Stee Studies

Module 03

LEADERSHIP AND SOCIAL RESPONSIBILITIES OF BUSINESS

MEANING OF LEADERSHIP

Leadership is an important aspect of managing. Leadership is defined as "Influence, that

is, the art or process of influencing people so that they will strive willingly and enthusiastically
towards the achievement of group goals". (Koontz and Weihrich) In other words, people should
be encouraged to develop not only willingness to work but also willingness to work with zeal
and confidence.

"The will to do is triggered by leadership and lukewarm desires for achievements are
transformed into burning passion for successive accomplishment by the skillful use of
leadership" (George R Terry). "Leadership is the lifting of man's visions to higher sights, the
raising of man's performance to a higher standard, the building of man's personality be-yond its
normal limitation". (Peter Drucker) "Leadership is the ability to secure desirable actions from a
group of followers voluntarily without the use of coercion." (Alford and Beatty) "Leadership is
the ability to persuade others to seek defined objectives enthusiastically. It is the human factor
which binds a group together and motivates it towards goals". (Keith Davis)

Trait is basically a character and early notions about leadership dealt with personal
abilities. It was believed that some people have leadership qualities by birth or god's gift. The
traits that associate with leadership are identified as: mental and physical energy, emotional
stability, knowledge of human relations, empathy, objectivity, personal motivation,
communication skills, teaching ability, social skills, technical competence, friendliness and
affection, integrity and faith, intelligence etc. This approach has several drawbacks: It failed to
identify right traits required for effective leadership. It is difficult to associate the traits with jobs
to be carried out. A leader who is successful in one area may be a failure in different area. Since
these are subjective, it is difficult to measure their effectiveness quantitatively. This approach
implies that leadership is in-built quality and no training can make a person leader.
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DIFFERENCE BETWEEN A LEADER AND A MANAGER

1. A person emerges as a leader. The question whether he will or will not emerge as leader
always depends on a number of situational factors. A manager, on the other hand, is always
put into his position by appointment.

2. A leader always has some personal power (i.e., ability to influence) that enables him to
lead. He may or may not have positional power (i.e., the right to command). A manager, on the
other hand, always has some positional power He may or may not have personal power. If he
has also personal power, then he will be that much more effective as a manager.

3. A leader focuses on people and generally seeks those very objectives which are the
objectives of his followers. Thus there is mutuality of objectives between the leader and his
followers. A manager, on the other hand, focuses on systems and structures and seeks those
objectives which his subordinates do not regard as their own. Thus there is clash of objectives.

4. A leader generally looks at the horizon and not just the bottom line. He is innovative,
challenges the status quo and believes in doing right things. A manager, on the other hand, is
generally bureaucratic, accepts the status quo and believes in doing things right, according to the
rules, to cope with complexity.

It should be noted that in today's changing business environment, notwithstanding the

above difference, even managers are in leadership roles. Therefore, in this chapter, the terms
'leaders' and managers' are used interchangeably.

CHARACTERISTICS OF LEADERSHIP

Some important characteristics of leadership are as follows.

1. Leadership implies the existence of followers

We appraise the quality of a person's leadership in practice by studying his followers. We
ask: How many and what kind of followers does he have? How strong is their commitment as a
result of his leadership? How long will their commitment last? By answering questions of this
nature we get to know the quality of leadership. We must not, however, forget that leaders
within organizations are also followers. The supervisor works for a branch head, who works for
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a division manager, who works for the vice- president of a department and so on. Thus, in
formal organizations of several levels, a leader has to be able to wear both hats gracefully, to be
able to relate himself both upward and downward.

2. Leadership involves a community of interest between the leader and his

followers

In other words, the objectives of both the leader and his men are one and the same. If the
leader strives for one purpose and his team of workers for some other purpose, it is no
leadership. In the words of G.R. Terry, "Leadership is the activity of influencing people to strive
willingly for mutual objectives."

3. Leadership involves an unequal distribution of authority among leaders and

group members

Leaders can direct some of the activities of group members; that is the group members are
compelled or are willing to obey most of the leader's directions. The group members cannot
similarly direct the leader's activities, though they will obviously affect those activities in a
number of ways.

4. Leadership implies that leaders can influence their followers or subordinates in

addition to being able to give their followers or subordinates legitimate directions

In other words, leaders not only tell their subordinates what to do by way of command
but also influence by their behaviour and conduct. The use of command by leaders succeeds
only in bringing about a temporary behavioural change in the followers. Permanent attitudinal
change in followers comes through the use of influence only. According to Hersey and
Blanchard6 leadership of the first type though successful is not effective. The second type of
leadership is both successful and effective.

