Read this article to learn about the two main arguments on the logic of social responsibility!
The quest for social responsibility has been an serious pursuit for managers. But a query arises why should business manager bother at all about society?
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This enigma can be judged by two main arguments, viz: the argument of survival and the argument of social cost.
Argument of survival:
Each and every business concern should adjust according to the environmental factors this is sine qua non for their survival and growth. Persistent disharmony with one’s environment must result in growing strains and in one’s eventual destruction.
Managers should pay regard to the imperatives of surroundings in which the business exist and flourish, and maintain harmonious relations with public, consumers, political organizations and social agencies.
As a matter of fact, discharging social responsibility is in the best interest of the business units themselves in the long run but, not as a charitable work. There is growing conviction among careful thinkers that if business managers are insensitive to its social environment they will face a serious threat to its survival.
Society has become very conscious about the malfunctioning of business houses. Business can earn profit only by more and more sales to consumers i.e., greater the sales—greater the profits. Business is dependent on consumers for its sales. In a free competitive society the consumers are free to buy or not to buy, to buy less or buy more, and to buy from one businessman or another.
Thus, the consumers have veto power for any particular product. Regulating the buying decisions the consumers (society) can bring effective pressures on normal course of business.
Management must feel dissatisfaction of the society otherwise it can be the root cause of business dissolution. Anti business feeling of public can demand for strict government regulations which can be highly un-pleasant for any manager. In democratic country any government would listen the public opinion.
Consumerism:
The consumerism movement pioneered by Ralph Nader and John Benzhaf had added a new dimension to managerial decision making in USA and UK and having its echo in other many nations of the world. According to Philip Kotler, “Consumerism is an organized movement of citizens and government to improve the rights and power of buyers in relation to sellers.”
Now consumers are getting organized so as to offer collective resistance to anti-customer behaviour of business and to put pressure on business to elevate consumer interest in desired way.
Richard H. Buskirk and James T. Rathe describe consumerism as the organized efforts of consumers seeking redress, restitution and remedy for dissatisfaction which they have accumulated in acquisition of their standard of living.
In this way, consumerism can be defined as the organized activities and efforts of and/or for consumers, designed to give them protection against commercial practices which infringe upon their right as consumers. Action for safeguarding the interest of consumers is the essential characteristic of consumerism.
Actions taken by consumer organizations can be of various types—put pressure on government for passing and enforcing consumer protection laws, to make available authentic consumer information for wise buying decisions, to eliminate unproductive middlemen etc.
According to Peter F. Drucker consumerism challenges business premises in four ways:
(i) It is assumed that the consumers know their needs.
(ii) It is assumed that business really cares about these needs and knows exactly how to find about them.
(iii) It is assumed that business does provide useful information that precisely matches product to need.
(iv) It is assumed that products and services really fulfill customer’s expectations as well as business promises.
Drucker observed that consumerism was born out because business managers have failed to come up to the expectations of consumers. USA was the first country which passed the Consumer Bill of Rights in 1962.
President John F. Kennedy in his directive to the Consumer Advisory council given in March 1962 summed up the rights as: right to safety, right to be informed, right to choose and right to be heard.
Right to safety means that the products should not cause any physical danger to consumers or put them in difficulty due to sudden failure, and high quality, reliability and performance, standard of products should be assured.
Right to be informed means that the information on the quality performance and characteristics of products is demanded by consumers as a matter of right. They like to know what they are paying for before they would part with their money in exchange for goods.
Right to choose implies that monopoly is disliked by consumers who do not want any pressure or compulsion in making a decision to buy or not to buy a particular product. They want to buy a product of their free will, and to exercise their option to choose a particular brand or to decide about the quantity.
Also in absence of an adequate quantity of supply, consumers feel that there is pressure on them in the manner of deciding about the quantity as well as brand. Thus, the right to choose implies a market with ample quantity and variety. Right to be heard has greater importance.
Even if consumers have the right to safety, to be informed and to choose but do not enjoy the right to be heard, there should be no real control on the other three rights.
If a particular right is denied to consumers, there would be nobody to hear their complaint and the very purpose of granting them right would be defeated. The right to be heard implies the existence of a legal framework and government intervention.
Before 20th century the process of production, distribution, and marketing was very simple and limited. In such a condition when business occupies monopolistic or semi monopolistic position and have an upper hand over the consumers, whom they can exploit directly or indirectly.
But this cannot and would not constitute for long because consumer would, sooner or later, start taking preventive action. And lastly, in place of producer sovereignty consumer get dominant position. Producers are supposed to know that what consumers need.
