Business Social Responsibility and Ethics

Business SOCIAL RESPONSIBILITY AND ETHICS

BUSINESS SOCIAL RESPONSIBILITY AND ETHICS

The objectives of a business enterprise are to maximize profit or at least break even if they are to survive. It has been though that nationalized industrial may operate at a loss, since they are serving the public interest. Today, we have seen the trend in privatizing and commercializing the so called nationalized industries as to make them profitable.

Most people, however, would probably agree that certain fundamental principles should govern the conduct of business affairs, principles such as:

a) Concern for the qualities of life including life at work and the satisfaction derived from the work experience

b) Concern for physical environment

c) Fair reward for effort and enterprise

d) Involvement with and interest in the activities of the wider community

e) No misrepresentation in advertising and other fraudulent activities

f) Absence of the laws and established customs of the community.

These principles portray that no organization can divorce itself from the society within which it exists. It is on this notion that the two views of business organisation objectives are based.

TWO VIEWS OF BUSINESS ORGANIZATION OBJECTIVES

1) Business exists solely to make profits for shareholders. The claims of other interested parties-customers, employees, community, managers etc. are viewed as constraints or limitation on this objective in the private business even nationalized industry.

2) Organization should be seen as comprising- “stakeholders” or interest groups each of which the company owes a responsibility.

A board’s responsibility then is for the company as a whole. This covers not only shareholders but also those who work for the company and all who may be affected by the operation of the company. Since business provide goods and services to the general public, the public therefore have a vested interest in how they behave.

Customers want the goods and services they purchase to be of reasonable quality, they demand fair prices, prompt delivery, good after sales services and so on

Suppliers expect fast settlement of bills shareholders want high dividends-Employees ask for better wages and conditions of work.

Some of these demands as in conflict, they cannot all be achieved simultaneously. Thus, priorities must be specified and compromise negotiated. In some cases, the state will decide how business should behave. E.g. there are laws on consumer protections.

SOCIAL RESPONSIBILITIES (A DEFINITION)

Social responsibilities refer to “the consideration of and responses to issues beyond narrow economic, technical and legal requirement by a company which affect society. It is the acceptance of social obligations by a company beyond the requirement of the law.

Whilst a good case can be made for a company to be socially responsible, there are a number of counter argument.

Responsibility to Shareholders (or owners)

As the name implies, shareholders are individuals who hold shares in a company or business organisations. They own the company in the sense that they are the people who subscribe to the equity capital of the company. Their interests are generally well protected either through the direct participation in the management of the enterprise or the power to intervene, if necessary.

One responsibility to shareholders that management must fulfill is financial disclosure. The companies Act 1968 and Company and Allied Matters Decree, makes it mandatory on management and the board of directors to publish annual audited accounts of their transactions during a particular year and to present such accounts to the shareholders. Such audited accounts should present‘true and fair view’ of the company’s financial transactions. Not only would such accounts help to expose and prevent fraud, but they would also help to indicate whether management optimized the use of the company’s resources in the best interest of the shareholders. Other responsibilities are:

– Research dividend policy

– Growth of capital

– Security of capital

Responsibility to Employees

Management owes much of its employees, who are the life-blood of the enterprise. Through team, management is able to convert resources into output to achieve the objectives of the business. Managing employees, then, in the most basic task necessary for the success of any business. If employees are not sufficiently motivated, the business will suffer in terms of low productivity, high absenteeism and labour turnover. The rise of powerful labour unions and the incessant strike actions embarked upon by workers in recent years can be attributed to the insensitivity of management to the interest and welfare of employees.

Recently, however, most large business concerns have started to assume the responsibility of providing favourable working conditions for their employees, including health care, safety at work, opportunity for development, fringe benefits, and pension plans. Some companies have also been practicing profit sharing and co-partnership schemes. In the industrially developed countries particularly Japan, it is such schemes that have made the morale and productivity of the average worker unparalled in the modern world. It is social irresponsibility and moral injustice for the people who produce the goods and services that generate people who produce the goads and services that generate the profits not to have a share in the profits besides the salaries they receive. This is something that modern business leaders must seriously think about.

In a nutshell a business organization has a responsibility to its employees in respect of the following, among others

– Fair and reasonable remuneration policies

– Good working conditions

– Security of tenure

– Promotion prospects

– Training prospects

– Pension schemes etc.

– Profit-sharing schemes, co-partnership schemes etc

Responsibility to Customers

Customers form the most significant group for business and industrial organizations. According to modern marketing philosophy, they are the ‘kings’ in the market place, for the authority they exercise through demand is regarded as supreme over that of any group. The customer may be an individual, a household unit, an organization, or government. A customer is not necessarily the actual purchaser of a company’s products, as most people consider the term for it includes those who are potential purchasers of a company’s products and all others that have a favourable impression of and attitude towards the company and its products or service.