BEHAVIORAL APPROACH OF LEADERSHIP

Several studies have been made did not agree as to which traits are leadership traits or their
relationship to actual instances of leadership. It is found that most of these so called traits are
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really pattern of behavior. There are several theories based on leadership behavior and styles.
Some of them are:

(i) Leadership based on the use of authority.

(ii) Likert's four systems of managing.

(iii) The managerial grid and

(iv) Leadership involving a variety of styles and level of use of power and influence.

Style based on authority: Based on how the authority is used, the leaders are styled into 3 groups.

 The first is "autocratic leader" who commands and expects compliance, is dogmatic and
positive, and leads by the ability to withhold or give rewards and punishment.

 The second is "democratic or participative leader" who consults with subordinates on

proposed actions and decisions and encourages participation from them. This type of leaders
include the person who does not take action without the concurrence of subordinates and
who makes decisions but consults with subordinates before doing so.

 The third type is "free-rein" leader who uses his power very little and gives a high degree of
independence to his subordinates to carry out their work. Such leaders depend largely on
subordinates to set their own goals and the means to achieve.

Figure below shows the flow of influence in the three situations of leadership.
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CO-ORDINATION

Some definitions of the term 'co-ordination' would be: "Co-ordination refers to the orderly
arrangement of individual and group efforts to ensure unity of action in the realization of common
goals." - Mooney and Reiley

"To co-ordinate means, to unite and correlate all activities." - Henry Fayol

"Co-ordination means balancing and keeping the team together by ensuring a suitable allocation of
working activities to the various members, and seeing that these are performed with due harmony
among the members themselves" - E.F.L. Brech

"Co-ordination in an organization by a manager is similar to directing an Orchestra by the

conductor. Just like a conductor directs his musicians to produce harmony and melody in music, a
manager co-ordinates the activities of a group to achieve harmonious and united actions"
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All the above definitions give a combined good meaning co-ordination. On the basis
of these definitions, we can state the basic features of co-ordination, which are as under:

1. Co-ordination implies deliberate actions on the part of managers to bring about harmony and
unity of actions.

2. Co-ordination applies to group efforts, and not to individual effort. It involves the orderly
arrangement of group efforts.

3. Co-ordination does not result in a one-shot action. It is continuous action.

4. Co-ordination is all-pervasive. It has to happen along all verticals and horizontals of an

organization.

5. Co-ordination is necessary not only within the organization but also of the organization with
the outside environment.

TYPES OF COORDINATION

Coordination may be variously classified as internal or external, vertical or horizontal and

procedural or substantive. Coordination among the employees of the same department or section,
among workers and managers at different levels, among branch offices, plants, departments and
sections is called internal coordination. Coordination with customers, suppliers, government and
outsiders with whom the enterprise has business connections is called external coordination.

Vertical coordination is what exists within a department where the departmental head is
called upon to coordinate the activities of all those placed below him. On the other hand, horizontal
coordination takes place sideways. It exists between different departments such as production,
sales, purchasing, finance, personnel, etc.

By procedural coordination is meant the specification of the organization itself—that is, the
generalized description of the behaviors and relationships of the members of the organization.
Procedural coordination establishes the lines of authority, and outlines the sphere of activity and
authority of each member of the organization. Substantive coordination is concerned with the
content of the organization’s activities. In an automobiles factory, an organization chart is an aspect
of procedural coordination, while blueprints for the engine block of the car being manufactured are
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an aspect of substantive coordination

IMPORTANCE OF CO-ORDINATION

The importance of co-ordination can be understood though the following points:

1. Co-ordination increases efficiency

Co-ordination helps minimizing wastages, overlapping and duplication of work, misuse of
resources etc., and the thus increases efficiency and economy in the organization. Co-ordination
enables an organization to use all its resources in a optimum way.

2. Co-ordination improves human relations

Co-ordination improves and maintains harmonious relationship between individuals
between individuals and the organization. With co-ordination, members begin to work,
understand and adjust with eacher, develop mutual trust and co-operation and probably move
closer to each other. All these help improve human relations.

3. Co-ordination resolves conflicts

Conflicts in organizations arise usually because of differences between organizational goals
and individual goals. An individuals perception of an organizational goal could be different to
that of an another, which again leads to conflicts. Co- ordination is the only means by which
such conflicts can be avoided.

4. Co-ordination makes all departments focus together

Different departments in an organizations such as production, R & D, finance, marketing,
accounts etc., have to jointly focus in order to achieve but results. Without co-ordination, each
department tends to look only at its needs and necessities, without caring for other departments.
Co-ordination is the only way of m2king them look for common cause.

