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Chapter I
Introduction to business Ethics and social
responsibility
Introduction

Business depends upon society for the inputs like manpower, resources, money etc. The very
existence, survival and growth of any firm depend upon its acceptance by society and its
environment. Business organizations have to earn social sanctions without which they will
collapse and die out simultaneously as they exercise a remarkable influence on our
socioeconomic life style, they must understand their responsiveness towards society.
1. Definition of Ethics

Ethics is difficult to define in a precise way. In a general sense, ethics is the code of moral
principles and values that governs the behaviors of a person or group with respect to what is right
or wrong. Ethics sets standards as to what is good or bad in conduct and decision making. Ethics
deals with internal values that are a part of corporate culture and shapes decisions concerning
social responsibility with respect to the external environment. An ethical issue is present in a
situation when the actions of a person or organization may harm or benefit others.

Anyone who thinks about what he or she ought to do is, consciously or unconsciously, involved
in ethics. Ethics deals with values, with good and bad, with right and wrong. We cannot avoid
involvement in ethics, for much of what we do - and what we don’t do – may be a possible
subject of ethical evaluation.

Whether we realize it or not, we quite often appraise each other's behavior and attitudes from the
moral point of view.

2. Business Ethics
Business Ethics or Ethical standards are the principles, practices and philosophies that guide the
business people in the day today business decisions. It relates to the behavior of a businessman in
a business situation. They are concerned primarily with the impacts of decisions of the society
within and outside the business organizations or other groups who keep interest in the business
activities. Business ethics is primarily concerned with those issues not covered by the law, or
where there is no definite consensus on whether something is right or wrong.

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According to Wheeler Business Ethics is an art and science for maintaining harmonious
relationship with society, its various groups and institutions as well as reorganizing the moral
responsibility for the rightness and wrongness of business conduct.

Moreover, the acceptability of behavior in business is determined by customers, competitors,

government regulators, interest groups, and the public, as well as each individual’s personal
moral principles and values.
Business ethics are nothing but the application of ethics in business. It proves that business can
be and have been ethical and still make profits. Today more and more interest is being given to
the application of ethical practices in business dealings and the ethical implications of business.
3. Significance of Business Ethics
a. Positive Consequences:-Business depends on the approval of the society,
acceptance of rules, mutual trusts and confidence. So business with ethics
always leads to positive consequences.
b. Goodwill of the Business and Businessman:- Good ethical behavior will increase the
goodwill of both business as well as the business man. Strong public image is a
symptom of success in the long run.
c. Protection—Both Sides:-Ifethical implications are there in organization
businessmen act more sincerely and the level of commitment would be higher.
d. Encourage Others:-When a few people start following ethics side by side to profit
making, they encourage, motivate others and set examples for them.
e. Success and Development:-Ethical conduct of business leads to development and
series of success.
f. Self-satisfaction:- In the dynamic world, businessmen are seeking self-satisfaction,
mental relief, free from anxiety, release tension. To attain the inner satisfaction
certain people consider only good ethics can promote good business.

 To sum up; “Good business ethics promotes good business”

4. THE SOCIAL RESPONSIBILITY OF BUSINESS
While there is no universal definition of corporate social responsibility, it generally refers to
transparent business practices that are based on ethical values, compliance with legal
requirements, and respect for people, communities, and the environment. Thus, beyond making
profits, companies are responsible for the totality of their impact on people and the planet. In the
business community, CSR is alternatively referred to as “corporate citizenship,” which
essentially means that a company should be a “good neighbor” within its host community.

Social responsibility is business’s obligation to maximize its positive impact and minimize its
negative impact on society. Although many people use the terms social responsibility and ethics

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interchangeably, they do not mean the same thing. Business ethics relates to an individual’s or a
work group’s decisions that society evaluates as right or wrong, whereas social responsibility is a
broader concept that concerns the impact of the entire business’s activities on society. Social
responsibility can be an example of ethical behavior.
Corporate social responsibility (CSR) is therefore:
 An obligation, beyond that required by the law and economics, for a firm to pursue long
term goals that are good for society
 The continuing commitment by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce and their families as
well as that of the local community and society at large
 About how a company manages its business process to produce an overall positive
impact on society
Corporate social responsibility means:
 Conducting business in an ethical way and in the interests of the wider community
 Responding positively to emerging societal priorities and expectations
 A willingness to act ahead of regulatory confrontation
 Balancing shareholder interests against the interests of the wider community
 Being a good citizen in the community

