The following arguments will support the involvement of business in social activities:
1. Public Requirements:
Business can exist only with public support and only if business fulfills needs of society. One of main arguments for social responsibility is that public expectations from business have changed. Therefore if business wishes to remain in existence for a long term it must respond to society’s needs and give society what society wants.
The business must come up to expectations of public for its survival since the demand for products or services arises from customers who are a part of society. Since business is a part and parcel of society, it must think of its responsibilities.
2. Favourable For Business:
Performance of social obligation by business will not only be in the interest of society but in its own interest also. The firm which is more responsive to improvement of community quality of life will as a result has better community in which it conducts its business.
People with healthy environment, good health and education will make them good customers and employees. Recruitment of labour will be of higher quality. Turnover and absenteeism will be reduced. The society may reject an enterprise which does not care for social welfare. Crime rate will also decrease as a result of social improvements.
3. Moral Justification:
Nowadays modern industrial society faces many serious social problems as a result of emergence of large companies. Therefore these large corporations have a moral responsibility to solve these problems. Also business which is using so many resources of our economy has responsibility to devote some of these resources in overall development of society.
4. Socio-Cultural Norms:
In a country like India where social and cultural values have long and rich heritage, a business promoting social equalities, healthy employer-employee relations and consumer service will enjoy better social position. A business working against traditional values will face criticism from society.
5. Business Can Shoulder Responsibility:
Many people who feel frustrated with failure of other institutions in handling social problems are turning to the business for their solution to social problems. In such a situation, it becomes the duty of business to come upto expectation of public and fulfill its responsibilities towards society.
6. Responsibility Must Correspond With Power:
Business enjoys social power to a great extent. So they do affect economy, minorities and other social problems. Business should perform equal amount of social responsibility to match their social power. If they don’t then it will reflect their irresponsible behaviour, which will ultimately affect the natural growth.
7. Public Image:
Only that firm can enjoy better reputation in public which supports social goals. Each firm seeks an enhanced public image so that it may gain more customers, better employees, more responsive money markets etc. It is possible only if business performs its responsibilities towards society whole-heartedly which will result in raising the value of shares and debentures held by the owners.
8. Government Regulations:
If business does not respond positively to the needs of society, then it may be compelled to do so through government laws and regulations. Before government stretches its long arms, the business should discharge its obligations to society. It has to regulate the business in public interest.
9. Indebted to Society:
Business units benefit from society. In return it also has certain debts that it owes to society. Business uses vast pool of resources in terms of men, talents, expertise and money. Business is in a position to work for social goals with the help of these resources. Also corporations unlike citizens are created by society so they have certain civic duties and responsibilities.
Table of Contents
- Why should business be concerned about social responsibility?
- Arguments for Social Responsibility
- 1. Business is a part of society
- 2. Long-term Self-interest of Business
- 3. Moral Justification
- 4. Creating Better Public Image
- 5. Avoidance of Government Regulations
- 6. Maintenance of Society
- Arguments against Social Responsibility
- 1. Contrary to Basic Function of Business
- 2. Conflict with Profit Motive
- 3. Distortion in Resource Allocation
- 4. Imposition of Business Values
- 5. Inefficiency in the System
- 6. Operational Problems
- Conclusions
This question has attracted the attention of many thinkers, both from academics as well as from practitioners. There have been arguments and counter-arguments in favor of and against social responsibility of business. In an effort to present a balanced view of social responsibility of business and its role as an objective of business, it is worthwhile to present briefly the arguments for and against it that have surfaced over time. It should be pointed out, however, that each argument for and against social responsibility assumes a certain understanding of the concept that may vary.
Arguments for and against Social Responsibility of Business
There are several core ideas about social responsibility of business. Over the period of time, the things have changed too much giving new thoughts and replacing the classical economic view of profit maximization in the business. Based on this feature in the present context, arguments for social responsibility are as follows:
1. Business is a part of society
Business is a part of society. Society is a system and business is one of its subsystems. Every subsystem of a system functions for the betterment of the whole system and not for its own betterment only. This version applies to business too. Therefore, business is responsible for the society as a whole and profit motive of the business cannot have precedence over other motives of the society.
2. Long-term Self-interest of Business
Social responsibility is in the long-term self-interest of the business. Existence of any business is because of existence of various social organs like financiers, employees, customers, society as a whole, etc., and not otherwise. Therefore, business should provide satisfaction to all these organs on continuous basis for its continued existence. By discharging social responsibility, the business may provide this satisfaction.