5. Co-ordination helps sharing of resources

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In any organization, there is always a shortage of resources such as manpower, finance,

space, transportation etc. Co-ordination is the only way to ensure the best distribution of
resources among all individuals and departments of the organization.

6. Co-ordination retains and attracts talent

Good all-around co-ordination improves not only harmonious relationships but also
increases profit to an organization and to its employees. Naturally talented youngsters are
attracted to join such organizations. There are lists of best employers in every country where
people would love to work, and this does not necessarily depend on pay packets alone. Co-
ordination plays a great role if a company comes to be known as a good employer.

TECHNIQUES OF CO-ORDINATION

A variety of techniques are used by managers to achieve co-ordination. The important ones
are:

1. Co-ordination by plans and procedures

If plans and procedures are highly structured and in place, co-ordination becomes somewhat
automatic. Apart from these, if the other types of plans such as schedules, rules, budgets, policies
etc., are stated in precise terms so as to avoid confusion, it results in better co-ordination.

2. Co-ordination by sound and simple organization

If the structure of an organization is sound and simple, it leads to better co-ordination. If
the authority, responsibility and accountability are established in a clear-cut manner, it improves
co-ordination.

3. Co-ordination by chain of command

If it is very clear as to who should report to whom in an organization, it helps co-ordination.
Establishing a clear chain of command or a superior-subordinate relationship goes a long way in
ensuring co- ordination.
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4. Co-ordination by effective communication

Effective communication plays a vital role in achieving co-ordination. Communication
facilitates proper understanding between individuals and groups among whom co-ordination is to
be achieved.

5. Co-ordination by committees
Formation of committees to co-ordinate is a sound management technique. Committees are
made up of Knowledgeable, experienced and responsible persons entrusted with discharging
some functions collectively as a group. Creation of teams, task forces and interdepartmental
committees are some of the ways of achieving co-ordination.

6. Co-ordination by conference
In large business organizations conferences are organized at regular intervals to provide a
platform for discussion to the various units which could be geographically widespread. In such
conferences top management and executives at lower levels exchange views, identify problems
and resolve it through discussion. Some companies have Open forums' where any question
raised by any employee should be answered by the appropriate man-in- charge. Such discussion
forums and platforms pave the way for better co-ordination throughout the organization.

7. Co-ordination by special coordinators

If a manager in an organization has very less time to address issues of co-ordination, he may
hire an assistant or a 'Special coordinator' to do the job for him. This man's job is to collect
information regarding problems, analyze them, list various alternatives available, and suggests
steps to be taken to the manager.

8. Co-ordination through sound leadership

Sound leadership of top management is the surest means of achieving co-ordination. Good
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leaders may persuade and convince their subordinates to place company interests above their
personal interests. They may even inspire self-coordination within a group.

CONTROLLING

Some definitions of the term 'Control' with respect to an organization are:

"Control is checking current performance against pre- determined standards contained in the
plans, in order to ensure adequate progress and satisfactory performance". - E.F.L. Brech

"Control consists in verifying whether everything occurs in conformity with the plans,
instructions and principles established" - Henry Fayol "Control is the process of regulating
organizational activities so that actual performance conforms to expected organizational
standards and goals." - NewMan

From the above definitions, we can follow that controlling functions involves-

(i) developing appropriate standards

(ii) Compare on-going performance against those standards.
(iii) Take steps to ensure that corrective actions are taken when necessary.
It should also to be noted here that a good controlling system is actually designed to keep things
from going wrong, and not just to correct them afterwards. It is more about "prevention is better
than cure" than about "Crying over spilt milk"! It’s about `preventive maintenance' rather than
'breakdown maintenance'.

The general features of controlling functions are:

1. Controlling is a positive force.

2. Controlling is a dynamic and continuous process.

3. Controlling is goal-oriented.
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4. Control is forward-looking
5. Control process is universal
6. Control is based on planning
7. Delegation is key to control.
NEED FOR CONTROL SYSTEM

A control system is needed for four purposes:

1. To measure progress;

2. To uncover deviations;

3. To indicate corrective action; and

4. To transmit corrective action to the operation.

1 To Measure Progress

There is a close link between planning and controlling the organization’s operations. We
have discussed in Chapter 4 how in the planning process, the fundamental goals and objectives
of the organization and the methods for attaining them are established. The control process
continually measures progress towards goals. As Fayol3 so clearly recognized decades ago, "In
an undertaking, control consists in verifying whether everything occurs in conformity with the
plan adopted, the instructions issued and principles established". As the navigator continually
takes readings to ascertain where he is relative to a planned course, so does the manager take
readings to see where his enterprise or department is on the charted and predetermined course.

