BBA Social Ethical Issues Management Study Material Notes
Table of Contents
BBA Social Ethical Issues Management Study Material Notes: Social responsibility of managers interest groups Why social responsibility of business arguments against social responsibility Conclusions arguments for social responsibility Making social responsibility operational Social goal setting social audit problems in social audit separation of social responsibility in India :
MCom I Semester Methods Performance Evaluation Study Material Notes
Social and Ethical Issues in Management
Present-day managers are increasingly concerned about the social and ethical issues that they and their organisations are facing. This is happening throughout the world and India is no exception. Managers manage organisations which exist within a given society. Since a society is a broader framework within which organisations operate, there are many social issues which impinge on the operation of organisations. Such issues have to be taken care of by managers specially when our society is pluralistic with the existence of many interest groups. The most important social issue that managers, particularly in business organisations, must take into account is social responsibility of managers. Therefore, the analysis of social responsibility of business and issues and problems involved therein is worthwhile for identifying their role in this respect.
Social Ethical Issues Management
Social Responsibility of Managers
Social responsibility (SR) of managers particularly in business organisations has, of late, been one of the most talked about and widely supported subjects. Traditionally, business’s basic objective has been defined in terms of profit maximisation. The first break came in 1930s when the view was advanced and accepted that managers of large companies must make decisions which maintain an equitable balance among the shareholders, employees, customers, suppliers, and general public. Managers were considered trustees for these interests. Such a view was later developed as the social responsibility.
The phrase social responsibility is widely used in the literature of sociology, anthropology, economics, politics, and business management. However, conceptually as well as in practice also, this has been a volatile, vague, and confused area. Conceptually, people are not very clear what is the exact meaning of SR and what they are expected to do under this. From practical point of view, the response from business has gone on providing a spectrum ranging from mere lip-sympathy to multi-lakh rupees concrete programmes in our country. From conceptual point of view, SR has been defined by Davis as follows:
This is a broad definition of SR and prescribes actions not related to the interests of the organisation. Still broader view has been suggested by Andrews when he says that:
“By social responsibility, we mean the 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
contributions to human betterment, variously as the latter may be defined.” Both of these definitions prescribe some actions by managers for the betterment of the society but do not prescribe the actions precisely. Therefore, most business managers prefer words other than SR because these words to them connote a fixed obligation. They prefer such synonyms as social concern, social programmes, social challenge, social commitment, or concern with public problems. However, the term SR has been widely recognised and its operational definition may be as follows:
Social responsibility contends that management is responsible to the organisation itself and to all the interest groups with which it interacts. Other interest groups such as workers, customers, creditors, suppliers, government, and society in general are placed essentially equal with shareholders. On the basis of this definition, the following features of SR can be identified:
Social Ethical Issues Management
1 The SR contains three types of behaviour-positive, neutral, and negative. The negative and neutral aspects of behaviour are as important as positive.
2. Every person in the society has a social obligation to fulfil. However, the emphasis is on social responsibility of management as a group because it is in a position to use the resources of the society in the way it likes. Therefore, it must be conscious about its SR.
3. SR involves fulfilling obligations to various parties concerned with the functioning of an organisation. Some of these parties are concerned directly, others may be concerned indirectly.
4. The standards fixed for fulfilling obligations to various parties are to be decided according to social norms and expectations. Therefore, these obligations may vary from society to society.
Social Ethical Issues Management
Interest Groups
SR requires the identification of various interest groups which may affect the functioning of a business organisation and may also be affected by its functioning. Normally, various groups associated with a business organisation are shareholders, workers, customers, creditors, suppliers, government, and society in general. The management owes responsibility towards all these groups. Therefore, management should show a standardised norm of behaviour. However, the standardised norm of behaviour may not be universal. We are more concerned with Indian situation while prescribing the norms of behaviour in respect of fulfilling obligations to various interest groups. Various norms have been suggested through seminars and conferences in our country and our attempt is to present an integrated view.
Shareholders. The first responsibility of management is to protect the interest of shareholders. The interests of majority of shareholders and large minority of shareholders are generally well protected through either direct participation in the management actions or they have real power to intervene, if necessary. However, large number of minority shareholders are not in such a position. Therefore, management is expected to use the resources provided by them effectively and to protect their interests. They should be informed about the functioning of the organisation adequately and timely. Though the provisions of the Companies Act provide safeguard to the investment made by shareholders, whether minority or otherwise, management can find loopholes in these. Therefore, management has a responsibility to provide proper safeguard to the money invested by shareholders.
