THE CONCEPT OF BUSINESS SOCIAL RESPONSIBILITY.
Probably no question has received more attention by business, governments, politicians and people in general in the past few years than the question of what social responsibility of business is.
The same question, originally aimed at business, is now being addressed with increasing frequency to government agencies and their leaden, non-profit and charitable organisations and even churches.
Various types of organisations have different missions that have been entrusted to them by society. The mission of business is the production and distribution of goods and services. The mission of a police department is protection of the safety and welfare of the people. We should not hold
business managers, for example, responsible for solving all manner of social problems, any more than we should expect those responsible for a church to produce and distribute economic goods. There can hardly be any sense in making the job of business one of providing public school education that government is ordinarily expected to provide. But business, like any other type of organised enterprise, must interact with and live within, its environment.
To live within an environment is to take into account in our every action those elements of our surroundings which are important to us and to others. Managers know that they must interact with, and live within, an existing environment. This means that they must take into account every element in their surroundings that is important to their success and important to other who may be affected by the action taken. This is what they must do, since the survival of their enterprises depends upon successful interaction with the critical elements of their environment.
But to live within an environment and be responsive to it does not mean that managers should merely assume a reactive posture in the face of stress.
There is a positive aspect as well, that is, to pro-act. To respond requires to know what aspects in our total environment have or will have a significant influence on our operations. Since any enterprise cannot be expected to react very quickly to unforeseen developments, it must practice ways of anticipating them through forecasts. An alert company, for example, does not wait until its product is obsolete and sales have fallen off before coming out with a new or improved product. No enterprise should wait for problems to develop as a result of environmental forces before preparing to face them. Managers of business enterprises may not voluntarily respond to protect or improve the environment in which they operate. For example, business enterprises may, if left alone discharge their waste product in such a way that pollutes the environment. Society may therefore need to enact legislation to enforce proper discharge of waste from business enterprises. However, many managers in business and elsewhere have found it to their advantage to do something about pressing social problems. Many businesses have profited by recycling their waste. Some companies and individuals have made a profit by building low-cost apartments in areas surrounding universities in order to reduce accommodation problems for faculty and students. All of these are voluntary actions. Society however, through legislation, stipulates the minimum standard in certain critical areas, that all organisations are expected to attain. Legislation forces business enterprises to adopt a minimum acceptable standard of behaviour in relation to society.
Definition of corporate social responsibility
The question to be answered with respect to corporate social responsibility s: What exactly are corporate social responsibilities and how far do they
xtend? Raymond Bauer defines corporate social responsibility as business seriously considering the impact of the company’s actions on society. This finition is quite broad, but it does provide us with a frame of reference nich suggests that business responsibility to the society within which it sists goes beyond simply assuming the profit-maximizing, producing role.
i’he weakness of this general definition is that it does not pin down what the term means, operationally, for management.
Keith Davis and Robert Blomstrom define social responsibility as follows:
Social responsibility is the obligation of decision-makers to take actions which protect and improve the welfare of society as a whole along with their own
The definition is somewhat more pointed in that it addresses two key
rts of social responsibility: protect and improve. To protect implies creating some positive benefits for society. One other definition that will be set forth is that of McGuire. Joseph McGuire asserts:
The idea of social responsibilities supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond this obligation.
The attractiveness of this definition is that it acknowledges the primacy
of economic objectives and the importance of legal obligations but also encompasses
view which more broadly conceives the firm’s responsibilities.
Voluntary social action can be viewed at four levels: The first level is conformity to legal requirements in fulfilling the economic function of the business. A profit-maximizing manager would probably follow this course. The second level is going beyond legal requirements to meet public expectations of social responsibility, a position the trusteeship manager might take. The third level is anticipating new social demands and preparing in advance to meet them, a position the “quality of life” people- oriented manager would take. The fourth level is serving as a leader in setting new standards of business social performance. These four levels are illustrated below in the level of corporate social responsibility:
1. obeying the law;
2. meeting recognized public expectations;
3. anticipating new social demand;
4. leading the way.
Illustrations of socially responsible behaviour of business enterprises
As earlier stated, the concept of social responsibility is applicable to many sectors of the economy. Although the various enterprises within the sector have different missions, they still have to be socially responsible in order to
survive. A cursory illustration of social responsibility activities in the
following sectors will assist in understanding the concept better.
Prospecting for oil in any area normally has associated environmental problems or consequences. Oil production leads to environmental pollution and destruction of landscape. It leads to permanent despoliation of land, the risk of air and water pollution, destruction of fish ponds and other aquatic animals, land slides and many other ecological problems like oil spillage.
