Code EM_M5L3: Lesson 3 of Developing the Entrepreneurial Mind

Social Responsibility and Ethics

The concept of social responsibility has various meanings to different individuals. For instance, to a
banker, his social responsibility is to lend money even to the poor producers, and not only to the rich
ones. To manufacturers, their social responsibility is to create quality products and not to pollute the
environment. To the rich, their social responsibility is to share their excess wealth with the less
fortunate. What then is the best social responsibility of entrepreneurs? Professor Howard Bowen
defines it as “the obligations of businessmen to pursue their policies, to make those decisions, or to
follow those lines of actions which are desirable in terms of the objectives and value of society.”

Social responsibility is an ethical theory in which individuals are accountable for fulfilling their civic
duty, and the actions of an individual must benefit the whole of society. In this way, there must be a
balance between economic growth and the welfare of society and the environment. If this equilibrium is
maintained, then social responsibility is accomplished. Social responsibility has become increasingly
important to investors and consumers who seek investments that are not just profitable but also
contribute to the welfare of society and the environment. Therefore, social responsibility means that
individuals and companies have a duty to act in the best interests of their environment and society as a
whole. Social responsibility, as it applies to business, is also known as Corporate Social Responsibility
(CSR). Social responsibility of the entrepreneur or businessman can be manifested through their
business relations to his customer, suppliers, stockholders, fellow businessman, government, to the
community, and to his employees. Such business relationships are measured by fairness, honesty, and
justice. The entrepreneur must sell quality products at fair price. He must also be fair with his suppliers
by paying them on time as agreed upon. He must give reasonable profits to stockholders for their
investments. He must pay the correct amount of taxes to the government. He must promote the welfare
of his employees. Equally important is the social responsibility of the entrepreneur to his community in
terms of job creation and environmental conservation.

Theories on Social Responsibility

1. Economic Model. This is based on the traditional concept of business. That is, the primary objective of
business is to earn reasonable profit, as well as to offer quality goods and services, as well as to provide
employment. Such model claims that society will benefit most from business if left alone in its
operations.
2. Socio-economic Model. This is based on the belief that businessmen have their responsibility to
stockholders, as well as to their employees, customers, suppliers, and the general public. It stresses not
only profit, but also the implications of business decisions on society. It is argued that since an
enterprise is a creation of a society, and that it conducts its business in the community the enterprise
has a social responsibility to share its earned resources with the need of society.
3. Classical Model. This model emphasizes that an enterprise is socially responsible if it stresses to use,
as efficiently as possible, the resources at its disposal, in producing the goods and the services that
society needs, at a price, consumers are willing to pay. Milton Friedman, a noted monetary economist, is
a follower of the classical view. He said that there is only social responsibility of business and that is to
use resources and engage in activities designed for profit, so long as it stays within the rules of the
game.

Arguments for Social Responsibility

1. Business cannot and should not ignore social problems because it is a part of society.
2. Business has resources, like financial, technical, and managerial, that are required for solving social
problems.
3. Business can earn more profits in the long run by helping eliminate or reduce social problems.
4. Business can expect less government intervention if it performs its social responsibility.

Arguments Against Social Responsibility

1. Business managers are primarily responsible to stockholders. Thus, their job is to earn profit for
their investors.

Corporate Social Responsibility.

Corporate social responsibility refers to the approach that an organization takes in balancing its
responsibilities toward different stakeholders when making legal, economic, ethical, and social
decisions. What motivates companies to be “socially responsible”? Probably it is because they want to
do the right thing, and for many companies, “doing the right thing” is a key motivator. Although, it is
often hard to figure out what the “right thing” is because more often than not what is “right” for one
group of stakeholders is not necessarily just as “right” for another. One thing, however, is certain
companies today are held to higher standards than ever before. Consumers and other groups consider
not only the quality and price of a company’s products but also its character. If too many groups see a
company as a poor corporate citizen, it will have a harder time attracting qualified employees, finding
investors, and selling its products. Good corporate citizens, by contrast, are more successful in all these
areas. Therefore, they can easily attract investors, qualified employees and loyal customers.

Business Ethics.

Ethics is the study of right or wrong. It is moral choice by an individual. In business it is the
application of moral standards on business decision and actions. Business ethics involves relationships
with employees, investors, customers, creditors, and competitors. There are many businessmen who are
not fair and honest in dealing with the said groups. For instance, they exploit their workers and they do
not pay their creditors on time. They also exploit their buyers by selling poor quality products or use
wrong weights and measures. The concept of business ethics has come to mean various things to
various people, but generally it is coming to know what it right or wrong in the workplace and doing
what is right, this is in regard to effects of products/services and in relationships with stakeholders.
Business ethics is the application of ethical behavior in a business context. Acting ethically in business
means more than simply obeying applicable laws and regulations: It also means being honest, doing no
harm to others, competing fairly, and declining to put your own interests above those of your company,
its owners, and its workers. If you are in business you obviously need a strong sense of what is right and
wrong. You need the personal conviction to do what is right, even if it means doing something that is
difficult or personally disadvantageous. Business ethics are the moral principles that act as guidelines for
the way a business conducts itself and its transactions. In many ways, the same guidelines that
individuals use to conduct themselves in an acceptable way in personal and professional settings and
apply to businesses as well. Acting ethically ultimately means determining what is “right” and what is
“wrong.” Basic standards exist around the world that dictate what is wrong or unethical in terms of
business practices. For example, unsafe working conditions are generally considered unethical because
they put workers in danger. An example of this is a crowded work floor with only one means of exit. In
the event of an emergency, such as a fire, workers could become trapped or might be trampled on as
everyone heads for the only means of escape. While some unethical business practices are obvious or
true for companies around the world. Determining what practices are ethical or not is more difficult to
determine if they exist in a grey area where the lines between ethical and unethical can become blurred.

Business ethics is important for a variety of reasons. First and foremost, it keeps the business
working within the boundaries of the law, ensuring that they are not committing crimes against their
employees, customers, consumers at large, or other parties. However, the business also has a number of
other advantages that will help them succeed if they are aware of business ethics. Businesses can also
build trust between the business and consumers. If consumers feel that a business can be trusted, they
will be more likely to choose that business over its competitors. Some businesses choose to use certain
aspects of business ethics as a marketing tool, particularly if they decide to highlight a popular social
issue. Leveraging business ethics wisely can result in increased brand equity overall. Being in an ethical
business is also highly appealing to investors and shareholders. They will be more likely to sink money
into the company, as following standard ethical business practices and leveraging them properly can be
a path to success for many businesses.
(Source: From the notes of Dr. Arnel Leonardo)