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Towards Shareholders

Shareholders are the real owners of the business. In view of the several practical limitations for them in overseeing the day-to-day operations of the business, an organization must strive to provide:

ӹӹSecurity to their funds;

ӹӹA fair rate of return on their investment;

ӹӹCorrect information about the operations of the company; and

ӹӹProper appreciation of the value of their investment in the company by identifying new opportunities that contributes for the growth of the business.

Towards Creditors/Suppliers

Creditors or suppliers provide the necessary inputs to the business. Business has, therefore, certain responsibilities to them. Business can discharge its responsibilities towards this group by:

ӹӹRealizing the importance of maintaining good business relations with them;

ӹӹMeeting the payment obligations timely;

ӹӹProviding true and correct picture about the financial aspects of the company; and

ӹӹHelping them grow along with the growth of the company, etc.

Towards Government

Government provides various facilities for the development of business. Infrastructural facilities like roads, telecommunication, transport, banking, insurance are some of the facilities created by the government without which no business, worth mentioning can conduct its affairs smoothly. Therefore, business also in turn owes to the government in the following ways.

ӹӹBusiness enterprises should act like law-abiding citizens;

ӹӹTaxes and other duties should be paid timely and honestly;

ӹӹCompliance with the rules and regulations as stipulated by various laws of the land; and

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ӹӹSupplementing the governments’ efforts in the developmental activities, etc.

Towards Society at Large

Any business organization can exist as long as it enjoys societal sanction. If it fails to safeguard the interests of the society, the pressure from various segments of the society mounts up. such a situation eventually leads to the promulgation of various acts by the government. That is why, it is always desirable for the business to keep the government to bay. Some managements conduct their affairs in such a responsible way where governments intervention is not warranted. For instance, the origin of several laws governing the business organizations may be traced back to the failure of business organization in protecting the intensity of the various groups in the society. An organization can act in a socially responsible way by:

ӹӹProperly deciding the product policies in line with the national priorities;

ӹӹPreventing the creation of monopolies;

ӹӹEnsuring hygienic disposal of smoke and waste and other affluents;

ӹӹProviding to the community accurate information about its working; and

ӹӹPreserving the national resources of the nation by not indulging in reckless exploitation of the resources, etc.

The Differing Perspectives

There are different views on the social responsibilities of business. The views may be broadly classified under two categories: those for and against the social responsibilities of business.

One view, strongly advocated by Nobel Laureate in economics, Milton Friedman, on proper role of business “to use its resources and energies in activities designed to increase its profits so long as it stays within the rules of the game and engages in open competition, without deception and fraud”. According to Friedman, socially responsible business is concerned primarily with efficiency and providing its owners with the best possible

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return on investment within the parameters established by law and ethical conduct. Solving social problems such as eliminating poverty, eradication of illiteracy is the task of government. If business directly deals with social problems, the costs of doing will be reflected in the prices of goods and services.

Other writers contend that profit should not be management’s only concern. Organizations should sacrifice a little for the good of the society. In support of this view, Keith Davis states that business must be socially responsible because of “ a iron law of responsibility” contending that in the long run those who do not use power in the manner that society considers responsible will tend to lose it”

As discussed above, there are divergent views on the issue. One’s views on the correct role of business in society are influenced by one’s values. There is no right or no wrong answers to the question. All the view points are presented in the form of arguments for and against social involvement of business.

Arguments for Social Involvement for Business

1.Public needs have changed, leading to different expectations. Business, it is suggested, received its charter from society and consequently has to respond to the needs of society.

2.The creation of a better social environment benefits both society and business. Society gains through better neighborhoods and employment opportunities; business benefits from a better community which is the source of its labor and where it sells its products and services.

3.Social involvement discourages additional government regulation and intervention. The result is greater freedom and more flexibility in decision making for business.

4.Business as a great deal of power which, it is reasoned, should be accompanied by an equal amount of responsibility.

5.Modern society is an interdependent system and the internal activities of the enterprise have an impact on external environment.

6.Social involvement may be in interest of stockholders.

7.Problems can become profits. Items that may once have been considered waste (for example, empty soft drink cans) can be

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profitably used again.

8.Social environment creates a favorable public image. Thus, a firm may attract customers, employees, investors.

9. Business should try to solve the problems which other institutions could not. After all, business has a history of coming up with novel ideas.

10.Business has the resources. Specifically, business should use its talented managers and specialists, as well as its capital resources, to solve some of society’s problems.

11.It is better to prevent social problems through business involvement than to cure them. It may be more effective to help the hard-core unemployed than to cope with social.

Arguments against Social Involvement of Business

1.The primary task of business is to maximize profit and to focus strictly on economic activities. Social involvement could reduce economic efficiency.

2.In the final analysis, society may have to pay for business’s social involvement through high prices. Social involvement may create excessive costs to business and keep it from committing its resources to economic opportunities.

3.Business has enough power, and additional social involvement would further increase its power and influence.

4.Business people lack the social skills to deal with the problems of society. Their training and experience are with economic matters, and the acquired skills may not be pertinent for solving social problems.

5.There is a lack of accountability of business to society. Unless accountability can be established, business should not get involved.

6.There is not complete support for involvement by business in social actions. Consequently, disagreements among groups with different viewpoints will cause frictions.

In spite of the growing concern for the social problems, it has to be remembered that profit is essential for the survival of business organization. Profit is to a business what food, water and air are to an individual. As such, every organization has to strike a balance between making profits and discharging social responsibilities. Both are not mutually exclusive,

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but are complementary.