Therefore, a company (oil-producing company), will be socially responsible through a continued policy of adequate compensation to individuals whose property are destroyed and to the oil producing areas for the destruction of their physical environment. To the extent that it pays adequate compensation, the company will have obeyed the law. It may also seek to meet public expectations by providing pipe-borne water, all season
roads, schools, health facilities and most importantly, resettlement in other safe areas. It is advisable that the oil producing companies anticipate these needs and provide for them adequately before they are forced to do so.
The austere times, courtesy of the structural adjustment programme, have aided, directly and/or indirectly, the production and marketing of sub- standard goods. Such goods or products are normally unsafe for consumption. Again, some companies are unable to produce to the legal specification and requirements as set out by the Standards Organisation of Nigeria (SON). Therefore, a company will be socially responsible by producing and marketing standard, safe-‘n’-sound products; provision of adequate/safe work environment for its employees, provision of appropriate tools like protective clothing for its employees, and most importantly, acting in anticipation, to the dictates and expectations of the environment in which it is operating.
Those rendering personal services, that is, professionals like accountants, architects, lawyers, doctors and so on will be socially responsible through honest dealings with their clients. This they can do by avoiding technicalities
which might confuse their clients. They must be properly guided by the ethics of their professions in the course of their dealing with clients.
Specific socially responsible activities.
Thus far, we have attempted to establish that social responsibility is difficult to define precisely. It implies an obligation or debt.
Question: In the case of business, to whom is the obligation due?
Certainly, business has obligations to the government and to its customers. Does it also owe a debt to the general public? Is there an obligation to future generations to preserve and maintain the institutions which make business
possible? Here we must move beyond strict legal obligations into the realm of morals and values. The business social responsibilities under reference are not legal debts; they are self-imposed obligations which business people must
accept if they are to preserve the structure which makes possible their own way of life.
Since what is “responsibility” depends on one’s value system, we have attempted below to entify and classify some activities of businesses that reflect their responsibilities.
1. To the customers
Such activities may be classified into product line and marketing practices. Here, the marketing concept must dominate. This concept requires that responsiveness to customer needs is paramount. Whether it is through
increased investment in research and development (R and D) to produce high quality and safe products, ensuring truth in advertising, or providing adequate replacement for warn-out parts, the corporation must ensure that it balances its profit motive with consumer concern.
2. To the public at large
The business derives its existence from the public. Through incorporation the public gives business the right to exist. Hence business must conduct its affairs with minimal disruption of the environment or the traditions of the people. This is particularly significant where the given business enterprise is an international or foreign one. In this regard, business assumes activities including:
The preservation of basic institutions as a good corporate entity; i.e. respect the customs and traditions, the freedom to engage i
contractual relations, and to avoid conduct detrimental to the integrit
of Nigeria as a nation;
contributing to increased standard of living and enhancing the qualit
of life of members of the larger society by engaging in profitable but beneficial ventures;
preservation of resources by ensuring efficient use of the nation’s
resources which often can be depleted, e.g. petroleum;
Economic activities must be pursued by continuously striving for
efficiency. Sub-optimal use of factory capacity and increasing high production costs and lay-offs, do not enhance business image or help is due? Future the public;
community development through voluntary sponsorship of, recreational facilities
beautification of the community, providing scholarships tor students,
and endowing chairs in, institutions of higher iearning No law forces
nss to contribute to education, or provide clinics and build roads. however, to assume these responsibilities eniatEeS coporate good image and social good.
3.Responsibilities to the business owners
Except where there is sole proprietorship, everybusiness, whether a Partnership, or corporation, has a responsibility to protect the, interest of those who have invested their money and given authority to manage. The
primary responsibility of management here is to ensure adequate return on investment, and protect the corporate assets, ana as much, as possible,to reeduce liabilities. By encouraging investment or profit tor corporate
expansion, prospects are brightened for the stockholder whose naira value per stock 15 guaranteed to appreciate. Beyond this 1Is the desirability of providing adequate communication with stockholders through annual general meetings.
4. Responsibilities’ govemıment
Corporations and any other form of business are products of the law.
Hence, the basic responsibility to obey the laws of the land and operate within the ambit of the Companies and Allied Matters Decree 1990. One other most observable responsibility in this situation is for business to provide the financial support needed to maintain governmental system, by paying taxes promptly, and generally ensuring that the environment of business is not soured by incessant contlict between government and business,
As a corporate citizen, the business should deem itself committed to the destiny and future of the country where it operates, irrespective or whether it is foreign or domestic.
5. Responsibilities to employees
The law has provision for labour-management relations; and while the law cannot legislate what are “good” jobs or “bad” jobs, perhaps the first task for business managers when making policy is to attempt seriously and with a
great amount of honesty to take into consideration the effects of n
policies upon the lives of the workers.
