Objectives and social responsibilities of business
- 1. Objectives And Social Responsibilities of Business Introduction: To a layman, an objective is an aim or a goal. This is a very vague description as it does not convey a specific meaning. If this definition is followed, it will not be possible to distinguish the short-term objectives and the long-term objectives. In order to be specific, an objective of an activity should be defined in relation to its environment. Thus, we may define a business objective as purpose or the reason for its existence Economic Objectives : Since business is essentially an economic activity, the primary focus of economic objectives is on three important constituents of the business system, namely: (a) The owners (b) The employees and (c) The customers. The owner(s) must get adequate return, on the capital invested and the risk undertaken by him or them in the form of profit or dividend. The employees must be adequately compensated through fair wages or salaries, allowances, bonus, and other welfare facilities in the form housing, medical and healthcare, education of children, recreational facilities, retirement benefits, etc. So that they devote heart and soul in organisation’s work and work in the spirit of doing it not as hired employees but as if they are doing their own work. Customers are the patrons of the business enterprise and their satisfaction must be uppermost in the mind of the businessmen. Customers feel satisfied if they are supplied with quality products at reasonable prices coupled with adequacy of regular supply, after sale service, courtesy, etc. “The customer is the foundation of a business and keep it in existence”. Business earns profit by satisfying the needs of the customers. As a matter of fact, the first and foremost objective of a business is creation and satisfaction of customers. Earning of sufficient profits is necessary not only to provide adequate rewards to the owners and the employees, but the employees, but also to provide for innovation and growth and diversification. The most important and remarkable benefits to the society through innovation and growth are in the form of better products at lower rates and increase in employment opportunities. Human Objectives : Focus on human objectives is mainly on two constituents, namely, (a) employees and (b) customers, both of whom must have a feeling of having been treated as human beings by the business enterprise. Employees, in order to have a feeling of having been treated as human beings, look forward to a business enterprise for the following objectives: (i) They are treated as partners in the joint venture and not as inferior lot; (ii) They are able to acquire and develop new abilities and skills in the process of employment; and (iii) They derive job-satisfaction. (iv) These help them to develop commitment to their work and in turn to the organization in which they are working.
- 2. Customers also look at the business enterprises as an institution which takes care of their needs as human beings. Hence the importance of courtesy, accommodation, understanding and fairness in dealings with the customers is quite obvious. This also points out the need for realization on the part of business enterprises that they do not fall prey to the temptation of profiteering through adulteration, hoarding, cornering of stocks, etc. Organisational Objectives : Business enterprises, from the point of view of its growth and stability, can be compared with the human anatomy. Just as human body grows through a number of stages, that is, from infancy to childhood, from childhood to adolescence, from adolescence to adulthood and from adulthood to maturity, a business enterprise also passes through such phases during its existence. In order that a business may grow through these stages in time and with strength, it is necessary that the business strives for (a) ploughing back a part of its profits so that it may acquire strength to grow and survive in the face of competition; and (b) attaining an optimum size of operations so that it could avail of the economies of the scale. Social Objectives : These objectives of business can be put in two categories: (i) Micro level (i.e.,) immediate environmental objectives); and (ii) Macro level (i.e., national objectives ); Micro level social objectives. Under this category, this category, the business is expected help in the spread of literacy, education, training, medical care and public health, control of air and water pollution, development of backward classes and regions, and helping cultural, religious and charitable institutions engaged in the work of improving the lot of human beings. Social Responsibilities of Business: A large number of significant changes have taken place in social, political, economic and other aspects of modern culture. These changes make it appropriate to re-examine the role of modern business. It is common today to hear speeches or read articles calling for more social consciousness on the part of the business organizations. The demand for greater social awareness from the business organizations is a move and an important part of the society’s attempt to make them more responsive to the need of mankind. It is heartening to note that society’s changing values and needs are being due importance by the leading business houses of the world. This is obvious from the fact that the business houses are carrying on research and development activities and producing goods and services to provide greater satisfaction to the economic and social development of their nation. Since long there has been a controversy whether business should assume social responsibilities, or it has no such obligations to fulfil. It would be worthwhile to analyze the arguments offered both in favour o f and against assumption of social responsibilities by business. First of all we shall begin with the analysis of arguments in favor. Supporting Arguments : The important arguments offered in favour of business assuming social responsibilities are as follows. (i) Response to Social Demand : It is a well known fact that business is set up to earn profit by producing goods or rendering services to the members of the society. Thus, the business is the creation of the society in the sense that its primary objective is to fulfill the needs of the members of the society. In case the business fails to do so, the society through people’s representatives in Government will either force them to do so through laws or may no longer permit them to survive.
