Social Responsibilities of Business and Business EthicsClass 11 Business Studies NCERT Solutions
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Q1Long Answer Questions
Build up arguments for and against social responsibilities.
Solution
There is a significant debate on whether businesses should assume social responsibilities. The arguments for and against are as follows:
Arguments for Social Responsibility:
- Justification for existence and growth: Business exists to serve society by providing goods and services. Its prosperity is possible only through continuous service to society, which justifies its existence.
- Long-term interest of the firm: A firm gains a better image and maximum profits in the long run when it serves society. Public support is crucial for a business's survival.
- Avoidance of government regulation: By voluntarily assuming social responsibilities, businesses can reduce the need for new laws and government regulations, which limit their freedom.
- Maintenance of society: Businesses should assume social responsibilities to prevent anti-social activities that can harm their own interests.
- Availability of resources with business: Businesses possess valuable financial and human resources that can be effectively used to help solve social problems.
- Converting problems into opportunities: Businesses can apply their skills to not only solve social problems but also turn them into profitable opportunities.
- Better environment for doing business: A society with fewer problems provides a better environment for business operations. It is in the business's interest to help create such a society.
- Holding business responsible for social problems: Since businesses have created or contributed to problems like pollution and corruption, they have a moral obligation to help solve them.
Arguments against Social Responsibility:
- Violation of profit maximisation objective: The primary objective of a business is to maximise profit for its owners. Spending on social responsibility is seen as a violation of this objective.
- Burden on consumers: The costs of social responsibility measures, like pollution control, are often passed on to consumers in the form of higher prices.
- Lack of social skills: Business managers are trained to solve business problems, not social ones. Social problems should be handled by specialised agencies.
- Lack of broad public support: The public generally does not like business interference in social programmes, leading to a lack of cooperation and confidence.
Q2Long Answer Questions
Discuss the forces which are responsible for increasing concern of business enterprises toward social responsibility.
Solution
Several forces have persuaded business enterprises to consider their social responsibilities more seriously. The most important among them are:
- Threat of public regulation: Modern governments are expected to act as welfare states. If businesses operate irresponsibly, governments will enact regulations to safeguard public interest. This threat of regulation is a major reason why businesses feel concerned with social responsibility.
- Pressure of labour movement: Over the years, labour movements have become more powerful and organised. This has forced businesses to pay due regard to the welfare of workers, rather than treating them arbitrarily.
- Impact of consumer consciousness: Due to education, mass media, and market competition, consumers are now more aware of their rights. The principle has shifted from 'let the buyer beware' to 'customer is king', compelling businesses to adopt customer-oriented policies.
- Development of social standard for business: Society now expects businesses to do more than just make money. New social standards require businesses to serve social needs, and their functioning is judged based on these standards.
- Development of business education: Modern business education has made people—as consumers, investors, or employees—more aware of the social purpose of business and more sensitive to social issues.
- Relationship between social interest and business interest: Businesses have started to realise that their interests and society's interests are complementary, not contradictory. The long-term benefit of a business lies in serving society well.
- Development of professional, managerial class: A new class of professional managers has emerged who are more interested in satisfying multiple interest groups in society to run their enterprises successfully, rather than just focusing on profit goals for the owners.
Q3Long Answer Questions
'Business is essentially a social institution and not merely a profit making activity'. Explain.
Solution
The statement 'Business is essentially a social institution and not merely a profit making activity' means that a business cannot operate in isolation from society and has obligations that extend beyond earning profits.
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Existence is granted by society: A business enterprise is permitted by society to carry on commercial activities. It uses society's resources—natural, human, and financial. Therefore, it is obligated not to do anything that is undesirable from society's point of view, such as selling adulterated goods or polluting the environment.
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Justification for existence and growth: While profit is an important motive, it should be seen as an outcome of service to the people. A business exists to provide goods and services that satisfy human needs. Its long-term prosperity and growth are possible only through continuous service to society. This service provides the justification for its existence.
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Interdependence with society: A business is an organ of society and is deeply intertwined with it. It depends on society for its inputs like labour and capital, and for its market of consumers. A society with fewer problems provides a better environment for a business to succeed. Therefore, it is in the business's own interest to contribute to the well-being of the society in which it functions.
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Reconciliation of interests: A modern business is considered a socio-economic institution. It must reconcile its short-term and long-range economic interests with the demands of society. While it must justify itself on economic performance, it must also fulfill its social roles and responsibilities to ensure its continued success and legitimacy.
In conclusion, while economic performance is crucial, a business is fundamentally an organ of society. It must justify its continuance by fulfilling its responsibilities towards various social groups, making it a social institution.
Q4Long Answer Questions
Why do the enterprises need to adopt pollution control measures?
Solution
Enterprises need to adopt pollution control measures not only to avoid criticism but also to enjoy several tangible benefits. The key reasons are:
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Reduction of health hazards: Many serious diseases like cancer, heart attacks, and lung complications are caused by pollutants in the environment. Pollution control measures can check the seriousness of such diseases and support a healthy life on earth for everyone.