2 To Uncover Deviations

Once a business organization is set into motion towards its specific objectives, events
occur that tend to pull it "off target". Major events which tend to pull an organization "off
target" are as follows:
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Change

Change is an integral part of almost any organization’s environment. Markets shift,

new products emerge, new materials are discovered and new regulations are passed. The
control function enables managers to detect changes that are affecting their organization’s
products or services. They can then move to cope with the threats or opportunities that these
changes represent.

Complexity

Today's vast and complex organizations, with geographically separated plants and
decentralized operations make control a necessity. Diversified product lines need to be
watched closely to ensure that quality and profitability are being maintained; sales in different
retail outlets need to be recorded accurately and analyzed the organization’s various markets
foreign and domestic require close monitoring.

Mistakes

Managers and their subordinates very often commit mistakes. For example, wrong parts are
ordered, wrong pricing decisions are made, problems are diagnosed incorrectly, and so on. A
control system enables managers to catch these mistakes before they become serious.

Delegation

As we discussed in Chapter 8, when managers delegate authority to subordinates, their

responsibility to their own superiors is not reduced. The only way managers can determine if
their subordinates are accomplishing the tasks that have been delegated to them is by
implementing a system of control. Without such a system, managers will not be able to check
on their subordinates' progress, and so not be able to take corrective action until after a failure
has occurred.

3 To Indicate Corrective Action

Controls are needed to indicate corrective actions. They may reveal, for example, that
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plans need to be redrawn or goals need to be modified or there is need for reassignment or
clarification of duties or for additional staffing or for conforming to the way the work should
be done.

4 To Transmit Corrective Action to the Operation

Controls are needed to transmit corrective action to the operation while it is progressing
so that the transformation subsystem modifies its inputs or its production plan to reduce any
discrepancy or error and keeps the output "on course". The thermostat is a classic example of
this operating principle. When the room temperature drops below a desired level, the control
mechanism in the transformation subsystem at once transmits this information (called "feed
forward") and the temperature begins to rise till it reaches the selected level. Control- related
information flows in most of our modern organizations also follow the above-mentioned
thermostat operating principle. They make available to the transformation subsystem at all
times the information about operating results in various forms, such as electronic impulses,
written or spoken words, reports, etc. to serve as the basic input for comparison with the
standards and for automatic decision-making. The transformation subsystem thus takes the
shape of a closed loop as shown in Figure below. However, the system is closed only in the
short run. Human intervention is involved to adjust the system periodically, according to a
subjective impression of the environment. Thus, the overall system is open, but we have
closed loop control once the system is set.

BENEFITS OF CONTROL
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A well-developed control system

 Increases productivity

• Reduces defects and mistakes,

• Helps meet deadlines,
• Facilitates communication,
• Improves safety,
• Lowers cost, and
• Gives the workers control over their environment.
ESSENTIALS OF EFFECTIVE CONTROL SYSTEM

The essentials of an effective control system are as follows.

 Suitable

The control system should be appropriate to the nature and needs of the activity. Controls
used in the sales department will be different from those used in finance and personnel. Similarly,
a machine-based method of production requires a control system which is different from the
system that is used in labor intensive methods of production. Hence, every concern should
evolve such a control system as would serve its specific needs.

 Timely and Forward Looking

Although an ideal control system, as in certain electric controls, should be able to detect
deviations before they occur, the same is not possible in personnel and marketing controls which
always include a time lag between the deviation and corrective action. In any case, the feedback
system should be as short and quick as possible and the information should reach the superior
before it is too late to head off failures.

 Objective and Comprehensible

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The control system should be both objective and understandable. Objective controls
specify the expected results in clear and definite terms and leave little room for argument by the
employees. They avoid red tape and provide employees with direct access to any additional
information which they may need to perform their task. Employees are not made to go up and
down the hierarchy to get the information. When the precise purposes, for which the control
system exists, are not understood it is difficult, if not impossible, to establish criteria for its
evaluation and review.

 Flexible

The control system should be flexible so that it can be adjusted to suit the needs of any
change in the basic nature of the inputs and/or the sizes, varieties or types of the same product or
service. One way of introducing flexibility into a control system is to make the adjustments
automatic. Both flexible budgets and standard costs, for example, provide a shifting standard for
expenses, as the volume of work goes up or down. A similar type of adjustment is in effect when
the sales quotas are tied to general business activity. In all such plans, the basis for shifting the
control standard is built right into the system.

