Social Responsibility of Business: Meaning & Importance

Table of Contents

1. Introduction to Social Responsibility
2. Theories and Approaches to Social Responsibility
3. Types of Social Responsibility
4. Social Issues Businesses Must Address
5. Corporate Governance and Ethical Decision-Making
6. Implementing Corporate Social Responsibility
7. CSR in Small and Large Businesses
8. Benefits of Social Responsibility
9. Criticisms and Limitations of CSR
10. Global Trends in Corporate Social Responsibility
11. Conclusion

Introduction to Social Responsibility

Social responsibility is said to be an obligation of business that they owe to the society, economy and the environment in exchange of the business they are allowed to operate. It means doing ethical practices that go beyond profit-making. It adds the element of accountability towards various stakeholders, for example, community at large, customers of the business, employees of the company and the planet overall.

Social responsibility has now become part of every business. Earlier, businesses were only focusing on profits. However, with industrialisation reaching its peak, it became imperative to have social responsibility to save labour from exploitation and the environment from damages.

With globalisation, an increased scrutiny on the behaviour of big corporations also came under focus. Now, every business is expected to balance their profit with a purpose.

Social responsibility is important because:

• Consumers prefer brands that are ethical and sustainable in their practises
• Investors consider companies that are obligating to their social responsibility
• Employees also prefer organisation that are purpose driven and not just profit-making

The core of social responsibility is rooted in ethical values, such as honesty, transparency, accountability, respect for human rights and environmental protection.

Theories and Approaches to Social Responsibility

There are different theories and approaches to view social responsibility and practice it.

Classical vs. Contemporary Views

Classical theory refers to companies' responsibility is limited to maximisation of profit within the legal limits. The contemporary views, however, say that businesses must consider their actions while maximising their profits. These actions should be ethical in nature and should also contribute socially and environmentally.

Stakeholder Theory

Stakeholder theory suggests that businesses should serve the following:

• Shareholders
• Employees
• Customers
• Suppliers
• Local communities
• Society

Triple Bottom Line (TBL):

This theory suggest that you must consider the three main stakeholders while doing the business:

• People – The welfare of people that are a part of your local community and the employees that are working for you should be kept in mind.
• Planet – The product or service that you are offering, must be manufactured or attained via an environmentally sustainable practice.
• Profit – With an amalgamation of keeping your people and planet in view, the business must focus on maximising their financial performance too.

Corporate Citizenship:

This theory suggest that any Corporate is a member of the society who should do the following:

• Actively support social development
• Respect laws that are in place and follow good ethics
• Contribute to the well-being of the local community

Types of Social Responsibility

Social responsibility is a very broad concept. There are four types of social responsibility:

Economic Responsibility

Economic responsibility refers to generating profits and doing it in a sustainable manner. It also refers to creating maximum employment opportunities. When employment is generated, it contributes to economic growth, especially in the local community that the company is operating in.

Legal Responsibility

Legal responsibility refers to working as a business entity within the legal purview of labour laws. It also means following all the environmental regulations and following consumer protection laws.

Ethical Responsibility

Ethical responsibility means practising business within the ethical window by providing fair wages to labour and also safe working conditions for the entire workforce. It also means honest advertising and transparent pricing for the customers. Responsible sourcing of raw materials and production standards also comes under ethical responsibility.

Philanthropic Responsibility

Philanthropic responsibilities are meant for big corporations who are making an abundance of money from their business. This means doing charitable donations search as donating to disaster relief. Companies should invest in education and health and care initiatives for the local communities and also development programmes for people in need.

Social Issues Businesses Must Address

There are various social issues that businesses must address. The below mentioned are the common social challenges that every business face:

Environmental Sustainability

Keeping in mind the sustainability of the environment is the first social duty. This means reducing your carbon footprints, and a wise use of resources such as renewable and non renewable energy. Business should also keep in mind the waste it is producing and also the pollution it is contributing to.

Fair Labor Practices

Another social duty is fair labour practises. For example, providing a safe and healthy work environment and giving equal pay and opportunities. Company should not over exploit the employs and labour and also must not invest in child labour at all.

Consumer Protection

Protecting Consumers by transparently providing them with relevant information about product, safety, use and quality assurance is another social duty company must have. A transparent communication and ethical marketing practices such as the right advertising is the key towards consumer protection.

Human Rights & Community Welfare

Protecting human rights and welfare of the community is the social duty of businesses. Respecting indigenous workers and their working rights while supporting the community through investing in social infrastructures and creating more and more job opportunities for them is the right and ethical practice to pay back socially.

Diversity, Equity, and Inclusion (DEI)

Companies must have a social duty to foster gender equality and have fair hiring practices. Companies should also promote equal growth opportunities within the company and there should be no discrimination based on gender, diversity, and color of the individual.

Corporate Governance & Ethical Decision-Making

Corporate governance and ethical decision making is the core of social responsibility. Here are the key elements:

• Corporate should have ethical leadership that will set a higher standard for every employee at every level
• There should be clear code of conduct which is applicable to all from top management to lower management
• Company policies should be ethical and fair in nature
• There should be a transparent decision-making process that employees should see and trust
• There should be ethical accountability to all the stakeholders, be it, your consumers or employees.