4.1. Main Social Responsibilities of Business

Organizations
1.Responsibility to make profit
The basic objective of any business should be to earn profit. As a loss
making organization cannot produce quality products, cannot fulfill its
customer commitments, cannot generate revenue for shareholders etc. So,
organizations have a social responsibility to be profitable, and then only it
will be able to meet its social obligation and expectation.
2.Responsibility to Generate Employment
Every business must provide fair opportunities to all the people. They must
create the condition and situations which help the employees to put forward
their best efforts to achieve organizations goals.
3.Responsibility of Optimum Utilization of Resources
Each organization must understand that it has some moral obligations to utilize the
scarce national resources of the country in an optimum way, not to waste, damage or
miss-utilize of the resources.

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4.Responsibility to Provide Quality Products

Providing quality products at fair prices is one of the important social responsibilities. If
the service given by the product meets with the customer expectations and also they
find products are available at fair prices, they will feel satisfied.
5. Responsibility to Protect the Environment
Protection of the environment is equally important as other responsibilities. Business
organizations are the responsible corporate citizens so they must take serious and
responsible steps to protect the environment and keep it in a healthy condition.
6. Responsibility to Provide Quality of Life
Quality of life is one’s internal growth, growth of character, mind and soul and enriched
life. So business firms should provide opportunities to its employees as well as to
society to enrich their lives and better quality of life.
7.Responsibility to Safeguard the Health
Safeguard the health and physical safety of consumers as well as employees become as
vital area to be cared by the organizations. This becomes more serious with drug and
cosmetic companies. They must take adequate care to check and safeguard consumer’s
health and wellbeing.
8.Fair Trade Practices
If business firms are showing socially responsible behavior they must go for fair trade
practices some of which like – not making false advertisements, avoid monopolistic
trade practices, not go for artificial scarcity, not bribing public servants, quality
products, fair prices, provide timely and accurate information to its stakeholders etc.
9.Responsibility to Development of Nation
If companies are involved in international businesses, they must contribute their effort
towards development of their country by earning foreign currency, earning goodwill and
reputation in global market, make good relationship among nations etc.
10. Responsibility to Fulfill all Duties and National Obligation
As corporate citizen, business firms are required to fulfill certain obligations under
various laws and to perform certain duties. They must operate their business within the
boundaries of legal framework provided by govt. they must contribute to national
prosperity and try to reduce some national problems like corruption, unemployment etc.

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Fig. 1.1:- CSR Principles

5.Ethics and profits

Business Ethics and Profitability
To begin with, business ethics is profitable for organizations. As Friedman points out, ‘the social
responsibility of business is to increase its profits’. And so, adhering to business ethics is not a
mere issue of compliance with law; rather, because it can contribute towards profitability, it is
also an opportunity of utmost importance that organizations should fully use in order to be on a
continuous path of growth and profitability.
Profitable organization is also an ethical organization, because of the important role stakeholders
play in the bringing about of profitability. Unless treated in an ethical manner, stakeholders who
are internal to the system of the organization (employees) will be in no long-term position to
generate profits for themselves and the organization. And, unless their expectations and concerns
are addressed, stakeholders who are external to the system of the organization (customers,
governments, amongst others) will be unwilling to participate in it as part of processes that lead
to profits, and increasing profits, of the organization. In this way, there is all reason why business
ethics would be integrated with organizational behavior and decision-making.

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It must be clearly emphasized that business ethics is not targeted toward equating the realization
of profits with the responsibility of business or toward the glorification of business. Rather, the
aim is to break the semantic juxtaposition of corporate against societal interests and profit-
making against solidarity. Corporate leaders should contribute to creating a basis for a
rationalizing discourse in which business and ethics are not played off against each other. This is
the pre-condition for the opportunity to discuss approaches for ensuring that business and ethics
can be made fruitful for each other.
For instance the study conducted in UK shows that there is strong evidence to indicate that larger
UK companies with codes of ethics, e.g. those who are explicit about business ethics, out-
perform in financial and other indicators those companies who say they do not have a code.
Having a code of business ethics might, therefore, be said to be one hallmark of a well-managed
company.
6. Stakeholders (Business Responsibility towards Different Interest Groups)

After getting some idea about the concept and importance of social responsibility of business let
us look into the various responsibilities that a business has towards different groups with whom
it interacts. The business generally interacts with owners, investors, employees, suppliers,
customers, competitors, government and society. They are called as interest groups because by
each and every activity of business, the interest of these groups is affected directly or indirectly.