Workers. Workers have direct interest in an organisation because by working there, they satisfy their needs. The traditional economic concept of organisational functioning does not give workers their proper share in the distribution of income. The owners and managers have too much power under the economic state of affairs. Thus, it is the management’s responsibility to protect the interest of workers in the organisation. This can be done by the management in the following ways:
1 Management should treat workers as another wheel of the cart
2. Management should develop an administrative processes in such a way that promotes cooperative endeavour between employers and employees.
3. The management should adopt a progressive labour policy based on recognition of genuine trade union rights participation of workers in management, creating a sense of belongingness, and improving their working and living conditions.
Social Ethical Issues Management
4. Management should pay fair and reasonable wages and other financial benefits to workers. Customers. A customer may broadly be defined as a person who has a favourable impression of a company and its products and services. Thus, a person may be categorised as customer even though he may not have committed the act of buying: he may be only a potential customer. Management owes a primary obligation to give a fair deal to customers. This can be done in the following ways:
5. Customers should be charged a fair and reasonable price.
6. The supply of goods and services should be of uniform standard and of reasonable quality
7. The distribution of goods and services should be widespread so that customers do not face any problems in procuring them.
8. Management should not indulge in profiteering, hoarding, or creating artificial scarcity.
9. Management should not mislead the customers by false, misleading, and exaggerated advertisements.
Creditors, Suppliers, and Others. Creditors, suppliers, and other groups affect the organisation in various ways. Therefore, management is responsible to fulfil its obligations to them. This can be done in the following ways:
1 Management should create healthy and cooperative inter-business relationship between different businesses.
2. Management should provide accurate and relevant information to creditors and suppliers.
3. Payments of price of materials, interest on borrowings, and other charges should be prompt.
Government. Government is very closely related with the business system of the country. It provides various facilities for the development of business. No doubt, government exercises controls over business, but these controls are meant for overall development of business. Management can discharge its obligation to government in the following ways:
1 Management should be law-abiding citizen.
2. Management should pay taxes and other dues fully, timely, and honestly.
3. It should not corrupt public servants and democratic process.
4. It should not buy political favour by any means.
Social Ethical Issues Management
Society. Organisations exist within a social system and get facilities from the system. Therefore, they owe obligations to the society as a whole. It is the obligation of management to protect the interest of society because management process goes a long way in determining the life in the society. In this context, management should behave in the following ways:
1 Management should maintain fair business policies and practices
2. It should set up socially desirable standards of living and avoid ostentation and wasteful expenditure.
3. It should play a proper role in civic affairs.
4. It should provide and promote general amenities and help in creating better living conditions in general.
5. It should set example for others about how developmental programmes can be taken for the benefits of the society.
Social Ethical Issues Management
WHY SOCIAL RESPONSIBILITY OF BUSINESS?
Why should business be concerned about social responsibilities?” is a question that has attracted the attention of many thinkers, both from academics as well as from practitioners. There have been arguments and counter-arguments in favour 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 against and for 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.
Social Ethical Issues Management
Arguments against Social Responsibility
The core of arguments against business’s assumption of any responsibilities other than to produce goods and services efficiently and to make as much money as possible is that business is an economic institution and economic values should be the sole determinant of its performance. The manager of a business is an employee of owners of business and is responsible only to owners. In this context, arguments against social responsibility of business run on the following lines:
1 Contrary to Basic Functions of Business. Milton Friedman, a widely respected economist, holds the classical view that the only responsibility of business is to earn profit. He says that:
The basic contention of Friedman is that social responsibility is contrary to basic business functions. The basic argument is that if price of a product in the market does not truly reflect the relative costs of producing it, but includes costs for social action, the allocative mechanism of the marketplace is distorted. Either the customer pays a price greater than that necessary to call the goods into market or the firm’s product-mix provides less consumer satisfaction. Moreover, the doctrine of social responsibility means acceptance of the socialist view that political mechanisms rather than market mechanisms are the appropriate ways to allocate scarce resources to alternative uses.
Another basis of suggesting social responsibility against the basic business function is that as a manager moves further away from the simple rule of profit maximisation that guides his actions into the social and political realm, he has no guides to help him know what social responsibility he should take in the public interest. Furthermore, the business should not try to determine what is public interest because the economic system is not a playground on which businessmen may exercise their peculiar preferences. Closely associated with this argument is the view that businessmen have no special skills to deal with social matters. Henderson observes that “the spectacle of otherwise sophisticated people going on bended knees to companies and pleading with them to have the kind of conscience and moral responsibilities only rarely found in Individuals is nothing less than laughable.”