 Economical

Economy is another requirement of every control system. The benefit derived from a
control system should be more than the cost involved in implementing it. To spend a dollar to
protect 99 cents is not control. It is waste. Eighty years ago this was clearly understood by the
men who built Sears, Roebuck the world's biggest retail store. In the early days of the mail-order
business, the money in incoming orders was not counted. The orders were weighed, unopened.
(These were, of course, the days when currency was still metallic.) Sears, Roebuck had run
enough tests to know what average weights correspond to overall amounts of money and this was
sufficient control.

 Prescriptive and Operational

A control system in order to be effective and adequate must not only detect deviations
from the standards but should also provide for solutions to the problems that cause deviations. In
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other words, the system should be prescriptive and operational. It must disclose where failures
are occurring, who is responsible for them, and what should be done about them. It must focus
more on action than on information.

 Acceptable to Organization Members

The system should be acceptable to organization members. When standards are set
unilaterally by upper level managers, there is a danger that employees will regard those standards
as unreasonable or unrealistic. They may then refuse to meet them. Status differences between
individuals also have to be recognized. Individuals who have to report deviations to someone
they perceive as a lower level staff member may stop taking the control system seriously.

 Reveal Exceptions at Strategic Points

A control system should be such as to reveal exceptions at strategic points. Small

exceptions in certain areas have greater significance than larger deviations in other areas. Five
per cent deviation from the standard in office labor cost is more important than 20 per cent
deviation from the standard in cost of postage stamps. That we can quantify something is no
reason for measuring it. The question is "Is this what a manager's attention should be focused
on?"

Take steps to ensure that corrective actions are taken when necessary It should also to be
noted here that a good controlling system is actually designed to keep things from going wrong,
and not just to correct them afterwards. It is more about -prevention is better than cure" than
about "Crying over spilt milk"! Its about 'preventive maintenance' rather than 'breakdown
maintenance'.

The general features of controlling functions are:

1. Controlling is a positive force.

2. Controlling is a dynamic and continuous process.

3. Controlling is goal-oriented.
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4. Control is forward-looking

5. Control process is universal

6. Control is based on planning

7. Delegation is key to control.

STEPS IN CONTROLLING

The various steps that are involved in the process of controlling are as follows:

Step 1: Setting of standards

The first step in the control process is to establish standards. Standards are the targets against
which actual performance will be compared. Standards are nothing but criteria of performance.
They serve as benchmarks as they specify acceptable levels of performance. Control standards
are broadly divided into two types.

(i) Quantitative standards: These are standards which can be quantified. Eg: Production
level, rejection level, labor-hours, speed of service, sales volume, profit, expenses etc.

(ii) Qualitative standards: These are standards which cannot be quantified i.e., they are
qualitative in nature. Eg: Employee morale, brand image, company image, goodwill,
industrial relations etc.

Step 2: Measurement of actual performance

The second step in the control process is to measure actual performances of various
individuals, teams and departments in the background of established standards. Wherever
quantitative measurement is applicable, it is easy to measure, while qualitative standards are
difficult to measure. Tests, surveys, employee appraisals, exit interviews, media reports, open
forums etc., are some of the ways employed to measure qualitative standards.

To make any measurement process effective, the following three aspects have to keep in
mind:
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(i) Completion: The actual performance measurement has to be complete in all respects. In
other words, all aspects of the job should be measured and not just the ones that are
more evident.

(ii) Objective: Performances at work should be measured in an objective manner without

fear, favorer bias. Only then measurement can be effective.

(iii) Responsiveness: The management of any performance should support the belief that
effort and performance lead to improvement, both from the personal and
organizational point of view.

Step 3: Comparison of actual performance with standards

The third step in the control process is to compare the actual performances with established
standards and ascertaining the causes of deviation. The causes of deviation may be machine-
dependent, process- dependent, plan-dependent, manpower-dependent etc. Whatever may the
reason, deviation are thoroughly analyzed and properly presented. Statistical methods are
usually adopted to look at deviation from a broader perspective.

Step 4: Taking corrective measures

The final step in the control process consists of taking remedial actions so that deviation may
not occur again in future. Corrective steps are initiated so that any defects in the actual
performance may be rectified.

Corrective actions may include the following activities.

1. Change in methods, rules, procedures strategies etc.

2. Introduce training programs

3. Job redesign

4. Replacement of personnel

5. Re-establishing budgets and standards

6. Better compensation packages to employees

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7. Changing machinery and processes

8. Identifying recurring bottle necks and avoiding them
9. Trying to understand the competition better.
10. Looking at raw material resources and suppliers.

