Business Ethics and Corporate Social Responsibility
Business Ethics
Ethics refer to moral principles that control or influence a person’s behavior. In other words, ethics are moral rules people apply in making decisions. Ethics are generally defined in the context of individuals- people have ethics, organizations do not, hence what constitutes ethical behavior varies from one person to another person. For example, one student who finds a hundred rupee note in the campus compound believes that it is okay to put it in his/her pocket whereas another feels compelled to put a notice on the lost-and-found notice board. Individual ethics are determined by family and peer influences, experiences, personal values and morals, and situational factors. Though, ethics is a personal issue and determined by a host of factors we expect an individual’s ethical behavior to conform to generally accepted social norms.
Business ethics, also known as managerial ethics, are a company’s attitude and conduct towards its employees, customers, community, and stockholders. They guide individual managers in their work. The issue of business ethics has come to the fore in view of the episodes of violations of securities laws, shading of quality, misrepresenting the performance of products, misleading advertisements, etc.
Business ethics is concerned with the attitude and conduct of a corporation towards its employees, customers, shareholders, and other stakeholders. Basically, there are three areas of concern for business ethics. The first relates to how a corporation treats its employees. It includes areas such as hiring and firing, wages and working conditions, and employee privacy. For example, a manager ‘ paying an employee less than s/he deserves, simply because of gender might be unethical. Similarly, a manager spreading a rumor that an employee has AIDS or is having affair with a coworker is generally seen as an unethical breach of privacy. The second relates to how the employees treat the organization. It includes areas such as conflict of interest, secrecy, and honesty in keeping expenses in the account. For example, disclosing company secrets by employees is clearly against business ethics.
Similarly, inflating expenses bills or paying more than desired payment are other examples of unethical behavior on the part of employees. Finally, business ethics encompass how the organization treats other stakeholders. It means how the organization treats its customers, competitors, stockholders, suppliers, dealers, and unions. Normal business ethics in relation to customers requires that products and services are safe. There be no unfair business practices such as false claims on advertising. Similarly, ethical standards also dictate that managers be truthful with stockholders. For example, Nepalese stockholders have raised questions on the ethics of managers of some companies whose audited figures of financial statements deviate widely from the provisional figures they publish.
What should we do to restrain unethical practices and promote ethical behavior? We may suggest a long list of prescriptions such as appropriate legal and institution setups, enforcement of the rule of law and adherence to the principles of good governance, etc. All these are useful, but most importantly our firm commitment to our ethical values — uprightness and compassion are fundamental. Once these values guide our decisions — the way we treat our employees, our organization, and our (our firm’s) stakeholders — all will be all right. Value-guided activities take us to the real definition of ethics — the fragrance of wisdom.
Corporate Social Responsibility
The concept of corporate social responsibility (CSR) implies that businesses should be actively concerned with the welfare of society at large. It is defined in many ways. Among them, Marrewijk defines it as ‘Company activities voluntary by definition demonstrating the inclusion of social and environmental concerns in business operations and in interactions with stakeholders. This definition suggests that (i) CSR covers both social and environmental issues, (ii) CSR is voluntary in nature, and (iii) CSR is about stakeholders.
The concept of social responsibility has undergone significant changes over periods. At one time it used to refer to the task of the more fortunate individuals to assist less fortunate members of society (it is known as charity principles). Next, it referred to the doctrine that business and wealthy individuals view themselves as stewards or caretakers, holding their property in trust for the benefit of society (it is known as stewardship principles). Then, Milton Friedman argued that there is one and only one responsibility of business: to use resources and energy in activities designed to increase its profit so long as it stays within the rule of the game and engages in open and free competition, without deception and fraud (it is known as Milton Friedman’s argument).
Finally, the enlightened self-interest concept of social responsibility refers to the organization’s realization that it is in its best interest to act in ways that the community considers socially responsible. According to Keith Davis, there is “an iron law of responsibility which states that in the long-term those who do not use power in a manner that society considers responsible will tend to lose it.
On the surface, there seems to be little disagreement about the need for organizations to be socially responsible. But, operationalizing it poses challenges and requires good judgment and care. For example, if a firm operating at a normal profit margin engages in social responsibility-related activities while other firms in the industry do not, the socially responsible firms will be in a disadvantageous position— its cost will rise and it will be unable to be complete in the market. Thus, any voluntary socially responsible acts that raise costs will be difficult to continue.
Furthermore, it is argued that capital market forces also penalize socially responsible firms. To illustrate, suppose Firm A in an industry spends a substantial part of its earnings on social actions, while Firm B in the same industry concentrates on profit and stock prices. Naturally, investors prefer Firm B, putting Firm A at a disadvantageous position in the capital market. Finally, some people argue that widening the interpretation of social responsibility detracts firms from their basic mission to earn profits for owners.
Some people advocate a larger social role, and others argue that the role is already too large. In practice, it is found that organizations. take a wide range of positions on social responsibility. A few firms do as little as possible to solve social and environmental problems. This approach is known as the social obstruction approach to social responsibility.
The next approach the organizations follow is known as the social obligation approach, whereby they will do everything that is required by law but nothing more. Another approach is the social responsibility approach in which the firm meets its basic legal and ethical obligations and also goes beyond these requirements in selected cases. Finally, the highest degree of social responsibility manifests in the social contribution approach. Firms adopting this approach view themselves as citizens in society and proactively seek opportunities to contribute.
The idea of social responsibility existed in one form or another in Nepal as well. It is often used to manifest in the form of donations to religious and educational institutions, contributions to relief funds at the time of natural calamities, and the establishment of memorial foundations. These trends still continue but there has been a shift in the form of CSR activities.