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i. Responsibility towards owners

Owners are the persons who own the business. They contribute capital and bear the business
risks. The primary responsibilities of business towards its owners are to:

a. Run the business efficiently.

b. Proper utilization of capital and other resources.
c. Growth and appreciation of capital.
d. Regular and fair return on capital invested.
ii. Responsibility towards investors

Investors are those who provide finance by way of investment in debentures, bonds, deposits etc.
Banks, financial institutions, and investing public are all included in this category. The
responsibilities of business towards its investors are:

a. Ensuring safety of their investment

b. Regular payment of interest
c. Timely repayment of principal amount.

iii. Responsibility towards employees

Business needs employees or workers to work for it. These employees put their best effort for the
benefit of the business. So it is the prime responsibility of every business to take care of the
interest of their employees. If the employees are satisfied and efficient, then the only business
can be successful. The responsibilities of business towards its employees include:

a. Timely and regular payment of wages and salaries.

b. Proper working conditions and welfare amenities.
c. Opportunity for better career prospects.
d. Job security as well as social security like facilities of provident fund, group insurance,
pension, retirement benefits, etc.
e. Better living conditions like housing, transport, canteen, crèches etc.
f. Timely training and development.

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iv. Responsibility towards suppliers

Suppliers are businessmen who supply raw materials and other items required by manufacturers
and traders. Certain suppliers, called distributors, supply finished products to the consumers. The
responsibilities of business towards these suppliers are:

a. Giving regular orders for purchase of goods.

b. Dealing on fair terms and conditions.
c. Availing reasonable credit period.
d. Timely payment of dues.
v. Responsibility towards customers

No business can survive without the support of customers. As a part of the responsibility of
business towards them the business should provide the following facilities:

a. Products and services must be able to take care of the needs of the customers.
b. Products and services must be qualitative
c. There must be regularity in supply of goods and services
d. Price of the goods and services should be reasonable and affordable.
e. All the advantages and disadvantages of the product as well as procedure to use the
products must be informed to the customers.
f. There must be proper after-sales service.
g. Grievances of the consumers, if any, must be settled quickly.
h. Unfair means like under weighing the product, adulteration, etc. must be avoided.
vi. Responsibility towards competitors

Competitors are the other businessmen or organizations involved in a similar type of business.
Existence of competition helps the business in becoming more dynamic and innovative so as to
make itself better than its competitors. It also sometimes encourages the business to indulge in
negative activities like resorting to unfair trade practices. The responsibilities of business
towards its competitors are

a. Not to offer exceptionally high sales commission to distributers, agents etc.

b. Not to offer to customers heavy discounts and /or free products in every sale.
c. Not to defame competitors through false or ambiguous advertisements.

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vii. Responsibility towards government

Business activities are governed by the rules and regulations framed by the government. The
various responsibilities of business towards government are:

a. Setting up units as per guidelines of government

b. Payment of fees, duties and taxes regularly as well as honestly.
c. Not to indulge in monopolistic and restrictive trade practices.
d. Conforming to pollution control norms set up by government.
e. Not to indulge in corruption through bribing and other unlawful activities.
viii. Responsibility towards society

A society consists of individuals, groups, organizations, families etc. They all are the members of
the society. They interact with each other and are also dependent on each other in almost all
activities. There exists a relationship among them, which may be direct or indirect. Business,
being a part of the society, also maintains its relationship with all other members of the society.
Thus, it has certain responsibilities towards society, which may be as follows:

a. To help the weaker and backward sections of the society

b. To preserve and promote social and cultural values
c. To generate employment
d. To protect the environment
e. To conserve natural resources and wildlife
f. To promote sports and culture
g. To provide assistance in the field of developmental research on education,
medicalscience, technology etc.