Question

Discuss the arguments for and against businesses' involvement in socially responsible activities. Provide an example of an ethical situation in business, and the applicable legal regime/s.

Answer 1

Arguments in favour of involvement of business in socially responsible activities

• If businesses involve in social activities it will surely be a boost to the community. There are many communities in and around the world who lack basic necessities and infrastructure. If businesses contribute to such communities there will be an overall development of that community as such. For example in countries like India the government provide incentives for those businesses that set up their units in economically backward areas. If they are starting a business in any backward area surely they should have to maintain the infrastructure like roads in a good form to facilitate transportation. The same infrastructure can be of benefit to the people residing there. It has also been observed that once the work unit is set up in the area, the businesses' make sure their employees can maintain their standard of living, for that they may start schools, gym etc. which can also be used by the community.
• Improves the overall reputation of the organisation. By being more socially responsible we can make sure the overall reputation of the business is also improved as people will have generally a good opinion about the organisation if it is more socially responsible. Bill Gates is one such person who is a socially responsible businessman. His works for the community has made his reputation go up and so does the reputation of the businesses he is associated with.
• Lack of social responsibility may lead to some major environmental, social and economic disasters. The BP Deepwater Horizon Disaster is one major example of such an issue. 5 million-barrel oil spill following the Deepwater Horizon oil rig explosion in the Mexican Gulf in 2010. The Bhopal (India) gas tragedy and the recent Vishakhapatnam (India) gas leaks are other examples. These disasters can have drastic outcomes for organisations, leaders and all their stakeholders, as well as for the outside world.
• Organisations and institutions which fall behind public ethical expectations find catching up with changes a lot more difficult. We cannot impose a society's moral code to another society with different needs, wants and demands. The substantial advantage for corporations and other groups and bodies which are more socially involved is that they anticipate such changes. They adapt quicker and are seen generally to lead the change than to follow. They also manage such changes more successfully.

Arguments against involvement of business in socially responsible activities

• Sometimes a reduction in profit may cause dissatisfaction among stakeholders. When businesses get involved socially they do so by taking an amount from divisible profit. So, the amount of profit which is actually meant to be distributed as profit may reduce and this will cause dissatisfaction among at least some shareholders.
• No quantifiable and visible benefit. The benefit we derive out of being involved socially cannot be quantified and is not visible at the first glance.
• Involves a lot of time and effort. Being socially involved will incur a lot of time and effort, which could have been spending on something else. Therefore it involves an opportunity cost.