2. Domination of Business Values. Business should not be socially responsible otherwise business values will dominate the social values. Harold Leavitt, the famous psychologist, holds the view that:
His fear is true because in the past, the results were not so good when the values of a society were dominated by one major institution, whether it was the church, the military. business, or something else.
Social Ethical Issues Management
3. Inefficiency in the System. There is no substitute for the power of self-interest to get people to act. Any replacement of altruism for self-interest will, therefore, be fatal to the efficiency of the system. The rigour of the market mechanism will place in jeopardy the competitive position of that system which adds to its costs by assuming social responsibilities. Therefore, managers should manage only in the interests of the shareholders, and shareholders should be put in a position to decide how their property will be used. In this context, Heyne asserts that:
Social Ethical Issues Management
Arguments for Social Responsibility
Though there is no one core idea in the argument that business has no social responsibility. there are several ideas about social responsibility of the business. Over the period of time, the things have changed too much giving new thoughts and replacing the classical view of business’s objectives. These arguments run in the following directions:
1 Business: A Part of the Society. Business organisations are creatures of society and must respond to social demands. A business operates within a set of cultural norms and restraints. These are certainly not only economic but also legal, political, social, and technical. They are powerful and business should know instinctively that as they change, they must be incorporated in the decision-making process. There is another point in this. Since business is a subsystem of society, its functioning should contribute to the welfare of the system as a whole and not only to the subsystem alone. Therefore, organisational decisions should be made in a way which not only provide welfare to the organisation but also to other subsystems of the society so that total welfare of the system is maximum. When a particular subsystem becomes more powerful and efficient, other subsystems look for the support from it. This is true for business also. For example, Steiner comments that:
2. Avoidance of Government Regulations. When business is unable to fulfil its social roles, It invites more government intervention in the business system. Therefore, in order to avoid government regulation of business, it is preferable to go for social responsibility programmes. In any case, government regulation is costlier than the cost of social responsibility programmes. Government regulation cuts flexibility and freedom of doing business, concentrates power in government which may be against the basic features of the free and democratic country. For example, G.L. Mehta has observed that:
3. Long-run Self-interest of Business. Discharge of social responsibility ensures longrun self-interest of business. It is possible that at the initial stage, the cost of discharging social responsibility may be high but in the long run, the business can do better by creating better public image among the various interest groups. In fact, many managers have realised that taking welfare measures for workers have paid rich dividends to the business in the form of improved productivity. In this regard, one committee has observed as follows:
“It is in the enlightened self-interest of corporations to promote the public welfare in a positive way. Indeed, the corporate interest broadly defined by management can support involvement in helping to solve virtually any social problem, because people who have good environment, education, and opportunity make better employees, customers, and neighbours for business than those who are poor, ignorant, and oppressed.”10
4. Traditional Values. In any country, economic growth is not possible without the active cooperation of people. People cannot be enthused to participate for development unless they have a reasonable assurance that they will share the fruits of growth. Thus, the urge for social justice is widespread and universally accepted. The need for our society is to convert this urge into a programme of action which would be in tune with our culture and way of life. Our way of life can be well described by the following verse (translated from Sanskrit) which teachers and the taught used to chant every day before starting their studies in the Ashram. The verse reads as “May we prosper together and enjoy our prosperity in common. Let our exploits be joint adventures. May our studies be full of light. May we not quarrel each other. Let there be peace, peace, peace.” Similarly, the first verse of Ishavashya Upnishad describes that “All that exists in this universe is the abode of the Almighty. Therefore, enjoy the good things in life by sharing them with others. Do not covet the possession of others.” These traditional thoughts hold good today to guide the economic activities of the country. From this point of view, business can do better if it is concerned with social aspects of life of people in the country.
Conclusions
The arguments of those who argue that business organisations have nothing to do with social responsibility except the maximisation of shareholders’ wealth are weak on two points. First, they overstate the trend and ultimate magnitude of business’s voluntary assumption of social responsibility. Second, they want business organisations 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 are 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 organisation. For example, Day has observed that:
Social Ethical Issues Management
The proponents of social responsibility say that society is not substituting one set of expectations for another. Rather it is broadening the standards by means of which corporate performance is to be judged. The old concept of profit maximisation has vanished and even economists have accepted it. They have substituted profit maximisation with satisfactory profit. Today, business decision making is a mixture of altruism, self-interest, and good citizenship. Managers do take actions which are in the social interest even though there is a cost involved and the connection with long-range profit is quite remote. Therefore, the responsibilities of a business can be presented as follows:
Social Ethical Issues Management
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 Figure 5.1. The correct position is according to Figure 5.2. 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 esponsibility in general and for individual companies in particular.