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Reduced risk of liability: An enterprise can be held legally liable to pay compensation to people affected by the toxic wastes it releases. Installing pollution control devices is a sound business policy as it reduces the risk of incurring such liabilities.
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Cost savings: An effective pollution control programme can lead to significant cost savings. For example, improper production technology can result in greater waste, leading to higher costs for waste disposal and cleaning the plant. By optimising processes to reduce waste, businesses can save money.
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Improved public image: Society is increasingly conscious of environmental quality. A firm that adopts policies and practices for controlling waste will enjoy a good reputation and be perceived as a socially responsible enterprise. This positive public image can translate into better customer loyalty and brand value.
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Other social benefits: Pollution control leads to numerous other social benefits, such as clearer visibility, cleaner buildings, and a better quality of life. It also ensures the availability of natural products in a purer form for future generations.
Q5Long Answer Questions
What steps can an enterprise take to protect the environment from the dangers of pollution?
Solution
Business enterprises, as major generators of wealth, technology, and resources, should take the lead in providing solutions to environmental problems. Some of the specific steps an enterprise can take for environmental protection are:
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Top Management Commitment: The top management of the enterprise must make a definite commitment to create, maintain, and develop a work culture focused on environmental protection and pollution prevention.
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Shared Commitment: Ensure that the commitment to environmental protection is shared throughout the enterprise by all divisions and employees, making it an organisational goal.
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Clear Policies and Programmes: Develop clear-cut policies and programmes for environmental protection. This includes purchasing good quality raw materials, employing superior and cleaner technology, using scientific techniques for waste disposal and treatment, and developing employee skills for pollution control.
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Compliance with Regulations: Strictly comply with the laws and regulations enacted by the Government for the prevention of pollution.
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Participation in Government Programmes: Actively participate in government programmes related to environmental protection, such as the management of hazardous substances, cleaning up polluted rivers, plantation of trees, and checking deforestation.
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Periodical Assessment: Regularly assess the pollution control programmes in terms of their costs and benefits to increase their effectiveness and ensure continuous progress in environmental protection.
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Education and Training: Arrange educational workshops and training materials to share technical information and experience with suppliers, dealers, and customers. This helps get them actively involved in pollution control programmes and builds a green supply chain.
Q6Long Answer Questions
Explain the various elements of business ethics.
Solution
For an enterprise to foster ethical behaviour in its day-to-day working, several basic elements of business ethics must be implemented. These elements create a culture where ethical conduct is valued and practiced.
The key elements are:
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Top Management Commitment: This is the most crucial element. The Chief Executive Officer (CEO) and other senior managers must be openly and strongly committed to ethical conduct. They need to provide continuous leadership for developing and upholding the values of the organisation. Their actions set the tone for the entire company.
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Publication of a 'Code': An effective ethics programme includes a formal, written document often referred to as a 'code of conduct'. This code outlines the principles of conduct for the whole organisation. It typically covers areas such as fundamental honesty, adherence to laws, product safety and quality, workplace health and safety, conflicts of interest, and fairness in marketing practices.
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Establishment of Compliance Mechanisms: To ensure that decisions and actions comply with the firm's ethical standards, suitable mechanisms must be established. Examples include: paying attention to values and ethics during recruitment and hiring; emphasizing corporate ethics in employee training; regularly auditing performance to check for compliance; and instituting communication systems (like hotlines) to help employees report incidents of unethical behaviour without fear of reprisal.
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Involving Employees at all Levels: Ethical policies are implemented by employees at all levels, so their involvement is essential for an ethics programme to be successful. This can be achieved by forming small groups of employees to discuss the firm's ethics policies, examine their attitudes towards them, and suggest improvements. This fosters a sense of ownership and responsibility.
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Measuring Results: Although it is difficult to accurately measure the end results of ethics programmes, firms can certainly audit their processes to monitor compliance with ethical standards. The top management and other employees should then discuss these results to identify areas of improvement and determine the future course of action.
Q7Long Answer Questions
Discuss the guidelines enumerated by the Companies Act 2013 for Corporate Social Responsibility.
Solution
The Companies Act, 2013 in India provides specific guidelines for Corporate Social Responsibility (CSR) under Clause 135. These guidelines formalise the CSR obligations for larger companies. The key provisions are as follows:
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Applicability: The CSR provisions apply to companies that meet any of the following financial criteria in any financial year:
- An annual turnover of Rs. 1,000 crore or more.
- A net worth of Rs. 500 crore or more.
- A net profit of Rs. 5 crore or more.
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CSR Committee: Companies covered under this clause are required to set up a CSR committee consisting of their board members. This committee must include at least one independent director.
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CSR Spending: The Act encourages these companies to spend at least 2% of their average net profit from the previous three financial years on CSR activities. This moves CSR from a purely voluntary domain to a structured, compliance-oriented one.