The production is increased in volume and variety when customer begins to provide preference order to a particular commodity. Consumer preference is the most important phenomenon. Business units can earn profit only by more and more sales to consumers thus it follows the rule: greater the sales, greater the profits.
According to Peter F. Drucker, “There is only one valid definition of business purpose, to create a customer.” Business is thus dependent on consumers for its success. In a free competitive society, consumers have some veto power as ‘king’ over business decision and their dissatisfaction would create problem for the survival of business.
Indian scenario:
The consumer movement in India has been slow to take roots and even today is in its infancy stage. The Indian consumers are illustrate and unorganized with their traditional and unconscious outlook.
After that, the Indian consumers lack the ability to assess the quality and suitability of the product due to lack of technical knowledge and general awareness. The plight of consumer in India is pitiable and he is ignored, harassed and neglected. Corrupt officials are given the charge of consumer welfare programmes. Dominance of political considerations and red tapism are the hurdles in consumer protection measures.
There is no model effective machinery of acting on the complaints, of the consumers. Consumerism has not infiltrated in the rural areas at all. It has confined to a few urban areas so consumer movement has not become the people’s movement.
Mental attitude of the Indian consumer is not very responsive, while they grumble, blame the business and even government, abuse the profiteers but still go on buying the same items even if the price continues to rise. For example, Indian public bears standing for hours in queue for the supply of LPG they murmur and often even threaten to write against such malpractices.
But the moment their personal needs are satisfied and they got LPG cylinder, they forget about the whole matter and grant benefit of doubt to the business.
However, in India, dozens of Consumers Advisory Councils have been established for giving expression of consumer’s feeling and business behaviour, e.g., Voluntary Organization in Interest of Consumer Education (VOICE) in New Delhi.
Consumer Education and Research Centre in Ahmedabad, Consumer Council of India in Madras, Indian Federation of Consumer Organization in New Delhi, Consumer Guidance Society of India in Bombay, Akhil Bhartiya Grahak Panchayat in Pune etc.
These are concerned with promoting consumer education and awareness, setting consumer complaints, conducting consumer research and working in liaison with other organizations to find solution of consumer problems.
But their numbers can be counted on fingers. It is needed in India the network of consumers associations throughout the length and breadth of the country, in such a way that ultimately every city, town and village may have at least one such association.
On the statute book there are a number of legislative measures to restrict competition and protect consumer’s interest. The various important laws are:
The Indian Contract Act, 1872.
The Indian Sales of Goods Act, 1930.
The Industries (Development and Regulation) Act, 1951.
The Indian Standards Institution (Certification Marks) Act, 1952.
The Prevention of food Adulteration Act, 1954.
The Essential Commodities Act, 1955.
The Weights and Measures Act, 1958.
The Monopolies and Restrictive Trade Practices Act, 1969.
The Patents Act, 1970.
The Packaged Commodities Order, 1975.
The Sales Promotion Employees (Conditions of Services) Act, 1976.
The Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act, 1980.
The Consumer Protection Bill, 1986.
Of these various legislative measures, the Consumer Protection Bill is latest and we may examine its effectiveness in fulfilling the objectives of consumerism in India. The primary objective of the bill is to provide a forum for settlement of consumer disputes and ensure speedy redressal of grievances.
For protecting consumer interests it provided for the settlement of two bodies: ‘Consumer’s Council and Consumer Dispute Redressal, Forum’ in each state.
Consumers’ Councils are set up in each state headed by the Minister of Food and Civil Supplies. The composition of such Councils will be: Ex-officio secretaries of four related departments, four government nominees from voluntary organizations, two nominees of manufactures and distributors and one nominee each from trade and scheduled castes.
A government official being the Director of Consumer Protection will be the Member-Secretary. The Primary Function of the Council is to help the public in educating, arranging for testing of goods and publishing results and carrying out verification of trade claims. The Director on receiving the information regarding the unfair trade practices may:
(a) Require a trader, wholesaler, retailer, or distributor to produce books of accounts or other relevant documents for examination and
(b) Enter at any reasonable time in the premises of any trader, wholesaler, retailer or distributor who in his opinion is indulging in unfair trade practices and inspect any goods or relevant documents for evaluating the quality of the goods involved.
Consumer Forums, on the other hand, are set up in each state with the object of dealing with consumer disputes.
Such a forum comprises of a person who have the qualification to be appointed as a Judge of a High Court as president and a person of eminence in the field of education, economics or social welfare, a person who has served in the State Government not below the rank of Joint Secretary and a women-social worker of eminence preferably with specialized knowledge or experience in consumer affairs.