Social Ethical Issues Management
MAKING SOCIAL RESPONSIBILITY OPERATIONAL
Once the managers accept that they are socially responsible, the basic question comes which social programmes their organisation should take, how much to do, and how to injec the social view into the organisation’s decision-making process. Once they settle these questions, they can perform better on the front of their social responsibility. Given below are some guidelines for making the concept of social responsibility operational in business.
1 Commitment from Top Management. There should be a commitment from top management for programmes of social responsibility. In any organisation, top management generally decides the broad course of action, including the SR programmes. Top management must accept the idea of SR, if the organisation is to become seriously concerned about social programmes on an organisation-wide basis. Once top management commits, however, the implementation of the social point of view is by no means simple or automatic. For most organisations, the transition from top management social concern to the institutionalisation of social programmes takes place step by step and on the basis of a number of different methods. For example, top management can persuade others to follow SR; it can make it compulsory to follow SR: a committee of managers can be constituted to look after the SR programmes: even persons concerned with social programmes can be taken on the board of the organisation. Such things can promote the operation of SR programmes.
2. Formulating SR Policies. An organisation operates on the basis of a set of established policies, procedures, customs, precedents, values, and managerial styles. Policies can be developed to undertake SR programmes. Such policies can be formulated in general as well as in various functional areas. For example, general policy may relate to the type of programmes that can be undertaken by the organisation. Similarly, the organisation may emphasise how it will perform its various functions so that it fulfils its social obligations. Some examples of the policies in functional areas may be: not to advertise the product in a way which is unethical or attracts innocent people; products in the organisation’s line of product will not be injurious to users: research and development will be oriented to the greatest possible, to produce products which are non-pollutants, and so on.
3. The institutionalisation of SR in Decision-making Process. Once an SR policy is developed, its implementation becomes a part of the day-to-day routine decision-making process throughout the organisation. Managers consider it in the decision making without continuous surveillance of higher level managers. It is always not necessary that some specific programmes of SR are taken by the organisation. But the SR can reflect in all types of decisions. Decision criterion in this respect will not be purely profit-oriented but its orientation about how it affects the organisation’s social concerns.
4. Performance Measurement System. Managers respond well when specific goals are set for their performance and when their rewards are determined by how well they perform in meeting these goals. If managers are to be made responsible for social programmes to meet new expectations and are expected to inject the social point of view in their decisionmaking process, they should be evaluated accordingly. However, this presents a problem. The new measurement may not be as quantitative as the old measurement based on profit performance which is mostly quantitative. Therefore, some qualitative aspects have also to be measured. Measurement may be in terms of different activities so that a manager can know how well he has performed on various activities. Measurement of social performance requires further discussion as there are many approaches for measuring it.
APPROACHES FOR MEASURING SOCIAL PERFORMANCE
If a business organisation undertakes social responsibility work, it should measure its social performance in order to evaluate whether it is progressing in the right direction. However, the measurement of social performance is quite fluid because of its qualitative nature. In order to overcome the problem of fluidity, a separate branch of accounting, known as social accounting, has been developed. Robert Elliot has defined social accounting as “systematic assessment and reporting on those parts of a company’s activities that have a social impact the impact of corporate decisions on environmental pollution, consumption of non-renewable resources, and ecological factors: the rights of individuals and groups; maintenance of public services; health, safety, education, and many other social concerns.”12 In social accounting, three approaches are used for measuring social performance:
1 Social cost-benefit analysis.
2. Social indicators, and
3. Social goal setting.
Social Ethical Issues Management
Social Cost-benefit Analysis
Social cost-benefit analysis is based on evaluating benefits that accrue to society and the costs through which these benefits accrue. While costs can be measured in terms of money. same is not the case with benefits. Since social benefits cannot be defined in monetary term, the concept of consumer surplus is applied to measure these. Consumer surplus is the difference between what a consumer would be willing to pay for a given product or service and the actual price charged. Thus, this willing price may be used for measuring social benefits. However, the willing price to be paid by a consumer is subjective and varies from situation to situation for the same consumer or may be interpreted differently by various persons. For example, what is the willing price to be paid by a consumer for a packet of food who has been uprooted from his home due to natural calamity such as flood, earthquake, etc.
