Social Responsibility & Corporate Governance: Overview

MEANING OF SOCIAL RESPONSIBILITY IN BUSINESS ❈ Every business enterprise has some moral and social responsibilities towards the society so as to maintain a balance between the economy and the ecosystems . ❈ It pertains not only to business organizations but also to everyone whose action impacts the environment . ❈ This responsibility can be passive , by avoiding being engaged in socially harmful acts or it can be active by performing activities that directly advance social goals . ❈ Corporate Social Responsibility ( CSR ) isone management strategy where companies try to create a positive impact on society while doing business . ❈ Corporate Social Responsibility ( CSR ) has been defined by Lord Holme and Richard Watts in a publication of the World Business Council for Sustainable Development : " It is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large . " From this definition the following can be inferred : ࿐ It is continuing commitment of business It calls for behaving in an ethical manner ࿐ It calls for contributing to economic development ࿐ It aims at improving the quality of life of employees and their families ࿐ It calls for contribution towards wellbeing of local community and society as a whole ❀ Social responsibility entails developing businesses with a positive relationship to the society in which they operate . ❀ Social responsibility tends to boost company morale , but this is especially true when a company and its employees are actively engaged in the social cause they're taking on . ❀ The various parties to whom the business discharges its social responsibility are discussed below a ) Customers : ✧ It is the duty of every business to provide good quality products and services to its customers as and when demanded . ✧ Customers are the king of market and their satisfaction is of utmost significance to the business . ✧ Customers ' likes , dislikes , complaints and demand must be studied and goods should be provided according to their requirements . ✧ Moreover , customers should not be befooled and cheated by quoting unreasonable prices . ✧ They should be offered discounts , premiums and rebates occasionally without being involved in unfair trade practices . b ) Creditors : ✯ A businessman is also responsible to its creditors . ✯ It must pay its debts timely and try to maintain good relations with them . ✯ Creditors are also doing business with their hard earned money . ✯ They extend credit on business interest only . ✯ Their requirements should be complied with for mutual benefits . c) Employees : ✾ Another party to whom the business has social responsibility is towards its employees . ✾ Employees are the true assets of a company and they must be taken care of by the management . ✾ Responsibility of business towards employees can be discharged in the form of training , promotion , proper selection , fair wages , safety , health , workers ' education , participation in management etc. ✾ Employees should be taken into confidence while taking decisions affecting their interests . ✾ In addition to timely and good amount of salary and good working conditions for employees , there should be scope for self - advancement , recognition and responsibility . d ) Shareholders : ❋ Business houses also discharge responsibility towards its shareholders . ❋ Shareholders are the true owners of a company and must be provided with timely and adequate amount of yearly dividends . ❋ They should also be informed about company's growth , recent developments , future plans and key management issues . e ) Society : ✦ A good businessman also feels socially responsible to deliver its services to the society where it operates . ✦ Business houses also practice social responsibility by donating to national and local charities like for construction of roads , bridges , dams , schools , colleges , hospitals , religious places etc. ✦ Whether it involves giving money or time , businesses have a lot of resources that can benefit charities and local community programs . f) Government : ⚘ Last but not the least , business delivers its social responsibility to government by payment of taxes on time , adhering to rules and regulations framed by govt . from time to time , adopting various pollution standards , adopting and implementing gavt . measures in relation to industrial setting etc. g ) Environment : ☘ Every business entity should protect the environment which can be done in different ways like preservation of natural resources , minimum wastage of resources etc. ☘ As natural resources are scarce so they should be used carefully by a businessman . ☘ Appropriate steps should be adopted to prevent environmental pollution and to restore ecological balance . ☘ Industrial waste should be disposed off carefully or if possible may be recycled to minimize pollution . ☘ The toxic wastes , excessive noise , chemical pesticides , automobile exhaust etc. need to be checked periodically . ☘ Being socially responsible means people in the organizations andorganizations themselves must behave ethically and with sensitivity towards social , cultural , economic and environmental issues . ☘ Striving for social responsibility helps individuals , organizations and governments to have a positive impact on development of society . ☘ Evidences indicate that being socially responsible helps in positive contribution to bottom - line performance also . ☘ This means by being socially responsible , business enterprises can be more profitable . CONCEPT OF CORPORATE GOVERNANCE ✰ Corporate governance includes the processes through which corporations ' objectives are set and pursued in the context of the social , regulatory and market environment . ✰ Corporate governance broadly refers to the mechanisms , processes and relations by which corporations are controlled and directed . ✰ Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation ( such as the board of directors , managers , shareholders , creditors , auditors , regulators , and other stakeholders ) and include the rules and procedures for making decisions in corporate affairs . ✰ Corporate governance essentially involves balancing the interests of the many stakeholders in a company - these include its shareholders , management , customers , suppliers , financiers , government and the community . ✰ Since corporate governance also provides the framework for attaining a company's objectives , it encompasses practically every sphere of management , from action plans and internal controls to performance measurement and corporate disclosure . ✿ Corporate Governance is the interaction between various participants ( shareholders , board of directors , and company's management ) in shaping corporation's performance and the way it is proceeding towards . ✿ The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two . ✿ The owners must see that individual's actual performance is according to the standard performance . ✿ These dimensions of corporate governance should not be overlooked . ✿ Corporate Governance ensures transparency which leads to strong and balanced economic development . ✿ It aims at safeguarding the interests of all shareholders ( majority as well as minority shareholders ) . ✿ It is important that shareholders fully exercise their rights and that the organization fully recognizes the rights of shareholders . ✿ Corporate Governance has a broad scope . ✿ It includes both social and institutional aspects . ✿ Corporate Governance encourages a trustworthy , moral , as well as ethical environment . BENEFITS OF GOOD CORPORATE GOVERNANCE The benefits of good corporate governance arelisted below : a . Good corporate governance ensures corporate success and economic growth . Because it complies with the requirements of law . Unlawful practices have long term negative consequences . b . Strong corporate governance maintains investors ' confidence , as a result of which company can raise capital efficiently and effectively . The investors feel secure to invest in companies adopting legally sound governance practices . c . It lowers the capital cost . Because of good practices it can attract easy investment and thereby reduces the cost of capital . d . It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization . e . Good corporate governance also minimizes wastages , corruption , risks and mismanagement . f . It helps in development of brand image . When the organization earns the reputation of being socially responsive , the brands of the organization can also earn the confidence of customers . The brand image also gets developed . ♡ Hence , corporate governance is concerned with holding the balance between economic and social goals and between individual and community goals . ♡ The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of the resources . ♡ Good governance is an essential ingredient in corporate success and sustainable economic growth . ♡ Corporate governance includes the laws and customs affecting that direction , as well as the goals for which the corporation is gove med . ♡ The principal participants are the shareholders , management and the board of directors . ♡ Other participants include regulators , employees , suppliers , partners , customers , constituents ( for elected bodies ) and the general community . LET US SUM UP ✵ Every business must adapt to its social environment . ✵ Social environment of a business includes all the factors that affect a business socially . ✵ The social environment of a business can be integral to a company's success or failure . ✷ business enterprise has some moral and social responsibilities towards the society . ✷ It pertains not only to business organizations but also to everyone whose actions impacts the environment . ✷ Corporate governance is concerned with holding the balance between economic and social goals and between individual and community goals . ✷ Good governance is an essential ingredient in corporate success and sustainable economic growth .