Business could therefore be socially responsible to customers in the following respects:

a) Reasonable prices

b) Quality commensurate with price

c) Product characteristics agreeing with sales

d) Promotion claims

e) Observing guarantees

f) After-sales service

g) Meeting agreed delivery dates etc

h) Manufacturing goods which are of merchantable quality

i) Increase productivity and improve the quality of goods supplied. Where economies are affected by new improved methods to pass a reasonable proportion of the savings to the customer.

Responsibility to the Government

Companies should also respond to the social and economic pressures exerted by government on their operations. Taxation, for example, is one such pressure that the government brings to bear upon businesses. Businesses must also obey the laws of the country e.g. Industrial laws, company law, unfair contract terms act, minimum wage, office shops and railway premises, Act, factories.

Responsibility to the Community or Society

Every community has multitude of social needs that requires far more resources than are available in the community for satisfying those needs. Businesses, therefore are often looked to, or called upon, to provide some of these resources.

Many businesses have been responding favourably, though marginally, to the needs of the various communities in which they operate. At the local level they have been offering assistance both financially and materially to the handicapped and other disabled persons as well as to less privileged persons such as orphans. At the national level our businesses have become frontliners in offering support for supporting, artistic and cultural activities in the count. Most of the popular football clubs in this country, for example, are owned and sponsored by business houses.

In the fields of education and community development companies have also accepted certain key responsibilities aimed at improving the quality of life of the people such as awarding secondary school scholarships to children of their employees, and awarding university scholarships to deserving students, studying in higher institutions.

There are, however, certain aspects of social responsibilities to which business has not been responsive. The attitude towards a clean and healthy environment, for example, is not impressive at all. Small businesses particularly do not consider it a responsibility of theirs to cater for the welfare of the community by protecting the safety, comfort, health and happiness of members of the community. The nonchalant attitude of the oil companies towards environmental pollution, particularly the spillage of oil in the rivers and oceans, is also a case against the giant companies. The effect of such oil spillage on marine life, birds, vegetation and human beings is often too ghastly to be contemplated here. Unless the oil companies view this situation with concern, they will lose the trust and confidence reposed in them by the populace. This will ruin the good public image that took them years to build.

Additionally, the federal government will be forced to promulgate laws to prevent the abuse of our environment. Recently, there is the trend to produce lead free petrol. In other words, business owes the following obligations to the society as a whole in order to be socially responsible:

– To carry out operations without despoiling the government

– Energy conservation

– Technological development to improve quality of life

– Providing some amenities in the environment they operate

– Scholarship schemes for students

– Environment and nature protection

– Sponsoring programmes on the television etc.

POINTS IN FAVOUR OF SOCIAL RESPONSIBILITY

a. It is in the long term self interest of the firm to be socially responsible e.g. fair wages, responsible attitudes towards labour and their representatives, provision of welfare facilities, full consultation with community representative, employee, shareholders, fair treatment of suppliers/customers are all likely to pay measureable dividends to the firm at least in the long term. These measures can be looked upon as an investment.

b. Public Image: All firms operate with the framework of a wider social system. It provides goods and services and requires money, raw materials, custom services e.g. roads. The success of a firm can depend to a large extent on its public image. The attitudes of the company towards different groups will establish this image in their eyes.

c. Prevention is better than cure: “Society” is increasingly concerned with

i. Choice of products at stable prices

ii. Security of employment and income

iii. The economic use of national resources with minimum detriment to the physical environment

iv. Establishing fair rewards for the use of capital and risk for the investor

v. Some influences for employees over decisions which vitally affect their livelihood

A company should therefore appreciate and be concerned for these issues. The consideration will minimize friction, misunderstanding and avoid many of the problems incurred by the socially irresponsible firms.

POINT AGAINST SOCIAL RESPONSIBILITY

a) Profit Maximization: It can be argued that the management primary responsibility lies in the maximization of profit because the directors are appointed by the shareholders to manage the company on their behalf and particularly to maximize profit so that the shareholders can be assured of reasonable return on investment.

b) The opportunity cost of social responsibility is sometimes very high in terms of alternative forgone. Social responsibility should be seen as luxury, therefore to be pursued when their demands on funds have been satisfied.

c) Business has enough power now. Too much commitment or involvement on the community on the part of the business would increase and extend that power.

PRESSURE ON BUSINESS TO MEET THEIR SOCIAL RESPONSIBILITY

1) From Government (National and Local) though persuasion and legislation e.g. provision of arbitration council’ an advisory search to help settlement of industrial relations dispute.