Cost-benefit analysis may be undertaken either on the existing price system or a discounted rate of costs and benefits. In the latter case, social costs and benefits are discounted at social discount rate to determine the present value of net social benefits. Social cost-benefit analysis, though suffers from the limitation of precise measurement, is useful in evaluating the alternative social programmes that an organisation can undertake.
Social Indicators
Social indicators approach of social performance measurement consists of developing social indicators and measuring an organisation’s performance on these indicators. Brumet has prescribed five broad indicators in which the contribution of an organisation should be measured. These are as follows:
1 Net income contribution-earning enough to provide for the present and future costs of the organisation’s continued existence but limited to legitimate socially desirable profit.
2. Human resource contribution-development of system of human resource accounting to measure the impact of the organisational decisions on human asset value.
3. Public creation of jobs and providing employment opportunities to backward and socially handicapped population, contributing towards educational development, relief of people in distress caused by natural calamities, rural upliftment, etc. 12 Robert K. Elliot, “Social Accounting and Corporate Decision Making.” Management Control, January, 1975.
4. Environmental contribution-environmental Improvement throus abatement, conservation of scarce natural resources. maintenance of balance, and so on.
5. Product or service contribution-ensuring quality. durability. Saray serviceability of products; customer satisfaction. truthfulness in advertising, etc. Social indicators approach measures social performance of an organisation in the context of various factors. Many organisations follow this approach because it indi the areas in which they have to work. However, one basic problem in this approach is determination of expectations of various indicators and the way it can be fulfilled.
Social Goal Setting
Social goal setting approach emphasises incorporating social concern in the objectives of an organisation which may be on a perpetual basis or on periodic basis. A combination both can also be followed in which some social concerns can be undertaken on perpetual basis while others can be taken on project basis for specific period. For example, consumer satisfaction, environmental protection, etc. can be taken on perpetual basis while special projects for certain specific social cause like eliminating the impact of destruction caused by certain natural calamities can be taken on ad hoc basis. In the social goal setting approach, an organisation can identify the social concerns to be served on the basis of its own environmental analysis and choose those areas in which it believes it can contribute effectively by reducing the social costs or enhancing social benefits.
This approach is better in terms of providing areas of social concerns on which the organisation can focus in terms of the needs of the areas and its own capability to satisfy those needs. Thus, this approach can be well integrated with management process.
SOCIAL AUDIT
When an organisation undertakes social activities, it must also evaluate the extent to which these activities are performed effectively. Social audit is primarily aimed to measure the effectiveness of these activities. Bauer and Fenn have defined social audit as follows:
“Social audit is a commitment to a systematic assessment of and reporting on some meaningful, definable domain of the company’s activities that have social impact.14
Problems in Social Audit
The idea of social responsibility of which social audit is a means of measurement is quite valid in business world and it has been recognised that business organisations have to fulfil their social obligations in their own long-term interests. Social audit is equally logical. Social audit, however, presents numerous problems. These problems are of two types: determining scope for social audit and measurement problem.
1 Scope of the Social Audit. If a social audit is to be made, the basic question is what activities should be covered. There may be various alternatives. First, all social activities being performed by an organisation may be taken for reporting. However, if the social audit is to catalogue all such activities, verify the costs involved and evaluate the benefits produced, it is very impractical to carry on the social audit and information may be too massive to be useful. The activities may be too large because it is very difficult to say which activities are not social. Thus, various activities which an organisation performs are social from one Principles and Practice of Management point of view because these provide some social benefits besides benefiting the organisation as well. Second, the various activities of clear social utility without prospect of profit may be taken into consideration. However, if only such activities are taken into account, the scope of social audit will be too limited to demonstrate the extent to which the organisation’s social performance is fulfilled. The scope of social audit may be determined keeping in view the information requirements of various groups, such as, employees, customers, shareholders, general public, and those who influence the shaping of public opinions.
2. Measurement Problems. Another major problem in social audit is related to the determination of yardsticks for measuring the costs and accomplishments of activities included in the social audit. Though costs can be measured easily, these are not the true reflection of social responsibility. These may not be the result of social involvement. The measurement of benefits is much more difficult because of lack of objective quantification of the outcome of any social activity. Moreover, how much an activity is benefiting to the society and to the organisation concerned is difficult to measure. It happens that an activity may contribute to both the society and the organisation.