Review Questions - CONTROL

1. Explain the basic steps in the control process.

2. What are the two main types of control? How is each type used? Which is more
important and why?

3. What are the essentials of effective control systems? Which essentials do you think
are most important?

4. What is meant by budgeting? How are budgets drawn, approved and revised? What are
the functional and dysfunctional aspects of budgets?

Review Questions - LEADERSHIP

1. What is leadership? Describe the functions of a leader.

2. "Leaders are not born but made." Comment.
3. "The successful leader accurately understands himself, the organization, the individuals
and the group he is dealing with and the broader social environment in which he operates."
Discuss.

4. Is leader the same as manager? Discuss.

5. What factors should govern the selection of a style of leadership by a manager?
6. Point out some important qualities that make for successful leadership. Define
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the concept of empathy.

7. Define leadership and give its characteristics.

8. "Leadership is situational". Comment.

9. "A successful leader is not necessarily effective." Comment

WHAT IS SOCIAL RESPONSIBILITY?

Social responsibility is an ethical focus for individuals and companies whereby they seek
to take action and be accountable for practices that benefit society. Social responsibility has
become increasingly important to investors and consumers who seek investments that not only
are profitable but also contribute to the welfare of society and the environment. While critics
have traditionally argued that the basic nature of business does not consider society as a
stakeholder, younger generations are embracing social responsibility and driving change.

o Social responsibility means that besides maximizing shareholder value, businesses should
operate in a way that benefits society.
o Socially responsible companies should adopt policies that promote the well-being of society and
the environment while lessening negative impacts on them.
o Companies can act responsibly in many ways, such as by promoting volunteering, making
changes that benefit the environment, engaging in ethical labor practices, and engaging in
charitable giving.
o Consumers are more actively looking to buy goods and services from socially responsible
companies, hence impacting their profitability.

Social responsibility means that individuals and companies must act in the best interests of
their environment and society as a whole. As it applies to business, social responsibility is known
as corporate social responsibility (CSR) and is becoming a more prominent area of focus within
businesses due to shifting social norms.
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SOCIAL RESPONSIBILITY OF BUSINESS TOWARDS DIFFERENT

GROUPS

Social Responsibility of Business towards Different Groups shows the responsibility of

Business owners for the business’s performance. This includes ensuring a fair return on capital,
consolidating the business’ financial position, and capital appreciation to allow owners to
weather any eventuality. Let’s now look at the different responsibilities a business has towards
its associations. The business is generally associated with owners, investors, workers, suppliers,
consumers, competitors, the government, and the community. So they are called business
associations because, by every business activity, these groups’ profits may be affected directly
or indirectly.

1 Responsibility towards owners and Investor

These are the primary Social Responsibility of Business towards Different Groups,
investors, and owners:

 Run the business well-organized,

 Proper usage of assets and other resources,
 Expansion and appreciation of assets,
 A consistent and reasonable return on capital invested,
 Assuring the safety of their investment,
 Fixed retrieval of interest, and
 On-time compensation of the principal amount.

2 Responsibility towards Creditors

In Social Responsibility of Business towards Different Groups there are responsibilities

toward creditors. For example,

 Timely payment,
 To ensure the safety of credit approved by them, and
 To follow standards of business as observed by others.
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 Responsibility towards employees

3 These are the Social Responsibility of Business Towards Different Groups and their workers:

o Proper working conditions and well-being facilities,

o Opportunity for better job possibilities,
o Job safety and social security include provident funds, group insurance, pensions,
and retirement privileges.
o Proper living conditions like home, transportation, restaurant, etc.; and
o Timely education and improvement.
 On-time and regular payment of salaries and wages,

4 Responsibility towards suppliers

These are the responsibilities of businesses towards suppliers:

 Regular delivery of orders for the purchase and sale of goods,

 Adaption on reasonable terms and conditions,
 Availing sensible credit period, and
 Duly payment on time.
 Responsibility towards customers

5 These are the responsibilities of businesses towards their consumers:

 Goods and services should be able to meet the needs of customers,

 Goods and services should have a high quality,
 Regularly supplement of goods and services,
 There should be a reasonable and affordable price for goods and services,
 All profits and losses of goods and procedures to use the goods must be informed
to the consumers,
 Proper function of after-sales service,
 Prioritize the grievances of the consumers and quick settlement,
 Unlawful means like under weighing the goods, corruption, etc., must be avoided.
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6 Responsibility towards competitors

The responsibilities of business towards its rivals should not be as follow:

 Offering unusually high sales commission to distributors, agents, etc.,

 Offering huge discounts or free products in every sale to the customers, and
 Defame rivals through false or vague advertisements.