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Indicative Activities: The types of activities that can be undertaken by a company under CSR have been specified under Schedule VII of the Act. These include areas like promoting education, eradicating hunger and poverty, promoting gender equality, ensuring environmental sustainability, and contributing to rural development projects.
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Geographical Limit: Only CSR activities undertaken within India are taken into consideration for the purpose of compliance with the Act.
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Exclusion of Employee-centric Activities: The Act clarifies that activities meant exclusively for the benefit of the company's employees and their families will not qualify as CSR activities under these provisions.
Q1Short Answer Questions
What do you understand by social responsibility of business? How is it different from legal responsibility?
Solution
Social responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of our society. It implies that businesses should respect the aspirations of society and contribute to their achievement alongside their profit-making objectives.
Social responsibility is different from legal responsibility in the following ways:
- Scope: Legal responsibility is fulfilled by mere compliance with the laws and regulations enacted by the government. Social responsibility is a broader concept that goes beyond the law.
- Nature: Legal responsibility is mandatory. Social responsibility, on the other hand, involves an element of voluntary action on the part of businesses to act for the benefit of society, even when not required by law.
Q2Short Answer Questions
What is environment? What is environmental pollution?
Solution
Environment is defined as the totality of man's surroundings, which includes both natural and man-made elements. Natural resources include land, water, air, fauna, and flora. Man-made resources include cultural heritage, socio-economic institutions, and the people.
Environmental pollution is the injection of harmful substances into the environment. It occurs when pollutants are released into the environment beyond its capacity to absorb them. Pollution changes the physical, chemical, and biological characteristics of air, land, and water, which harms human life and other species, degrades living conditions, and depletes natural resources.
Q3Short Answer Questions
What is business ethics? Mention the basic elements of business ethics.
Solution
Business ethics refers to the socially determined moral principles that should govern business activities. It is concerned with what is right and wrong in business conduct, judged from the perspective of society's values. It involves adhering to moral principles and fair conduct that often goes beyond just observing laws and regulations. Examples include charging fair prices, providing good quality products, and treating workers fairly.
The basic elements of business ethics are:
- Top management commitment: Senior management must be openly and strongly committed to ethical conduct and provide leadership in upholding organisational values.
- Publication of a 'Code': Enterprises should define their principles of conduct in a written document called a 'code', covering areas like honesty, product safety, and workplace fairness.
- Establishment of compliance mechanisms: Systems should be in place to ensure ethical standards are followed, such as ethics training, audits, and reporting systems for unethical behaviour.
- Involving employees at all levels: Since employees implement ethics policies, their involvement is essential. This can be done through discussions and feedback sessions.
- Measuring results: Firms should audit and monitor compliance with their ethical standards to assess the effectiveness of their ethics programmes and decide on future actions.
Q4Short Answer Questions
Briefly explain (a) Air Pollution, (b) Water pollution, and (c) Land pollution.
Solution
(a) Air Pollution: This is the result of a combination of factors that lower air quality. It is primarily caused by carbon monoxide emitted by automobiles and smoke and other chemicals released from manufacturing plants. Air pollution has severe consequences, such as creating a hole in the ozone layer, which leads to the dangerous warming of the earth.
(b) Water Pollution: This occurs when water bodies like rivers, streams, and lakes are contaminated, primarily from the dumping of chemicals and industrial waste. For years, business enterprises have discarded waste into water bodies, leading to the death of several animal species and posing a serious threat to human life.
(c) Land Pollution: This is caused by the dumping of toxic wastes on land. Such practices damage the quality of the land, making it unfit for agriculture or plantation. Restoring the quality of land that has already been polluted is a significant and difficult problem.
Q5Short Answer Questions
What are the major areas of social responsibility of business?
Solution
A business has social responsibilities towards various interest groups. The major areas of social responsibility are:
- Responsibility towards shareholders or owners: To provide a fair return on their capital investment, ensure the safety of their investment, and provide regular, accurate, and full information about the company's working and future plans.
- Responsibility towards the workers: To provide opportunities for meaningful work, create good working conditions, respect their right to form unions, and ensure fair wages and treatment.
- Responsibility towards the consumers: To supply the right quality and quantity of goods and services at reasonable prices. This includes taking precautions against adulteration, poor quality, misleading advertising, and lack of service.
- Responsibility towards the government and community: To respect the laws of the country, pay taxes regularly and honestly, and behave as a good citizen. It also includes protecting the natural environment and avoiding pollution.
Q6Short Answer Questions
State the meaning of Corporate Social Responsibility as per the Companies Act 2013.
Solution
As per the Companies Act 2013, the concept of Corporate Social Responsibility (CSR) is governed by Clause 135. It is applicable to companies meeting certain financial criteria: an annual turnover of Rs. 1,000 crore or more, a net worth of Rs. 500 crore or more, or a net profit of Rs. 5 crore or more. These companies are required to spend at least 2% of their average net profit of the previous three years on CSR activities. The Act also mandates the setup of a CSR committee of the board to oversee these activities. The indicative activities that qualify as CSR are specified under Schedule VII of the Act, and only activities undertaken in India are considered.