Following an ethical decision making framework will help business in a number of ways. It not only evaluates the social impact but also takes into account the environmental impact. Ethical decision making in the company balances profit with responsibility and therefore avoids any legal risk. It also improves your reputation as an ethically-operated company.

Implementing CSR in Business

To effectively implement CSR in business, you must be structured and committed. Here is a step-by-step guide on how to implement social responsibility:

Setting your Corporate Social Responsibility Goals

Your corporate social responsibility goal should align with the mission of your company. You should identify key social and environmental priorities that you must focus on. For example, if you are into manufacturing a product that leads to water pollution, then you must focus your CSR efforts towards cleaning of water sources locally so that the local community can have access to clean drinking water.

Developing Policies & Programs

The second step is to develop policies and programmes to actually implement the environmental initiatives. You can do it individually or you can partner up with community projects or local government bodies to implement these programmes.

Measuring Social Impact

You should not aimlessly go on with your policies and programmes if they are not bearing any result. Measuring social impact is also important when it comes to a good CSR practice. Monitor the social impact and make necessary changes if required.

Reporting & Communication

You should also report your CSR efforts to the government and other stakeholders. The communication can be done through ESG reports and sustainability report disclosure transparently to all the stakeholders involved.

CSR in Small & Large Businesses

Corporate social responsibility is not only meant for big corporations. Small and medium sized businesses can also do CSR. Here is how they can do it:

Small & Medium Enterprises (SMEs)

• Supporting local communities through job generation
• Sourcing from ethical vendors, preferably going for locally available vendors
• Choosing mode of transportation that is locally available
• Going for programmes that will help ping back to the environment locally. For example planting trees

Multinational Corporations

• Supporting communities at large by creating jobs for national talent instead of opting for international hiring
• Taking large scale, sustainability initiatives to choice, big water conversation programmes
• Making policies and programmes that will not only help your business but also help the community at large. For example, TATA has a plant in which only handicapped labourers are employed.

Benefits of Social Responsibility

CSR is not only a tax saving umbrella for corporations. It has a number of benefits too.

Key benefits include:

• Building credibility of your brand and a strong public reputation which will not only increase your customer base, but also keep you alive longer in the memories of consumers
• Being ethical will attract employees that are also ethical. A good workforce will ensure that your company moves in the right direction. It also helps in employee motivation and retention
• There is less legal risk involved in your business practice. There is less scrutiny on you against violation of any rule. If you are thoroughly doing your social responsibility.
• There is a sustainable long-term profitability when you operate on the model of profit with purpose
• There is also support of government and other stakeholders to the businesses that are doing their CSR ethically

Criticisms & Limitations of CSR

As every coin has two sides, CSR also has its limitations despite having multiple benefits.

Key limitations include:

Greenwashing

Many companies are involved in green washing, which means false sustainability claims. For example, showing your product as cruelty-free then when it is based on animal testing. It also means misleading marketing practices such as advertising the wrong benefits and usage is just to get more customers.

Cost Constraints

Another limitation of CSR is having high implementation cost. Since companies which are small or medium sized, have limited resources, it becomes very burdensome for them to do CSR.

Profit vs. Responsibility Conflicts

While businesses come into operation to earn profits, there may be many short-term profit pressures that won't allow businesses to get involved in CSR activities. As the competition in the market is growing stronger day by day, it requires a huge chunk of money to be spent on marketing efforts and advertising in order to sustain. In this case, it becomes very difficult to spend money on CSR activities.

Global Trends in Corporate Social Responsibility

There is a growing trend towards doing corporate social responsibility as our planet and environment is in huge need for it. Globally, CSR activities evolved around the following trends:

• Alignment with UN Sustainable Development Goals (SDGs)
• Growth in focused investing in ESG
• Having the social entrepreneurship model of business
• Impact measurement of technology used in business

Conclusion: Balancing Profit with Purpose

Corporate social responsibility is essential in the modern business scenario as our planet is at a huge risk of depletion of various resources available to humans. Companies should not solely focus on financial success at the cost of damaging the environment.

The future of CSR lies in creating shared value for both business and society. Businesses must integrate responsibility with their core strategy to earn profits and also give back to the environment. Long-term investing in technologies that will help do less harm to the environment is the key towards a sustainable and thriving business.

FAQs

1. What is social responsibility in business?

Social responsibility in business means a company should have the responsibility of paying back to the environment from which it is taking various resources to produce a profit-making product or service.

2. Why is corporate social responsibility (CSR) important?

CSR is important because it is not only ethical to pay back to the environment, but it also earns you customer loyalty in the long run.

3. What are the main types of social responsibility?

There are four main types of social responsibility, namely economic responsibility, legal responsibility, ethical responsibility, and philanthropic responsibility.

4. What is greenwashing in CSR?

Green washing means falsely claiming that you are contributing, socially and environmentally in order to paint a picture of being an ethical company in the minds of the consumers.

5. What is the triple bottom line?

The triple bottom line is a CSR concept that states business success based on three lines- people, planet, and profit.