7 Responsibility towards government

These are the responsibilities that business has towards the government:

 Setting up units as per rules and regulations of the government,

 Payment of fees, charges, and taxes consistently and honestly,
 Not to indulge in monopolistic and restrictive business practices,
 Adaptive to pollution control standards set up by the government, and
 Not to engage in adulteration through bribing and other illegal activities.

8 Responsibility towards society (community)

A community includes individuals, groups, organizations, people, etc. They communicate

with each other and are also reliant on each other in almost all activities. There are direct and
indirect relationships between them. Business, being a part of the community, keeps its
relationship with all other community members. Therefore, it has specific responsibilities
towards the community that are as follows

 To help the vulnerable and backward parts of the society,

 To maintain and promote social and cultural importance,
 To create employment,
 To preserve the environment,
 To save natural resources and wildlife,
 Support sports and culture, and
 To assist in progressive research on knowledge, education, medical science, and
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technology.

WHAT IS A SOCIAL AUDIT?

A social audit is a formal review of a company's endeavors, procedures, and code of

conduct regarding social responsibility and the company's impact on society. A social audit is an
assessment of how well the company is achieving its goals or benchmarks for social
responsibility.

 A social audit is a formal review of a company's endeavors, procedures, and code of conduct
regarding social responsibility and the company's impact on society.
 A social audit is an assessment of how well the company is achieving its goals or benchmarks for
social responsibility.
 Ideally, companies aim to strike a balance between profitability and social responsibility.

Ideally, companies aim to strike a balance between profitability and social responsibility.
A social audit is an internal examination of how a particular business is affecting society. The
audit helps companies to determine if they're meeting their objectives, which may include
measurable goals and benchmarks. A social audit serves as a way for a business to see if the
actions being taken are being positively or negatively received and relates that information to the
company’s overall public image.

In the era of corporate social responsibility, corporations are often expected to deliver value
to consumers and shareholders as well as meet environmental and social standards. Social audits
can help companies create, improve, and maintain a positive public relations image. For many
companies, a good public perception helps foster a positive image of the company and ultimately
reduce negative impacts on earnings from bad press.

Items Examined in a Social Audit

The scope of a social audit can vary and be wide-ranging. The assessment can include social
and public responsibility but also employee treatment. Some of the guidelines and topics that
comprise a social audit include the following:
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 Environmental impact resulting from the company's operations

 Transparency in reporting any issues regarding the effect on the public or environment.
 Accounting and financial transparency
 Community development and financial contributions
 Charitable giving
 Volunteer activity of employees
 Energy use or impact on footprint
 Work environment including safety, free of harassment, and equal opportunity
 Worker pay and benefits
 Nondiscriminatory practices

WHAT IS BUSINESS ETHICS?

Business ethics is the moral principles, policies, and values that govern the way companies
and individuals engage in business activity. It goes beyond legal requirements to establish a code
of conduct that drives employee behavior at all levels and helps build trust between a business
and its customers.

 Business ethics refers to implementing appropriate business policies and practices with
regard to arguably controversial subjects.
 Some issues that come up in a discussion of ethics include corporate governance, insider
trading, bribery, discrimination, social responsibility, and fiduciary responsibilities.
 The law usually sets the tone for business ethics, providing a basic guideline that
businesses can choose to follow to gain public approval.

Business ethics ensure that a certain basic level of trust exists between consumers and
various forms of market participants with businesses. For example, a portfolio manager must
give the same consideration to the portfolios of family members and small individual investors as
they do to wealthier clients. These kinds of practices ensure the public receives fair treatment.

The concept of business ethics began in the 1960s as corporations became more aware of a
rising consumer-based society that showed concerns regarding the environment, social causes,
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and corporate responsibility. The increased focus on "social issues" was a hallmark of the
decade. Since that time, the concept of business ethics has evolved. Business ethics goes
beyond just a moral code of right and wrong; it attempts to reconcile what companies must do
legally vs. maintaining a competitive advantage over other businesses. Firms display business
ethics in several ways.