Social Audit Report
In spite of the various problems involved in social audit, the organisations may think of it because a time may come when social audit, like financial audit, becomes compulsory. The validity of social audit report may be determined on the basis of a well-established financial audit report, that is, uses to which information will be put should govern both the conceptual and procedural bases on which information is prepared and disseminated. Corson and Steiner have emphasised that a social audit report should contain: (1) an enumeration of social expectations and the organisation’s responses, (u) a statement of corporation’s social objectives and the priorities attached to specific activities, (ii) a description of the corporation’s goals in each programme area of the activities it will conduct, (iv) a statement indicating the resources committed to achieve objectives and goals, and (u) a statement of the accomplishments and progress made in achieving each objective and goal. 15
In India, Tata Iron and Steel Company Limited (TISCO) conducted a social audit in 1979-80. Exhibit 5.1 presents major references and findings of social audit committee.
OPERATION OF SOCIAL RESPONSIBILITY IN INDIA
The question of social responsibility in India has gained attention, both from academicians as well as from practitioners, during early 1960s. During this period, several seminars were organised on different issues related to social responsibility of business. The seminar held at Kolkata (Calcutta at that time) during March 1966 formed a Standing Committee on Social Responsibility of Business. The Standing Committee set up a Study Group consisting of eminent persons from different walks of life to:
1 prepare a set of business norms for adoption by business community:
2. examine the hurdles in the way of the implementation of these business norms; and
3. recommend remedial measures to eliminate those hurdles. The Study Group suggested the following norms for social responsibility to be adopted by Indian business organisations:
4. Business must accept responsibility to society and its various constituents as a trustee for the goods and services that it produces, consumes, saves, and re-invests.
5. The social responsibility of business extends beyond the businessmen to the lives of the people and the community and, as such, they should endeavour to: (a) play! their proper role in civic affairs within the zones of the business: (b) promote amenities and help create better-living conditions; (c) help in making people law-abiding and improving legislation and administration in municipal and industrial affairs; and (d) set up socially desirable standards of living themselves, avoiding ostentatious. wasteful, and improvident expenditure in weddings, festivities, and parties.
6. Business owes it to itself as a primary obligation to give a fair and square deal to its customers and consumers. They should be charged a fair and reasonable price which should be well within their reach. The supply of goods should be of uniform standard and of reasonably good quality. The distribution of goods must be so widespread as to be within the reach of the consumer. No business should be directly or indirectly indulge in profiteering, hoarding, or creating artificial scarcity.
7. Businesses should not mislead the consumer and community by false, misleading. and exaggerated advertisements. Obscene advertisements are demoralising and dangerous to public morals.
8. Business should develop its administration in such a way as to promote a spirit of cooperative endeavour between employers and employees. There should be a sense of participation between the capital on the one hand and labour and skill on the other in their objective towards prosperity and progress.
9. Business should endeavour to pay: (a) fair and reasonable wages to its labour. (b) fair and reasonable remuneration and salaries to its staff, (c) fair and reasonable return to itself for its work and capital without creating unseemly disparities and by providing fair and reasonable progress and promotion within the business administration from one level to another.
10. Businesses should develop and adopt a progressive labour policy based on:
(a) recognition of genuine trade union rights, settlement of disputes, and conciliation, (b) participation of the workers in improving production and administration. (C) creating a sense of their belonging to the business, and (d) improving the human qualities of labour by education, training. Living conditions, housing, leisure, and amenities.
11. The social responsibilities of business include a healthy cooperative inter-business relationship between different businesses and avoidance of such unfair practices as price rigging, undercutting, patronage, unfair canvassing, and unethical advertisements.
12. The social responsibilities of business towards the State demand that: (a) the businessman will be a law-abiding citizen, (b) he will pay his dues and taxes to the State fully and honestly. (c) he will not corrupt public servants and the democratic processes for his selfish ends. (d) he will not buy political support by money or patronage. (e) he will sell his commodities and services without adulteration. and he will maintain a fair trade policy and avoid activities leading to restraint of trade.
Sachar Committee constituted by Government of India to consider and report on changes in the Companies Act and the MRTP Act also considered the issues related to social responsibility of business. In its report, presented in 1978, the Committee emphasised the need for social responsibility of business. According to the report, acceptance of social responsibility must be reflected in the information and disclosure that the company makes available for the benefits of various constituents like the shareholders, creditors, workers, and community. During 1990s, various associations of business organisations suggested good corporate governance models. These models suggest what the business organisations should adopt as management practices so as to protect the interest of shareholders. financiers, creditors, consumers, employees, government, and society. All these efforts were of recommendatory nature.
