Business Ethics and Social Responsibility

Every organization is having certain responsibility towards the society. Since a society is a broader framework within which the organization operates, there are many social issues which impinge on the operation of organizations. The most important social issue that managers must take into account is social responsibility of managers or corporate social responsibility. CSR focuses on what an organization does that affect the society in which it exists.

 Corporate Social Responsibility

What an organization does to influence the society in which it exists, such as through volunteer assistance programs Example: Teach India Campaign by Times of India Group.

Ethics
Study of rights and of who is (or should be) benefited or harmed by action.

Both CSR and Ethics prescribe some actions by managers for the betterment of the society.

Andrew Carnegie & the Gospel of Wealth.

In 1899, Andrew Carnegie , founder of the conglomerate U.S.Steel corporation, published a book called The Gospel of Wealth. Carnegies view was based on two principles: the charity & stewardship principle. The charity principle required more fortunate members of society to assist its less fortunate members, including the unemployed, the handicapped, the sick & the elderly. The stewardship principle, derived from the Bible, required businesses & wealthy individuals to view themselves as the stewards or caretakers of their property. He also saw it as the role of business to multiply societys wealth by increasing its own through prudent investments of the resources under its stewardship. By 1950s & 1960s these principles were widely accepted in American business

Arguments against Social Responsibility

Arguments against Social Responsibility by Milton Friedman

According to Friedman, there is one & only one social responsibility of business; to use its resources & energy in activities designed to increase its profits, so long as it stays within the rules, engages in open and free competition, without deception or fraud. Thus, as per him businesss primary responsibility is to maximize profits.

Arguments against Social Responsibility

Violation of profit maximization Dilution of purpose Cost Too much power Lack of skills Lack of accountability

Arguments for social responsibility

Public expectation Long run profits Ethical obligations Public image Better environment Discouragement of further Govt. regulations Balance of responsibility & power Stockholders interest Possession of resources Superiority of prevention over cures

Corporate Social Responsiveness

Study of Corporate Social Responsiveness (i.e. how organizations become aware of and then respond to social issues), takes basic two approaches.
First deals with how individual companies respond to social issues Second deals with the forces that determine the social issues to which businesses should respond.

 Robert Ackerman suggested that responsiveness, not responsibility, should be the goal of corporate social endeavors. He pointed that corporate response to social issues has a life cycle.
It starts with corporate recognition of the problem. Study of the problem and consideration of ways to deal with it. Implement with a solution.

 In 1979, Archie Carroll combined philosophical ideas of social responsibility & social responsiveness into single theory of corporate social action called corporate social performance. According to this theory, the arena of social responsibility debates is shaped by economic, legal & ethical principles. In this country, for example, we support free enterprise (an economic principle), the publics right to safe workplace (a legal principle) & equal employment opportunity (an ethical principle). Together these principle create a social contract between business & society that permits companies to act as moral agents.

Corporate Social Performance

Levels of Ethical Questions in Business

In business, most ethical questions fall into one or more of the following four categories:
Societal Stakeholder Internal Policy Personal

 Societal
At this level, we ask question about the basic institutions in a society.
Ex: is it ethically correct to have a social system in which a group of people is denied basic rights.

Another societal level questions concerns with the merits of capitalism

Is capitalism a just system for allocating resources? What role should the govt. play in regulating the marketplace Should we tolerate gross inequalities of wealth, status and power?

 Stakeholder
Second ethical question concerns stakeholders such as suppliers, customer, shareholders, and the rest. Here answer is found for the questions like: how a company should deal with the external groups affected by its decisions, as well as how the stakeholders should deal with company Stakeholder issues can be
Insider trading Companys obligation to inform its customers about the potential dangers of its products What obligations does a company have to its suppliers?

 Internal Policy
Here nature of companys relations with its employees is the matter of concern. To decide what kind of employment contract, compensation plan is fair. What are the mutual obligations of managers and workers? What rights do employees have? Layoffs, benefits, work rules, motivation and leadership are all ethical concerns for the management.

 Personal
How people should treat one another within an organization How honest we should be with one another Questions that deals with day to day issues of life in any organization are dealt with in this level of ethics.

The tools of ethics

The tools of ethics are
Values Rights and duties Rules Relationships

 Values
Values can be defined as relatively permanent desires that seem to be good in themselves

Rights and Duties

Right
Can be defined as a claim that entitle a person to take a particular action.

Duties
Rights and duties are correlated Whenever someone has a right, someone else has a duty to respect it. Duty can be defined as an obligation to take specific steps. Ex: to file ITR on time.

 Moral rules
Guides for situations where competing interests collide. Can be considered as guidelines that can resolve disagreements.

Common morality
Is the body of moral rules governing ordinary ethical problems. These rules can be used to understand managerial problems in ethical terms.

 Some basic principles of common morality are:

Promise keeping Nonmalevolence
Refrain from harming other human beings

Mutual aid Respect for persons Respect for property.