Social responsibility of business towards consumers and investors

Meaning of social responsibility of business

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. It means that, besides earning profit and obeying the law, a business should consider the effect of its actions on all the groups connected with it: owners and investors, employees, consumers, suppliers, government, the community and the environment. The reasons are that business uses society's resources, depends on society's goodwill and has great power over people's lives. 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.) The idea is wider than this legal duty. Two of the most important groups are consumers and investors.

Responsibility towards consumers

Consumers are the reason for a business's existence. The business should:

1. Respect consumer rights: to safety, information, choice, being heard and redress.
2. Ensure product safety and withdraw products found to be harmful.
3. Handle complaints promptly and fairly, with an effective grievance system.
4. Protect customers' data and privacy, especially in online business.
5. Give honest information about the product, its use and its risks, and avoid misleading or dishonest advertising.
6. Avoid unfair trade practices such as adulteration, under-weighing, fake products and black-marketing.
7. Provide after-sales service and courteous attention.
8. Give value for money: goods of the right quality and quantity at reasonable prices.

Responsibility towards investors

Investors (shareholders and lenders) provide the capital. The business should:

1. Use funds only for the stated purposes, avoiding misuse, fraud and diversion.
2. Be open with shareholders: tell them honestly and in good time how the business is performing and where it intends to go, so that they can judge their investment.
3. Keep their capital safe by avoiding speculation and choosing sound ventures.
4. Earn a fair and regular return on their investment.
5. Treat all shareholders fairly, including minority shareholders, and respect their rights to vote and to receive dividends.
6. Follow sound corporate governance: transparency, accountability and independent oversight.
7. Avoid insider trading and manipulation of share prices.
8. Repay lenders and pay interest on time, and honour loan covenants.

Example. A packaged-foods company that labels nutrition facts truthfully, recalls a contaminated batch voluntarily, publishes clear quarterly results and pays a steady dividend is meeting its responsibilities to both groups.

Conclusion

Meeting its responsibilities to consumers and investors is in a firm's own long-term interest: satisfied consumers return and recommend the firm, and confident investors provide capital at lower cost. Neglecting either group invites loss of reputation, legal action and decline.