Social responsibility of business: arguments for and against

Meaning of social responsibility

Social responsibility of business is the duty of a business to take account of what society expects and values when it decides what to do, instead of pursuing profit alone or stopping at what the law requires. It covers responsibilities to owners, employees, consumers, suppliers, government, the community and the environment. In India, section 135 of the Companies Act, 2013 requires a company that, in the immediately preceding financial year, had net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more to form a CSR committee of its Board (unless the amount it must spend is not more than ₹50 lakh, in which case the Board itself does the committee's work), and to spend at least 2 per cent of its average net profit of the three immediately preceding financial years (or of the years it has completed, if it is younger than three years) on CSR activities. (Unspent amounts must now be transferred to a specified fund or account, with penalties for default: a regime added by amendments in force from January 2021; before them a company could instead explain its shortfall.) Social responsibility is wider than this legal duty.

Arguments for social responsibility

1. Power implies responsibility. Large firms have great influence over people's lives and should use it responsibly.
2. Converting problems into opportunities. Solving social problems, clean energy, affordable healthcare, can create profitable businesses.
3. Public expectations have changed. Society now expects business to be fair, safe and environmentally careful.
4. Business has the resources and skills: money, managerial talent, technology: to help solve social problems.
5. Long-term self-interest. A good reputation attracts customers, talented employees and investors; responsible firms earn trust that supports long-term profits.
6. Better environment for business. A healthier, educated, prosperous society provides better workers and markets.
7. Business depends on society. It uses society's resources, people, infrastructure, natural resources, and should give something back.
8. Self-regulation keeps the law at bay. Responsible conduct reduces the case for stricter laws.

Arguments against social responsibility

1. Lack of accountability. Business leaders are not elected and are not answerable to the public for social decisions.
2. Lack of social skills. Managers are trained in business, not in solving social problems.
3. Window-dressing. Some firms use social programmes mainly for publicity.
4. Too much power. Giving business a social role adds to its already great economic power.
5. Burden on consumers. Social spending raises costs, which may be passed on as higher prices.
6. Owners' money and profit. Spending on social causes uses shareholders' money and departs from earning profit for the owners.
7. Dilution of business purpose. Pursuing social goals may distract from efficiency and competitiveness.

Present context

Today the argument has largely moved from whether to how. Mandatory CSR spending, investors' attention to environmental, social and governance (ESG) performance, consumer awareness, climate concerns and social media scrutiny make social responsibility part of normal business. The emphasis is on integrating it into strategy, safe products, fair labour practices, sustainable operations and community development, rather than on occasional charity.

Conclusion

The arguments against remind business not to neglect efficiency or misuse shareholders' funds; the arguments for, together with changed social expectations, make social responsibility essential to long-term business success.