Principles of Business Ethics

It's essential to understand the underlying principles that drive desired ethical behavior
and how a lack of these moral principles contributes to the downfall of many otherwise
intelligent, talented people and the businesses they represent. There are generally 12 business
ethics principles:

o Leadership: The conscious effort to adopt, integrate, and emulate the other 11 principles
to guide decisions and behavior in all aspects of professional and personal life.
o Accountability: Holding yourself and others responsible for their actions. Commitment
to following ethical practices and ensuring others follow ethics guidelines.
o Integrity: Incorporates other principles honesty, trustworthiness, and reliability.
Someone with integrity consistently does the right thing and strives to hold themselves
to a higher standard.
o Respect for others: To foster ethical behavior and environments in the workplace,
respecting others is a critical component. Everyone deserves dignity, privacy, equality,
opportunity, compassion, and empathy.
o Honesty: Truth in all matters is key to fostering an ethical climate. Partial truths,
omissions, and under or overstating don't help a business improve its performance. Bad
news should be communicated and received in the same manner as good news so that
solutions can be developed.
o Respect for laws: Ethical leadership should include enforcing all local, state, and federal
laws. If there is a legal grey area, leaders should err on the side of legality rather than
exploiting a gap.
o Responsibility: Promote ownership within an organization, allow employees to be
responsible for their work, and be accountable for yours.
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o Transparency: Stakeholders are people with an interest in a business, such as

shareholders, employees, the community a firm operates in, and the family members of
the employees. Without divulging trade secrets, companies should ensure information
about their financials, price changes, hiring and firing practices, wages and salaries, and
promotions are available to those interested in the business's success.
o Compassion: Employees, the community surrounding a business, business partners, and
customers should all be treated with concern for their well-being.
o Fairness: Everyone should have the same opportunities and be treated the same. If a
practice or behavior would make you feel uncomfortable or place personal or corporate
benefit in front of equality, common courtesy, and respect, it is likely not fair.
o Loyalty: Leadership should demonstrate confidentially and commitment to their
employees and the company. Inspiring loyalty in employees and management ensures
that they are committed to best practices.
o Environmental concern: In a world where resources are limited, ecosystems have been
damaged by past practices, and the climate is changing, it is of utmost importance to be
aware of and concerned about the environmental impacts a business has. All employees
should be encouraged to discover and report solutions for practices that can add to
damages already done

WHAT IS CORPORATE GOVERNANCE?

Corporate governance is the system of rules, practices, and processes by which a

company is directed and controlled. Corporate governance essentially involves balancing the
interests of a company's many stakeholders, which can include shareholders, senior
management, customers, suppliers, lenders, the government, and the community. As such,
corporate governance encompasses practically every sphere of management, from action plans
and internal controls to performance measurement and corporate disclosure.

o Corporate governance is the structure of rules, practices, and processes used to direct
and manage a company.
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o A company's board of directors is the primary force influencing corporate governance.

o Bad corporate governance can destroy a company's operations and ultimate profitability.
o The basic principles of corporate governance are accountability, transparency, fairness,
responsibility, and risk management.

Governance refers to the set of rules, controls, policies, and resolutions put in place to direct
corporate behavior. A board of directors is pivotal in governance, while proxy advisors and
shareholders are important stakeholders who can affect governance. Communicating a
company's corporate governance is a key component of community and investor relations. For
instance, Apple Inc.'s investor relations site profiles its corporate leadership (the executive team
and board of directors) and provides information on its committee charters and governance
documents, such as bylaws, stock ownership guidelines, and articles of incorporation.

Most successful companies strive to have exemplary corporate governance. For many
shareholders, it is not enough for a company to be profitable; it also must demonstrate good
corporate citizenship through environmental awareness, ethical behavior, and other sound
corporate governance practices.

The Principles of Corporate Governance

While there can be as many principles as a company believes make sense, some of the most
common ones are:

 Fairness: The board of directors must treat shareholders, employees, vendors, and
communities fairly and with equal consideration.
 Transparency: The board should provide timely, accurate, and clear information about
such things as financial performance, conflicts of interest, and risks to shareholders and
other stakeholders.
 Risk Management: The board and management must determine risks of all kinds and
how best to control them. They must act on those recommendations to manage risks and
inform all relevant parties about the existence and status of risks.
 Responsibility: The board is responsible for the oversight of corporate matters and
management activities. It must be aware of and support the successful, ongoing
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performance of the company. Part of its responsibility is to recruit and hire a chief
executive officer (CEO). It must act in the best interests of a company and its investors.
 Accountability: The board must explain the purpose of a company's activities and the
results of its conduct. It and company leadership are accountable for the assessment of a
company's capacity, potential, and performance. It must communicate issues of
importance to shareholders

Benefits of Corporate Governance

 Good corporate governance creates transparent rules and controls, guides leadership,
and aligns the interests of shareholders, directors, management, and employees.
 It helps build trust with investors, the community, and public officials.
 Corporate governance can give investors and stakeholders a clear idea of a company's
direction and business integrity.
 It promotes long-term financial viability, opportunity, and returns.
 It can facilitate the raising of capital.
 Good corporate governance can translate to rising share prices.
 It can reduce the potential for financial loss, waste, risks, and corruption.
 It is a game plan for resilience and long-term success