2) Trade Union Employee Association

3) Professional Bodies e.g. B.I.M NIM, IPM, ICSA, ICAN>

4) Consumer Association

5) News media

6) Miscellaneous e.g. (1) industrial society (formal and informal) (ii) Pressure groups on pollution, preservation, conservation and consumer group.

7) Trade Association

ETHICS

Ethic is the brand of philosophy that is concerned with what is morally good and bad, right or wrong. The ethics of persons consists not merely in what they do but what they think it is fitting, right of obligatory to do.

It is important to note that the need for social responsibility of business would be eliminated when business firms and managers use “Ethics as a business strategy”

Managers of organizations are members of a society, as consumers, voters, owners of property, member of families so on. When they purchase goods for their own personal use they expect certain standards to apply, and it would be inconsistent of them not to feel obliged to adopt similar standards in their own business affairs. A manager will want to feel that he is behaving properly in socially acceptable ways.

The major tasks of a professional manager is the area of ethics would imply undertaking of responsibility for analyzing, evaluating and/or developing criteria for dealing with moral problem of business. A manager might feel a particular course of action is morally right and act according regardless of self interest.

Decisions Demanding Ethical Consideration

Individuals behavior depends substantially on the culture or institutions norm and collective perspective of the society to which the individual belongs. A manger will have been born to particular social groups, have been educated in a certain tradition, might subscribe to a particular religion and will have absorbed some of the values expounded by peers. All managers posses, therefore, a philosophy of sort, even if they are not aware of the fact. The philosophy will help the manager determine hierarchies of personal objectives, identify good and bad occurences and evaluate the desirabilities of various course of action. Often managers occupy position of great responsibility. Where they might take decision that affect the welfare of entire communities. Many ethical problems can arise in such a position. Some examples are listed below.

a) Should a manager report to the authorities (police, government agency or whatever) an illegal act deliberately performed by the manager’s employing firm.

b) If an individual is a member of a committee that takes a decision with which the individual fundamentally disagrees, should that person feel bound by the normal conventions of confidentiality of committee proceeding and collective responsibility for decision? If for instance, some of the manager’s colleagues are to lose their jobs through a committee decision, is he morally entitled to warm them of what is to happen and this.

c) Should Senior Manager’s always back the decision taken by subordinates even if those decisions turn out to be wrong? Superiors who overturn subordinates’ decisions may impose fairer and more just solutions on specific problem, but in so doing will lose the trust and confidence of their subordinates who will become increasingly reluctant to take decisions on their own without first seeking approval from higher levels.

d) To what extent (if any) is it reasonable to bribe representatives of client firms in order to win orders

e) How truthful should the manager be when describing the firms activities or products to outsiders? Noting that deliberately withholding relevant information can be as misleading as telling lies.

To resolve these and other moral issues, the manager will need to establish ethical criteria against which particular events can be assessed. There are two approaches to the problems. Either, the manager must predetermine strict moral principles and adhere to them always – regardless of extenuating circumstances or must consciously decide to vary his or her behaviour according to the demands of particular situations, in other words, to adopt a contingency approach to ethical issues.

The former has the advantage of consistency, but the manger who behave this way might be accused (perhaps justifiably) of obstinacy and intolerance of the human weakness of others. The alternative i.e. more flexible approach requires changes in manager’s moral outlooks according to the needs of the situation. Those affected by a manager’s ethical inconsistency might resent and retaliate against the decision.

Establishing of ethical standards necessary to maintain goodwill and build reputation. Additionally the following decisions demand ethical consideration.

a) When government rules and regulations, leaves loopholes due to vagueness in law, due to the fact that no law can cover all circumstances, because it cannot foresee everything especially technological and attitudinal changes.

b) When competitors are taking advantage of (no checks on) moral and ethical values.

c) When consumers/customers do not fully appreciate and respond in favour of firms having higher ethical standards.

d) When public administrative machinery become rusted by environmental factors and cannot implement public regulations efficiently.

e) When confusion exists among businessmen as to the nature of ethical standards

f) When proprietors, partners, managing directors, excludes moral values/ethical standards, as business factors. They only consider economic factors as a basis for decision making.

When moral values are high in society, the respect of law is also high. Consequently, illegal activities are few. High moral values also reduce the need for increasing government laws and regulations. On the other hand, low values act as incentive for making new government regulations.

Ethical Bases of Managerial Decision Making

To behave rationally managers need a business ethic. This will be a basis for systematically determining which alternative solutions are better when making decisions and solving problems. Manager’s must consistently choose the alternative that lead to the ultimate goal or value of the organizations.

