only perform legal activities.
Society:
Reducing pollution via pollution controlling devices and a sincere pledge to reduce it.
Meaning of Social Responsibility
The objective of managers is not limited to profit and shareholders but all its stakeholders like the consumers, workers and community as a whole.
Business and Society
They are closely connected with each other
Business fulfils society's needs and provide employment
Society gives resources to business
Being connected with society and its stakeholders allows a business to run and be profitable.
i.e. Circular flow of income
Along with skilled and knowledgeable labour, a company needs to maintain its reputation and relationship with customers, suppliers, etc. Social skills of the owners is important.
Benefits by companies to society
Supply goods and services that society needs but can't or doesn't want to produce.
Creating jobs, not just in the company, but as suppliers, distributors, etc. These employees also pay tax that benefits the society and boosts the economy.
Continually innovating to develop better processes
Bears risk by investing in new technology
Trains and develops employees which helps them earn a higher wage and improve their standard of living
Good businesses can set standards. They can pioneer new initiatives that other businesses will follow (Ex. Google's carbon zero initiative for climate action.)
They develop good practices such as in the fields of ecological behavior or workplace safety. Ex. Wood logging companies plant 80-90% of the world's trees.
The role of businesses in society is widely debated.
Only concern is shareholders
“business of business is business” - The economist Milton Friedman
Business has only one responsibility - to generate profits for its shareholders
Concerned about all stakeholders
A business is a system within society that affects and gets affected by the other systems such as the government, environment and surrounding community within the society.
For example, if it does not take care of its employees, productivity will go down and that will hurt the bottom line.
The business has to work within the society with its other systems if it is to make profits and sustain them in the long run. This will benefit the society as well.
Different kinds of stakeholders
Customers, suppliers and employees: have a strong influence and are of fundamental importance for the survival of the business
Authorities, media, local residents and trade unions - Also play an important role in the reputation and thus profits of the company.
Concept of Social Responsibility
The concept of social responsibility has evolved over time. Earlier, if a business was earning money through legal means it was considered successful. It had no obligation to the public or any stakeholders.
(Refer to business responsibility pyramid - Referred to as Carroll's CSR Pyramid)
Economic Responsibility
A business is an economic activity that is meant to be profitable.
To do this, it needs to understand the needs and demands of its consumers, whether they are about the price or the quality.
Therefore, the economic responsibility of a business is understanding the perspective of the consumer and meeting their needs and demands to earn a profit
The benefits of these earnings are also passed down to employees in the form of benefits. A business' economic responsibility has an impact on the economy as a whole.
Legal Responsibility
Similar to individuals, businesses also have an obligation to obey the law. As an entity itself, it has a responsibility to operate within the boundaries set by the various commissions and agencies at every level of the government.
These rules and regulations are set for maintaining
balance and the greater good of the society
A law-abiding enterprise is a socially responsible enterprise as well.
A business is free to do anything as long as it is within the boundaries of labour law, environmental law and criminal law.
Ex. A business must pay its taxes and keep its books of accounts clean. That will help the government track the economic state of the enterprise,
Ethical Responsibility
Behavior that is expected in society but not codified in law
Ex. Being eco-friendly
Businesses should be aware of their environmental impact
The company should be ethical and moral in its dealings
Philanthropic Responsibility
Business is a pillar of society and should therefore support and improve the society whenever it can.
If significant profits ---> Fulfil philanthropic responsibility ---> Donating funds or goods and services
Help others in society
Ex. Providing free education by opening educational institutes or training institutes; OR Helping those affected by a natural calamity; OR avoiding speculative activity and undertaking healthy business ventures that generate returns for investors.
Corporate Social Responsibility
Corporate social responsibility (CSR) is how companies manage their business processes to produce an overall positive impact on society.
i.e. Their business practices should keep in mind sustainability social impact, ethics, etc.
If done correctly, CSR will be a part of the core business, not just an afterthought like philanthropic activities.
"CSR is a concept whereby companies integrate social and environment concerns in their business operations and in their interaction with their stakeholder on a voluntary basis." - European Union commission
“Social responsibility is to create maximum shareholders value, working under the circumstances, where it is fair to all its stakeholders, workers, consumers, the community, government and the environment."
According to Forbes (2010), CSR works both ways. The company gives back to the society while it builds respect among customers guiding them to buy the company's goods and services.
Benefits of CSR (Can vary based on the nature of the enterprise and are difficult to quantify but we know that they go beyond just the financial)
Human Resources:
A comprehensive CSR program may help with the recruitment and retention of employees, especially in the competitive graduate market. Potential recruits usually enquire about a company's CSR policy.
Risk Management:
Building a genuine culture of doing the right thing within an organization can offset the risk that scandals can have on the company's reputation. It takes decades to build goodwill but only seconds to destroy.
Brand Differentiation:
CSR can help a company differentiate itself from the competition in the minds of customers. It plays a huge role in building customer loyalty.
License to Operate Corporation:
CSR can help build goodwill with the government. It proves to the government that you are taking substantive voluntary steps for health & safety, diversity, or the environment. This goodwill pays off when the company needs something from the government such as a license.
Importance of Social Responsibility (General Points)
Benefits to fulfilling social responsibility
Increased profitability
Promoting company image
Reducing costs
Elevating employee morale
Customer loyalty
In the modern era, it has become less of a choice and more of a business compulsion.
It may involve high costs in the short run, but is important to ensure durable profitability.
For international companies, CSR can help enter new markets, attract potential employees and establish or strengthen the reputation of the company.
Importance of Social Responsibility (TB Points -
Point of view)
Employee
Maintaining a safe and healthy work environment
Customer
Follow ethical practices; Manufacture goods or services at the expected quality for a reasonable price.
Investor
Develop and grow the business;
Provide returns
Suppliers
Pay on time;
Satisfy their reasonable demands;
Show loyalty
Government
Pay taxes;
Obey the law
Society
Satisfy needs and wants;
Maintain a clean environment;