Home ›› 21 Oct 2022 ›› Editorial
The villain of the film “Wall Street” started a speech with the words, “Greed is Good.” This statement’s most charitable explanation was that it reaffirmed Adam Smith’s economic philosophy. Smith argued that pursuing self-interest in a competitive market would ensure the common good. However, it was a doubtful case for the villain of Wall Street because he ruthlessly sought power and wealth and was prepared to trample on anyone who got in his way.
Should self-interest be the sole objective of the business firm, or should there be an acceptance of organisation’s responsibility to society? Economists like Adam Smith or Milton Friedman rejected the notion of a business organization’s responsibility to the community. They argued that all we should expect from them efficient, profitable production, creating jobs, and providing quality goods and services at the prices consumers can afford. As profits are derived from efficient production, any reduction of profit in pursuit of social objectives leads to a decline in economic efficiency. More, under the Company Law, directors and managers are required to serve the interest of the shareholders.
The most prominent component of the social environment concerns the size of the country’s population. Business organizations should be sensitive to demographic (change in population trend) changes. Business firms should not only be concerned with the size of the people but also with changes in the composition of the population. A growing population benefits firms in terms of increasing the potential size of markets and the available size of labour. On the other hand, slow population growth is a constraint on the firm, both in terms of needs and labor supply. In a country with slow population growth for years (decades), the collection of labour for the immediate future would decline, forcing firms to be more receptive to older workers, value younger workers more, and invest in training to maximize the benefit from scarce resources.
Besides the overall number of people, business organizations should study trends in the population’s age composition. Trends in the birth rate are crucially significant for firms such as Mother care or Early Learning Centres. At the end of the age scale, there shall be a growing number of old or retired people. So business firms operating in Holiday tours, Old homes, or construction businesses may have a chance to flourish.
Changes in society are not confined to changes in population size and age composition. Lifestyles, values, beliefs, and the ethnic or religious back ground of the community or socio-economic classes are also subject to change. These changes are significant to business firms because of their impact on the pool of available labour and on people’s purchasing behavior in society. In the 20th century, we saw a decline in the traditional working class but a rise in the skilled manual and clerical classes. One consequence of these trends is closing some marketing opportunities and opening up new opportunities. As a result, changes have taken place in the food business (varieties of drinks & fast food entities), home décor, financial services, etc. benefitting working classes.
Changes in lifestyle have brought about changes in the market. Modern fitness and health concerns have provided great opportunities for firms to supply sports equipment and leisure wear. The same has been the case with the cigarette company. They had to diversify products and markets because of the decline in demand and look for new markets. Therefore, cigarette companies moved to third-world countries.
Attitude to animal welfare changed greatly in the 20th century. Practices that were once accepted as normal and natural are now condemned. As such, the FUR trade suffered a decline. There are changes also in family lifestyle. Working wives combined with widespread possession of a car and freezer has been a significant factor in the rise of large out-of-town shopping centres. A growing number of one-person household needs small packets than family packets.
The belief that business organisations should not act socially responsibly comes from those who believe that economic and social responsibility comes with economic power. Firms do not exist in isolation but within the community. Substantial firms’ actions impact society (pollution, job loss, prosperity, or poverty), and therefore, firms should consider the impact on the community in their decision-making. It would be wrong to believe that firms always behave in a socially responsible way, but it is cynical to think that they are incapable of acting in such a manner.
The major test of social responsibility relates to issues of:-
Environment
Treatment of Employees
Treatment of customers
Welfare of the disadvantaged groups
Arts and Education
Ethical issues
The natural environment is now a matter of great concern. Nature has given us valuable resources, some of which are non-renewable. Each generation must ensure that the resources remain available for the future generation. Even renewable resources (soil, rivers, fish stock etc.) must be carefully considered. It would be an act of gross irresponsibility of selfish behaviour by us to jeopardize the future of the next generation.
Firms have traditionally been judged in terms of efficiency and profitability. Data on the commercial performance of a firm is recorded in its Profit and Loss Account and Balance sheet. A social audit extends the accounting principles into the social sphere. Different interest groups in society judge firms in different ways.
Shareholders judge:-In terms of return on investment; Employees judge:-In terms of working conditions, pay, supervision, fairness of employers, job security; Customers judge:-In terms of price and quality; Suppliers judge:-In terms of promptness of payments; Creditors judge:-In terms of creditworthiness and promptness of repayment of debt;
Society judge:-In terms of concerns for and respect for the community and environment.
A social audit may highlight those areas of a firm’s activities that harm the environment and the activities beneficial to the environment. It is hoped that all firms will behave in a socially responsible manner.
When we talk about the social responsibility of business firms, we end up with the term Corporate Social Responsibility (CSR). CSR is the idea that a company should play a positive role in the community and consider the environment and social impact on business. CSR refers to strategies companies implement as part of corporate governance designed to ensure the company’s operations are ethical and beneficial to society. CSR has four essential responsibilities. They are environmental responsibility, moral responsibility, philanthropic responsibility, and economic responsibility. (i) Environmental Responsibility initiatives aim to reduce pollution and greenhouse gas emissions and sustainable use of natural resources. (ii) Human Rights Responsibility initiatives involve providing fair labour practices (e.g., equal pay for equal work), fair trade practices, and disavowing child labour. (iii) Philanthropic Responsibility initiatives include funding educational programs, supporting health initiatives, donations to causes, and community beautification projects. (iv) Economic Responsibility initiatives involve improving the firm’s business operation while participating in sustainable practices (for example, using a new machining process to minimize wastage).
When a company operates ethically and sustainably and deals in an environment-friendly manner, we call it socially compliant. A CSR-compliant firm takes care of human rights, the community, the environment, and society.
CSR increases customer retention, loyalty attracts investment opportunities and top talents, and makes a difference in bottom-line financials. CSR strategy is the comprehensive plan companies, and funders use to design, execute and analyze their corporate social responsibility initiatives. It includes specific focus areas, programme design, promotion and communication approaches and evaluation procedures.
Finally, socially responsible behaviour is a form of enlightened self-interest. Support for art is suitable for publicity. Leaders of commerce and industry realize that self-regulation reduces the danger of legislative action. The truly socially responsible firm accepts that as it takes from society, it must contribute to community.
The writer is former Director General, EPB.
He can be contacted at hassan.youngconsultants@gmail.com