David Twin in his book “The Managerial Mind” posited that some of the alternative chosen in a matter/of ethical judgment rather than of fact. He posited that:

“when management is in a decision making situation, there generally are many different alternatives that might be selected. Each one leads to particular streams of events in the future. Thus when management makes a decision, in effect, it selects one state of anticipated affairs in preference to others. Whether only not this outcome is better than any of the other possible alternative is a matter of ethical judgement rather than of fact”

The ethical considerations that affect a manager when making decisions are:-

i. The profit motive ethic,

ii. Social responsibility ethic and

iii. Efficiency performance ethic

A. THE PROFIT MOTIVE ETHIC

The purpose for which an organization starts a business is to earn a profit. Theoretically, that is his only goal. This means that all of the decisions that he makes will have the ultimate objectives of maximizing profit. This does not mean of course, that the entrepreneur will never make decisions that benefit his employees, customers, the community or the nations, but does this in so far as satisfying the different groups have a bearing on the firms profitability

The profit motive ethic has the advantage, as an ethic of having a single end. The entrepreneur need not be bothered with conflicting goals. He only has to worry about the impact of this decision on profits. The entrepreneur only problem is to select the best means to achieve an end, but this is a formidable problem because of the condition and uncertainty under which he operates.

B. THE SOCIAL RESPONSIBILITY ETHIC

Robert A. Wright quoting Lamont du Pont on “Corporate social responsibility” published in the New York times, in July, 1966, defend management attitude on social responsibility as follows:-

“unavailable precept, business is a means to end in itself, and therefore must act in concert with a broad public interest and serve objectives of mankind and society or it will not survive.”

Advocates of the doctrine believe that in making decisions, managers should take into accord how they affect the various groups in society rather than focus on the welfare of any groups, shareholders, customers, or employers. Therefore managers are seen as impartial arbitrators among their various interest (i.e. there is need for today’s institutions, banking or business, public or private to react constructively to.

i. The goals of the society and

ii. The economic technological, social and political force that mold that society.

C. ORGANIZATION EFFECTIVENESS ETHIC

The goal of the professional manager who is committed to his organization is the survival of the organization, and secondary, the growth and prosperity of the organization. He wants to have an effective organization, which is capable of adapting to changing conditions, meeting challenges, coping with threats and taking advantage of opportunities. The appropriate guideline under this ethic for a manager is to make decisions that will protect and further the effectiveness of the organization.

FACTOR AFFECTING MANAGERIAL DECISION

Relevant Component Of Societal/General Environment

i. Culture: including the historical background, ideologies, values and norms of the society. Views on authority relationship, leadership patterns interpersonal relationship, rationalism, science and technology, define the nature of social institution

ii. Technological: The level of scientific and technological advancement in society. Including the physical base (plant, equipment, facilities) and the knowledge base of technological community is able to develop new technology and apply it.

iii. Educational: The general literacy level of the population. The degree of sophistication and specialization in the educational system. The proportion of the people with a high level of professional and/or specialized training

iv. Political: The general political climate of society. The degree of concentration of political power. The nature of political organization (degrees of decentralization, diversity of function etc) The political party system.

v. Legal: Constitutional consideration, nature of legal system, jurisdiction of various governmental units. Specific laws concerning formation, taxation and control of organizations.

vi. Natural Resources: The nature quantity and availability of natural resources, including climatic and other conditions.

vii. Demographic: The nature of human resources available to the society their number, distribution, age, sex concentration or urbanization of population is a characteristic of industrialized societies.

viii. Sociological: Class structure and mobility, definition of social roles. Nature of the social organization and development of social institutions.

ix. Economic: General economic framework, including the type of economic organization-private versus public ownership, the centralization or decentralization of economic planning; the banking system; and fiscal fiscal policies. The level of the investment in physical resources and consumption characteristics.

TASK ENVIRONMENT

i. CUSTOMERS COMPONENT

Distribution of product or services

Actual users of products or service

ii. Competitor component

Competition for suppliers

Competition for customers

iii. Socio-Political Component

Government regulatory control over the industry, public, political attitude towards industry and its relationship with trade union.

iv. Technological component

Meeting new technological requirements of own industry and related industries in production of product or service

Improving and developing new products by implementing new technological advances in the industry.

Outcome

GOALS AND VALUES: The aim or idea of what the organization want to achieve in terms of his personnel, product, profit, values, imply how the management sees something.

TECHNICAL STRUCTURES: institution of machines, O&M organization structure, formerly line management matrix form of organization structures etc.

HUMAN RELATION How to make people fit into the organization

PSYCHOLOGICAL leadership styles, motivators etc

who to appoint as manager

MANAGERIAL STRUCTURE

NOTE i) Organization need to adapt to environment

ii) Environment need to adapt to organization as well

iii) Goals may often conflict with social responsibility

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