Any aggrieved consumer can make a complaint on payment of a fee not exceeding Rs. 10. If the forum is satisfied that the alleged defect is genuine it can instruct the trader to remove the defect and pay to the complainant as damages an amount not exceeding 20 times the value of concerned commodity.
If we make a critical appraisal of government legislative measures, we find that the role of government in safeguarding the consumer interest is not satisfactory. Experience shows that on the one hand the government never gave any serious thought to educate the consumers through various communication media with the result a common man is ignorant about the existence of legal protection available to him.
On the other hand even if he happens to know about the legal procedures they are so complicated, irksome, expensive and time consuming that he gives up the idea of availing such protection.
The remedies available are not automatic and they have not won the public confidence. Most of the protective measures lack clarity in language and multiplicity of laws which leads in quibbling to obviate the purpose of the protective legislation.
In fact the marketers are not interested in implementing laws and the consumer organizations are comparatively weaker. In countries like U.S.A., U.K. the implementation of the legislation is quite rigorous. But in our country the looseness of administrative machinery defeats the very purpose.
But the exploitation of consumers and society by business managers is not possible in the present era of consumerism. Consumers are widely scattered having no class, the whole society belongs to consumer class.
Business world should not tease the consumers otherwise the survival of the firm will be in danger. The crowd of public will join within few seconds and can jam the street demonstrating noisy with anti-business posters “Do not buy-boycott the product of company, company’s product are poor and bad.” Government can, in this case, nationalize the industry working anti-public or put some control over its quality or price.
Business managers should not be only inward looking and insensitive to the social responsibility, otherwise they will face a serious threat to the business survival. The business is compelled to be socially responsible for own sake. The business organization is a social system made up of interdependent parts the parts are the relations of people at all levels of the organization to each other so the juxtaposition of social responsibility and survival of business is indissolubly linked together.
The traditional approach of accounting have for long been preoccupied with the consideration of only private economic cost born by the industry e.g., raw material, productive cost and factory charges etc.
But now the economists and accountants are paying attention to the social cost in addition to the private cost. The society suffers some serious ruin due to mechanical industrialization.
The industrialization is sundering and snapping the traditional moorings like family, tribe and society; elevating the brain drain from rural area to urban, one country to another; and jeopardizing the joint family system. Today, the environmentalists are crying dismantling of all the existing industrial units on the ground that these pollute the surroundings endangering life in the neighbourhood.
Industrial growth during post-second world war period is proceeding to environmental dis-balance and industrial accidents. Due to industrial pollution various undesirable changes in soil, air and water are occurring which are harmful for mankind and animals.
The business enterprise should bear the social cost of its anti-social conduct, e.g., fouling the air, water and soil; destructing the natural beauty of landscape; and sundering the traditional moorings and customs. Organization must make a contribution for society by establishing schools, ‘alms-houses, hospitals etc., as quid pro quo of its anti-social behaviour. The corporate management must be socially responsible for belonging the claims of consumers, employees, shareholders, the local community and society.
Dr. Clark C. Abt, one of the principal author in the United States, suggests that a Social Audit should as far as possible be approximated to an ordinary commercial audit; that this should be based on a social balance sheet with a ‘credit’ side and ‘debit’ side.
He calls them ‘inputs’ and ‘outputs’ or ‘costs’ and ‘benefits’ so for as the social balance sheet is concerned. Abt further asserts that sooner or later the social balance sheet must become a mandatory part of the normal commercial balance sheet of the company.
In India the Tata Iron and Steel Company Limited is the first undertaking where social audit was undertaken in 1979-80. The TISCO has become a model for modern-day business to learn the sologan “first service-then profit”.
According to Social Audit Committee Report TISCO spends in all about Rs. 10 crore per year upon the social welfare programmes. It has encompassed, within the ambit of its activities and financial aid, not merely the worker and his dependents but the community among which they live and indeed society in general in far-flung corners of India whenever a calamity or a disaster has struck.
At the same time, it has taken care to see that the consumer who buys its goods gets value for his money and, within the limitations laid down by Government and other compulsions within which it operates, the shareholder, whose money it uses, gets an adequate return. In fact, the credit for the outstanding social performance of the company goes to the leadership of J.R.D. Tata.
Business should emulate the example of Henry Ford and adopt his philosophy of product and price, which was: to avoid quick profits; to keep prices low enough to encourage lasting demand and to serve general business interests of the nation. When asked about money making, he replied: “The best way to make money is not to think too much about making it.”
Businessman can be counselled not to exhaust all their attention and vigour in solving the intrinsic problems of the organization which they contrive; but should pay regard to imperatives of social environment in which organization endure and flourish.
In the present anachronistic frame the success of business enterprise has now come to rely upon the harmony of its relations with the larger society.