Business firms engage in numerous activities intended to meet the need
of their employees. Some restrict their activities to providing safe working conditions and competitive pay while others provide a wide range of employee-related services. Responsiveness to workers’ needs may show in the following ways:
provision of wages appropriate for the job, but which should go beyond
meeting bare necessities. Thus, wage policies should aim to make life as full as possible for the worker; providing paid vacations or granting leave allowances;
ensuring that employees derive job satisfaction. With increasing emphasis on machine and the computer, the worker is becoming less significant. Making the most of a worker’s abilities by giving him or her satisfying jobs is perhaps the greatest future responsibility of business, and one of the most difficult; miscellaneous responsibilities include unemployment benefits, hazard allowance, provision of clinics and recreational and nursery facilities to
6. Political responsibilities of business
It is not unanimous that business operators should be involved in politics, in the belief that politics should be left to professional politicians. However, management theories, and experience from practice indicate that business leadership and political leadership are often related. Apart from the fact that business leadership should be conversant with the political/legal environment of business to prosper, it is in their self-interest to help in the
formulation of legal and economic policies as these affect business.
This participation in politics should be at all levels of government: local, state, and national. But participation must not be disruptive: the involvement in
politics must be responsible.
Developments in Nigeria since the 1980s to date testify to certain level of arrogance and defiance of the law on the part of some large businesses.
Arguments for social responsibility
Advocate of corporate social responsibility generally agree that:
(a) industrial society faces serious human and social problems brought about largely by the rise of large corporation; and managers must conduct the affairs of the corporation in ways to solve
or at least ameliorate these problems.
B. On the basis of these assumptions, they argue that it is in the long-run Self-interest of business to be socially responsible.
This long-run selt-interest
View essentially holds that if business is to have a healthy climate in which to
exist in the future, it must take actions now that will ensure its long term Viability.
It is also argued that failure to take voluntary action to solve or
ameliorate the human and social problems generated by business will force government to intervene on behalf of society and regulate the otiending business activities.
A third reason for advocating corporate social responsibility is that business has the resources to solve some of the social problems that it generates. Not only does business have the managerial know-hoW, and technology, it also has the financial resources to fight environmental polution, produce safe products, engage in fair advertising etc. thtough involvement in social responsibility, the company is able to build and maintain its corporate image and ensure its long-run survival
Generally, the firm that demonstrates a good sense of social responsibility earns the respect and loyalty of customers, employees, shareholders, Suppliers and the community’ in which it does business. As such it gains Government recognition, a merit award and generally improves its relations with government.
.One final point is that “pro-acting is better than reacting”. This position
holds that if business pro-acts anticipates and initiates, then this is a preferable and less costly posture than simply reacting to problems as they arise.
.Argument against social responsibility
On the other hand, there are those who are strongly opposed to the idea of corporate social responsibility. Milton Friedman for example argued that business only has one responsibility to maximise profit for owners; and that social matters are not the immediate concern of business people.
A second major objection to social responsibility is that business is not
equipped to handle social problems. This position holds that managers of business enterprises do not have the necessary expertise, social skills, – to
make social decisions. Other reasons against the concept include:
involvement in social responsibility activities will dilute business
it will reduce the level of profit;
the cost of social responsibility activities will lead to high production cost that will result in high product prices. That is, the final consumer bears the ultimate burden;
business already has enough power-economic, technological and
chvironmental. Why should we place into business hands the opportunity to wield additional power?;
that business will be at a disadvantaged position in its international balance ot payments calculation, since added cost of product will make these companies increase prices and thus become less competitive in international markets; and
that government intervention to compel organisations to embark on Socially responsible activities, will lead to corporate protectionism, withdrawal, breach of contracts, and resultant litigations.
In order to show how the organisation is fulfilling its social responsibilities, managenment can make use of social audit. A social audit is generally an ongoing evaluation of performance measured against established goals in selected areas of social measurement. Social audit has been defined as: a commitment to systematic assessment of and reporting on, some meaningtul, definable domain of the company activities that have social
There are several problems in implementing audit. It is rather difficult to determine what areas the social audit should encompass. Often the items include pollution and the hiring, training, and promotion of disadvantaged groups including women but there are more areas.