According to Keith Davis, “Social Responsibilities refer to the businessman’s decisions and actions taken to reasons at least partially beyond the firm’s direct economic or technical interest”. To quote Andrews, “By social responsibility, we mean intelligent and objective concern for the welfare of society that restrains individual and corporate behaviour from ultimately destructive activities, no matter how immediately profitable, and leads in the direction of positive contribution to human betterment, variously as the latter may be defined”.

H.R.Bowen’s observation on social responsibility is more clear and point to the specifics of the concept. He suggests that business managers are bound to “pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society”. Thus, as the above definitions indicate, the concern for the society on the part of managers implies a particular behaviour which is in line with the societal interests. It suggests that they refrain from actions detrimental to the interests of the society.

Responsibilities to Various Groups

In a broad sense, business owes a lot to the various groups such as customers, employees, shareholders, government and the community at large in which it exists. These groups in the society are called interest groups’ or ‘stakeholders’ in any modern business organisation. Let us examine how an organization responds in socially responsible ways to cater to the growing demands of all these interest groups.

Towards the Customers

Production and supply of quality goods and services at an affordable price is the primary responsibility of any business. Customer service should be the motto of the business. It involves offering a fair deal to the customer by indulging in ethical business practices. Therefore, every manager in order to serve the customers in an effective way should restrain from:

ӹӹmaking misleading advertisements aimed at deceiving the consumer;

ӹӹgiving wrong or false information about the ingredients, quality,

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origin, etc. of the product;

ӹӹentering into collusive agreements with other firms to exploit the customers;

ӹӹmaking false claims of being an authorized dealer / importer of certain goods; and

ӹӹgiving misleading names to the products, etc.

Towards Employees

ӹӹproper selection, training and promotion;

ӹӹrecognition of the value of human resource;

ӹӹmaintaining cordial relations with employees;

ӹӹrecognition and encouragement of constructive unionism;

ӹӹfair wage in relation to the cost of living;

ӹӹbetter working conditions;

ӹӹinitiating appropriate measures for the development of human resource;

ӹӹincrease in productivity and efficiency by recognition of merit; and

ӹӹproviding opportunities and incentives for creative talent.

Towards Shareholders

Shareholders are the real owners of a business. In view of the several practical limitations for them in overseeing the day-to-day operations of the business, an organisation must strive to provide:

ӹӹsecurity to their funds;

ӹӹa fair rate of return on their investment;

ӹӹcorrect information about the operations of the company; and

ӹӹproper appreciation of the value of their investment by identifying new opportunities that contribute to the growth of business.

Towards Creditors / Suppliers

Creditors or suppliers provide the necessary inputs to the business. Business has, therefore, certain responsibilities to them. The management can discharge its responsibilities towards this group by;

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ӹӹrealizing the importance of maintaining good business relations with them;

ӹӹmeeting the payment obligations timely;

ӹӹproviding true and correct picture about the financial aspects of the company; and

ӹӹhelping them grow along with the growth of the company, etc.

Towards Government

Government provides various facilities for the development of business. Infrastructural facilities like roads, telecommunication, transport, banking, insurance are some of the facilities created by the government without which no business, worth mentioning can conduct its affairs smoothly. Therefore, business also in turn owes to the government in the following ways;

ӹӹBusiness enterprises should act like law-abiding citizens;

ӹӹTaxes and other duties should be paid timely and honestly;

ӹӹCompliance with the rules and regulations as stipulated by various laws of the land; and

ӹӹSupplementing the governments efforts in the developmental activities, etc.

Towards Society at Large

Any business organisation can exist as long as it enjoys societal sanction. If it fails to safeguard the interests of the society, the pressure from various segments of the society mounts up. Such a situation eventually provokes the government to invoke the regulatory mechanism. That is why, it is always desirable for the business to keep the government at bay. Some managements conduct their affairs in such a responsible way where government’s intervention is not warranted. For instance, the origin of several laws governing the business organizations may be traced back to the failure of business organizations in protecting the interests of the various groups in the society. An organization can act in a socially responsible way by:

ӹӹproperly deciding the product policies in line with the national priorities;

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ӹӹpreventing the creation of monopolies;

ӹӹensuring hygienic disposal of smoke and waste and other effluents;

ӹӹproviding accurate information about its working; and

ӹӹpreserving the national resources of the nation by not indulging in reckless exploitation of the resources, etc.

Review Questions

1.Explain the roles and responsibilities of major stakeholder of a business organisation.

2.What do you mean by social responsibility of business? Do you subscribe to the view that business has responsibilities other than making profit? Substantiate your answer drawing from real examples.

3.Much of the talk about social responsibility is more of rhetoric in nature. Examine the statement and present your views. You are welcome to interact with management personnel and present your viewpoints.

4.Present your views for and against the social responsibility of business.

***

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Lesson – 4 : Manager And Environment

Objectives

After reading this lesson, you should be able to:

ӹӹUnderstand The Importance Of Environment In Business;

ӹӹExplain The Dynamics Of Environment ;And

ӹӹExplain The Various Forces In The Environment That Affect Business.

Lesson Outline

ӹӹManager And Environment

ӹӹDirection Action Environment

ӹӹIndirect Environment

ӹӹReview Questions

Like human beings, organizations are the products of environment. As explained in Lesson – 1, all organizations whether engaged in business or non-business draw the inputs from the environment, convert the inputs into outputs and send them back to the environment. Thus, every organization has a two-way interaction with the environment.

A business organization is an open system which is influenced by the environment and in turn influences the environment. The environment of the business consists of two components – internal as well as external environment. The former refers to the various systems inside the organization such as, technology, structure, processes and people. As all these aspects constitute the subject matter of this course and are discussed in various lessons, the internal environment, therefore, does not merit a detailed analysis. As such, this lesson focuses on the important variables of the external environment which have a bearing on the successful functioning and survival of the business.

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