In practice, operation of social responsibility in Indian business presents a mixed picture. There are certain organisations which are quite conscious about their social roles. They have contributed a lot for the uplift of the society and internalised SR in their decision-making process. Such organisations belong to progressive industrial groups, or are professionally managed and generally of large size. On the other hand, many business organisations do not look beyond their immediate profit objective. They try to take the fullest advantage of the economic situations characterised by shortages, ignorance of general public, and general Sellers’ market. Similarly, managers also ignore SR in their day-to-day decisions. Though they believe in discharging their social obligations, they are not able to do because of unnecessary rules and controls by the government, company policy. or unnatura competition. A.D. Moddie, a prominent management consultant, has portrayed the picture of typical Indian manager as follows:
This statement reflects the working of Indian managers in general. However, there are old corporate groups like Birla and Tata which have been known for their philanthropic activities. With the change in the Indian business environment, more and more business groups and individual organisations have become sensitive to their social responsibility. Examples of two companies-Hindalco (a Birla group company) and TISCO (a Tata group company) are given here to show how far these companies feel concerned for their social responsibility.
Ethical Issues in Management
Besides social issues, ethical issues in management are equally important, particularly in contemporary society. Though ethical issues are relevant for all segments of society in different forms, in management, ethical issues are in the form of business ethics.
Social Ethical Issues Management
CONCEPT OF ETHICS
The term ‘ethics’ (ethics is used both in singular and plural forms) comes from the Greek word ‘ethos’ meaning character, guiding beliefs, standards, or ideals that pervade a group. community, or people. In the present context, ethics is used in two ways: as a field of study and as a behavioural pattern. As a field of study, ethics is that branch of philosophy that is concerned with moral human character and conduct; it prescribes mass moral principles that define what ought to be. As a behavioural pattern, ethics relates to behaviour that is ethical. Operationally, ethics has been defined as follows:
Freeman views that ethics include people’s rights and duties as well as moral rules that people apply in making decisions.” Thus, ethics is concerned with what is right or wrong in human behaviour. It is normative and prescriptive, and not neutral. On the basis of its definition, we can identify the features of ethics which are as follows:
1 Ethics is involved in all types of human behaviour, whether in business context or other context.
2 Ethics contains personal and professional conduct and prescribes what is ethical conduct and what is unethical conduct.
3. Ethics is a social phenomenon. Since different societies differ in terms of their norms. what constitutes an ethical behaviour in a society may be treated as unethical behaviour in other societies. For example, artificial birth control is mandatory in China but a taboo in Catholic Christian society.
4. Ethics does not rest on feelings of approval or disapproval but on the careful examination of the reality of the society. For example, it may be unpleasant (a kind of feeling) to fire an employee but ethics may demand just that. In fact, principles. and not feelings. give us ethics.
5. Ethics is not necessarily coexistensive with law even though law enshrines many ethical judgement of a society. Law emerges out of ethical standards of the society but it is not necessary that law includes all ethical standards. Further, it may include even some unethical standards to suit a situation.
Based on these features of ethics, business ethics may be defined as the moral principles which should govern business activities. Some examples of business ethics are as follows:
1 To give fair and equitable treatment to the employees
2. To charge fair prices from the customers.
3. To use fair weights for the measurement of commodities.
4. To pay taxes to the government and other bodies honestly.
5. To earn a reasonable profit.
6. To become a good corporate citizen.
Ethics and Social Responsibility: Difference
At this stage, it is desirable to understand the difference between ethics and social responsibility as both aim at positive and acceptable behaviour and, therefore, confusion arises whether both are same or different. In fact, both are related to each other in some respects but they are essentially different. Social responsibility is an organisation’s obligation to protect and contribute to the social environment in which it functions while ethics deals with moral principles in human behaviour. Because of this difference in orientation, ethics and social responsibility differ in the following ways:
1 Ethics provides guidelines for human behaviour in every field, whether organizational or non-organisational Social responsibility works in organisational context. Thus, implications of ethics are much wider than those of social responsibility.
2. Distinction between ethics and social responsibility is in terms of a decision’s implications for the society as a whole. Ethics is concerned with micro aspect, that is, relating to daily operating decisions with limited social impact. Social responsibility is concerned with macro aspect relating to decision with broad implications for a large segment of the society.