3. Moral Justification
Social responsibility has moral justification. This moral justification emerges from the fact that if any one takes something from others, he must give something to them in return. On moral ground, this equation must be based on equity so that it continues. A business takes various inputs (money, materials, people, information, etc.) from the society and gives outputs (goods and services) to the society by using various inputs. System of taking inputs and giving outputs works well only if it fulfills social requirements.
4. Creating Better Public Image
Any business which involves in fulfilling the aspirations of the society creates better image in the public. Creation of this type of image is a source of satisfaction itself for those who operate business. This also helps in increasing the business volume, both in terms of taking inputs and giving outputs.
5. Avoidance of Government Regulations
Government aims at maintaining equilibrium in the society on long-term basis. For this purpose, it tries to ensure that every organ of society meets social requirements. If any organ fails to do so, government has power to take actions against it. Since business is an organ of the society, government may take actions against those business organizations which involve in activities not meeting social requirements. In order to avoid such actions having long-term negative impact, it is preferable to adopt social responsibility.
6. Maintenance of Society
For maintaining society, there are legal provisions but these provisions cannot be comprehensive because of social changes on continuous basis. Therefore, the business has to be socially responsible in order to avoid anti-social activities so that society is maintained on continuous basis.
There are various arguments against social responsibility though most of these are based on classical economics. These arguments are as follows:
1. Contrary to Basic Function of Business
The basic function of a business is to provide a product to its customers at a price which is lower than the level of satisfaction provided by the use of the product or, at the most, equal to that. If this relationship is reversed, the product becomes meaningless. Generally, cost of production is a significant factor in determining the product price. Discharge of social responsibility adds to cost, hence product price which may reverse the above equation and business may not remain viable in the long term. Because of this phenomenon, Milton Friedman, a noted economist, has observed,
there is one and only one responsibility of business — to use its resources and engage in activities designed to increase its profit so long as it stays within the rules of the game.
2. Conflict with Profit Motive
Social responsibility is in conflict with profit motive of business. Undertaking business involves assuming risk. Earning profit is the reward for this risk. If social responsibility is added as an objective of business, it reduces profit margin which is against the concept of profit optimization even if not profit maximization. Thus, social responsibility and profit motive do not proceed in the same direction.
3. Distortion in Resource Allocation
Social responsibility leads to distortion of resource allocation. Resources in an economic system are allocated on the principle that every resource finds its most optimum utilization. This utilization is best possible without social responsibility and not with it. Thus, social resources may go in waste if the concept of social responsibility is added to business operations.
4. Imposition of Business Values
Discharging social responsibility involves lot of influence of the business on the society. Therefore, by undertaking social responsibility, a business is likely to impose its own values on the society, thereby replacing the social values with business values. This phenomenon has taken place in many cases. This is highly undesirable from social point of view.
5. Inefficiency in the System
Social responsibility brings inefficiency in the system. There is no substitute for the power of self-interest to get people to act. Any replacement of self-interest will, therefore, be fatal to the efficiency of the system. Social responsibility tends to replace self-interest of business defined in terms of profit motive to a great extent, thus, making the business as a system inefficient.
6. Operational Problems
There are certain operational problems in implementing social responsibility. Conceptually as well as operationally, social responsibility is a confusing term. Therefore, managers involved in managing business affairs are not very clear about what they are expected to do under social responsibility. As a result, actions ranging from mere showing lip sympathy to undertaking multi-crore concrete programmes are included in social responsibility.
Conclusions
The arguments of those who argue that business organizations have nothing to do with social responsibility except the maximization of shareholders’ wealth are weak on two points.
1. First, they overstate the trend and ultimate magnitude of business’s voluntary assumption of social responsibility.
2. Second, they want business organizations to do something they cannot do and that is to ignore societal demands on them.
In fact, no business can survive for long in total disregard to its social concern. Many forces will come in its way to destroy it. Therefore, even if business is involved in making profit, it is done through the creation of utility to the social needs. Better these social needs served, better will be the prospect of its survival and progress. Even in Western countries, where economic activities are comparatively free from controls, it has been accepted that profit is not the sole criterion for measuring the success of a business organization.
Usually, people misinterpret the concept of business objective and view the social responsibility as a focus which detracts from or is counter to the profit making. This is not the case at all. Economic concerns and social concerns need not be viewed as opposite ends of a continuum as shown in the image Mistaken view of Social Responsibility. The correct position is according to Realistic view of business responsibility.
What this figure shows is that although there may be some clearly distinct economic versus social concerns, there is a rather broad area in which economic and social concerns are consistent with one another. It is corporate activities that fall into this overlapped area that provide the more realistic view of social responsibility. Therefore, the issue is not whether business has social responsibility; it has. The fundamental issue is to identify this responsibility in general and for individual companies in particular.