Another difficulty is to determine how social performance should be
measured. One way is to determine the amount ot money an enterprise Spends in selected areas. But cost alone is an inadequate measure. It does not necessarily indicate the results of social involvement. Other problems are the collection of the data and their presentation in a way that accurately retlects the social involvement of an enterpriSe. There 15 no doubt that many companies and other organisations honestly attempt to address themselves to this challenge. Indeed, social benefits are nearly impossible to measure. A Case in point is the benefit to society from pollution control. Although it is possible to measure the reduction in the amount of pollutants in the air, their reduction cannot be quantiied in monetary terms,
The pressure groups
As a result of the activities of various pressure groups, such as consumer protection groups, environmentalists, and various interest groups, many Businesses have altered their views regarding their social Tesponsibilities, and this change has paralleled and partly retflected the changing expectations and priorities of society at large about the social functions of business enterprises.
The idea underlying corporate social responsibility is the recognition that the activities of business enterprises have social implications which are both internal and external to individual enterprises. irst, the enterprise may accept a responsibility for improving the social etectiveness of its internal processes, and this may be defined as its internal social responsibility, Included in this area of social responsibility would be the problems associated with the management of the human organisation: such as employee selection, training, promotion and reward, as well as employee participation in decision-making as a means of providing a more cohesive framework of relationships within the firm. It also includes the provision of good physical working conditions, and the eficient use ot physical resources from a social viewpoint. Second, the enterprise may accept responsibility for the effects of its activities on stakeholders who are external to the firm.
The debate about, corporate social responsibility has been focused on
the external effects of corporate activities, and these are often referred to as externalities. Externalities Externalities’ occur whenever a firm’s activities have a positive or negative effect on society. Thus, a social benefit is an external benefit which society, rather than the owners of the firm, enjoys. A social cost is an external cost which society must bear, rather than the owners of the firm. Consider, for example, a firm which manufactures detergents. The firm’s costs are related to the production and sale of detergent. The firm’s benefits stem from the
revenues derived from the sale of detergent to customers. The production of detergent results in the discharge of effluent, and dealing with the presence of this effluent either in rivers or in sewage systems is a burden which usually falls on the local community.
Hence, the costs associated with the disposal of inffluent need not be taken into account by the firm in deciding whether or not to produce detergents or in assessing the profitability of this activity.
Public concern has tended to focus on the external social costs of enterprise activity, rather than on the external social benefits. The most obvious social benefit is the provision of employment. Much of the debate
(a) how to control and reduce the undesirable by-products and
(B) how to calculate the financial costs involved with a view to about the social costs is addressed to two questions: effects of enterprise activity; determining the responsibility for these costs.
Ideally, scial costs should be identified and incorporated into the to include financial and social costs. Dealing with social costs
prise costs of production. By bringing such costs to the knowied8Co gement, the information relevant to enterprise decisions is broadened Social costs, as well as social benefits, are a -function of society’s perception ofwhat is bad and good about business activity. There are difterent dCgrees of social costs. Some are insignificant but others are perceivea to.
Sgnincant as to attract the response of government. This may take three forms:
(a) legislation which out-laws undesirable social activities;
(b) licensing systems may be employed to limit the extent of activities which are useful to society but present a potential social problem. For example, licensingof vehicles makes it to ensure that vehicles that are hot road worthy are kept off the roads.
(C) Taxation can be used to discourage business enterprises from engaging in certain activities that are considered to have social costs.
The future of social responsibility
One anticipates that issues concerning social responsibility will continue to be important to managers for some time in future. Society is becoming more complex, and social problems are increasing. Business organisations are
major institutións in society. As such, they are likely to be concerned with social responsibility at two levels. First, should organisation take actions that will have undesirable outcomes? Organisations will probably have little choice. If they are not responsive to “public needs, they will be faced with social protests, and additional government regulation.
At the second level, should organisations develop programmes to take care of social ill? The answer to this question depends on the values of managers in an organisation. Some organisations, acting on their enlightened self-interest or social concern, will be involved in such programmes.
Large organisations, like the multinational corporations, are highly visible and have a substantial impact on society: and they are the most likely to initiate this type of action. One expects however, that government will retain primary responsibility for curing social ills.
Consumer activism will definitely be on the increase since consumers are Decoming better educated, and as such are more aware of their rights.
Thus, the organisations of the future must adapt to change and of necessity become more consunmer-oriented, or face more government intervention.
AS Dusiness management decomes more protessionalised, and there is a separation of ownership and management in modern business, there will be more interest in corporate social responsibility.
The modern professional manager is trained to examine business problems in the widest possible context, and to show concern for both long- range and short-range ettects o business policy. Although short-range gains cannot be ignored, the long range ettect of policy carries more weight with the modern professional manager than it did with his or her predecessor who owned the firm. Because of the importance attached to long-range policy the Nigerian business IS today better led, and hence, in a better position to accept and carry out its social responsibility expectations than it was in the past.