Need for Ethics in Management
With the increased level of business scandals throughout the world, more and more people are emphasising ethics in management but at the same time, many people are asking the question: is it necessary to be ethical in business particularly when unethical practices. though lawful, can result in increased profit? Today, the situation in many countries including India is that organisations are being forced by external factors including governments (which are supposed to enforce law) to adopt unethical practices and even illegal practices. The relevance of ethics in such a situation can be seen in terms of an action and its counter-action. This suggests that any action which is undesirable will not be effective in the long-term because there will be counter-action which negates the impact of the earlier action. Thus, in contemporary society. need for ethics in management is due to the following reasons:
1 Environment Pressure An organisation is not an island in itself but is an organ on iety. Therefore, various organs of the environment put pressure on the organisation to behave ethically. Such organs are customers, suppliers, financiers, trade unions, and trade unions, and government. Therefore, the organisation has to refrain from unethical behaviour. because, of this in-built control mechanism of the society, there are more chances of ethical behaviour and less chances of unethical behaviour. However, the effectiveness of this in-built control mechanism depends on its relative force which in turn, depends on the social structure
2. Credibility. Ethical behaviour helps in increasing credibility of an organisation. Credibility of an organisation is an essential phenomenon because through it, the organisation protects its identity. Identity of an organisation refers to what it is and what kind of perception people have about it. Credibility of the organisation depends on trustworthiness, transparency, and honesty. Trustworthiness refers to the level of security that the organisation may feel towards others and the extent to which it is viewed by others as fair, honest, and just in dealing with others. Transparency refers to the extent the organisational decisions are verifiable. Transparency depends on the consistency of decisions. It goes up when there is consistency in decisions. Honesty refers to commitment for maintaining high socio-psychological standards. For an organisation, building credibility is a long-drawn process but its tarnishing is a short one. High credibility can be maintained through continuous ethical behaviour.
3. Moral Consciousness. Every individual is morally conscious. Since an organisation is a collectivity of individuals for certain specified objectives, it tends to behave ethically even if there is a pressure from external forces to behave unethically. Organisations tend to feel that their long-term survival depends on ethical behaviour and any unethical behaviour is a short-term aberration. Because of this feature, there is a proverb ‘honesty is the best policy in the long term’.
4. Legal Pressure. Ethical behaviour is evolved from the social system. Thus, ethical behaviour is evolutionary. In this evolution process, there is a possibility that, sometimes, it may not be clear to people whether a particular behaviour is ethical or unethical. In order to avoid this dilemma, most of the societies enact laws which define ethical and unethical behaviour. Penal provisions are also made to curb unethical behaviour. These penal provisions refrain people and organisations from engaging in unethical behaviour. Ethical Dilemma Sometimes, unethical behaviour takes place because of ethical dilemma which is defined as a complex situation in which there are not clear-cut guidelines for ethical or unethical behaviour. Ethical behaviour is evolutionary and various sources like religion, law, social rituals, etc. fail to provide guidelines for behaviour in some situations. In such situations. ethical dilemmas emerge and people are faced with having to make choice among the following alternatives:
5. significant value conflicts among different interests,
6. real alternatives that are equally justiciable, and
7. significant consequences on the stakeholders in the situation. In ethical dilemmas, the toughest choices are right versus right. They can be:
3. truth versus loyalty.
4. individual versus community.
5. short-term versus long-term, and
6. justice versus mercy.
In such situations, a particular behaviour may appear to be ethical from one point of View but unethical from another point of view. In the books on ethics, an example of ethical dilemma is quoted frequently. The example is: during the early years of pencillin (considered to be a life-saving drug introduction, the companies concerned were abnormally making nuge profits as pencillin supply was short. Perturbed by this phenomenon, a prominent scientist of immunology stole the formula of pencillin from one company and supplied it free of cost to another company not producing pencillin with advice how the formula can be adopted. The latter company used the formula and started producing pencillin in large quantity. With the result, prices of pencillin dropped down significantly and community benefited. This question is: was the behaviour of the scientist ethical or unethical? The answer is: it was unethical from the point of view of companies engaged in producing pencillin earlier but ethical from the point of view of community which was positively affected by the increased supply of pencillin. This is just one case. In any society, several such situations arise. In Indian context, this is termed as ‘apad dharm’ (emergent righteousness) meaning that any unethical behaviour which takes place to negate the effect of an unethical behaviour of one person or group of persons is not unethical behaviour.