- 3. (ii) Long-term self-Interest of Business : There is a growing realization on the part of the enlightened businessmen that it will be in their self-interest to fulfil the demands and the aspirations of the society. People who have a good environment, education, and opportunity make better employees, customers and neighbours for business than those who are poor, ignorant and oppressed. To quote Arjay Miller: “Under current conditions, management cannot effectively discharge its long-run responsibilities to shareholders unless it also behaves responsibly towards employees, customers, government, education and the public at large. The ability of a corporation to protect and enhance the stockholders equally depends crucially upon the prosperity, goodwill and confidence of the larger community. Acceptance of a large measure of responsibility towards the community is, therefore, good business as well as good citizenship.” (iii) Government Intervention : If the businessmen do not rise to the occasion in meeting the social responsibilities, the Government will step in and make them assume such responsibilities through legislation. Such legislative regulation is expensive for business and stand in the way of flexibility and freedom in making decisions and meeting competition. Hence it would again be in the interest of business community to voluntarily undertake to fulfill the social responsibilities. In doing so the business will also retain the needed credibility with the public pressure. (iv) Public Image : The antennas of business managers are turned to the public opinion as good public opinion is a precondition to the success of any business. Therefore, they seek to maintain a proper image of their business in the public mind by assuming social responsibilities. (v) Socio-Cultural Norms : A business operates within a set-up of socio-cultural norms and restraints. No society will allow a business to maximize its profits at the cost of the society. It requires the business to respond to social obligations. It may even report to legal means to enforce discipline among the businessmen. (vi) Consciousness Among Consumers : The consumers of today are well informed. They accept higher quality products at reasonable rates from the business. They can organize themselves in case a business resorts to malpractices such as adulteration and black marketing. (vii) Strong Trade Unions : The level of education among the workers has been increasing. They understand the need of organizing themselves into unions to advance their economic and social interests. The government has also enacted social security measures due to which it has become difficult for the business houses to ignore the interests of the work force. Objecting Arguments : The case against assuming Social Obligations. The classical view has been against the business assuming social responsibilities. It is argued that business is an economic institution and as such its primary responsibility is to produce goods and services efficiently and to earn profits for its owners, namely, the shareholders. Milton Friedman, a noted world economist and Nobel laureate supports the view of the classis in this regard. Friedman argues that “in a free enterprise, private property system, a manager is an employee of the owners of the business and directly responsible to them as his employers. Since stockholders want to make as much profit as possible, the manager’s sole objective should be to try to do this. If a manager spends stockholder’s money in the public interest, he is spending stock holder’s
- 4. money without their approval and perhaps in ways stockholders would oppose. Similarly, if the cost of social action is passed on to consumers in the form of higher prices the manager is spending their money also. This is taxation without representation.” He further goes on to observe that “there is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game which is to say, engages in open and free competition, without deception or fraud. Few trends could so thoroughly under mine the very foundation of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stock-holders as possible. This is a fundamentally subversive doctrine. In addition to the observations made by Milton Freidman, some more arguments are advanced opposing the idea of business assuming social responsibilities. These arguments are as follows: (i) Violation of Rule of Profit Maximization : As a businessman moves away from the simple rule of profit maximization that guides his actions into the social and political realm, he has two guides to him know what social responsibilities he should assume in the public interest. The businessmen should not try to determine what is the public interest because “the economic system is not a playground on which businessman may exercise their peculiar preferences.” (ii) Less Efficient Use of Resources : The doctrine of social responsibility implies acceptance of socialist view that political mechanisms rather than market mechanisms are the appropriate ways to allocate scare resources to alternative uses. As this process evolves, there will be an erosion of the drive to use resources efficiently and a loss of the greater productivity of the present economic mechanism. (iii) Burden on Consumers : If the market price of a product does not truly reflect the relative costs of producing it, but includes costs for social actions, the allocative mechanism of the market place will be distorted. The customer will have to pay a higher price than necessary to call the goods into the market because the business is spending funds on social responsibilities. (iv) Lack of Social Skills : Businessman do not necessarily have social skills. Because of this they may not able to solve social problems even though they spend a large amount for this purpose. (v) Lack of Self-Interest : There is no substitute for the power of self interest to get people to act. Assumption of social responsibilities will hinder the achievements of self interests of businessmen. Any replacement of the altruism for self-interest will, therefore, be fatal to the efficiency of the business system