Wednesday, May 18, 2011

What are the critical elements of social environment of business?

What are the critical elements of social environment of business? Explain each with examples.

Business must have a social purpose; business concerns must discharge social responsibility and social obligations and have social commitment. Otherwise, business cannot enjoy social sanction. This makes it necessary for us to understand the social environment of business. You may question: what factors constitute this environment? There are a host of factors like social values, culture, beliefs, tradition and convention, social attitudes, social institutions, class structure, social group pressure and dynamics, and what have you. The nature of social objectives and priorities, along with the set of social constraints, give form and content to several social movements, and their underlying ethos. Business ethics are very much influenced by social movements, social systems to be the culmination of forces operating from different platforms such as history, culture, polity, ethics and morality, values and institutions, geography and ecology, and the like. Society itself has to balance the achievements and aspirations of various individuals, groups, communities and institutions. No business can survive and grow without social harmony. Different countries, over different time periods, attain social harmony and order of different forms, through different ways and means. Thus the social environment differs over space, time and methods.

You have observed how business and society interact with each other. Business exists in the context of a society. In a (traditional) pre-industrial society, business transactions are negligible or nil; in that society production is mainly done for self-cnsumption and the need for exchane is minimum. In a modern industrial society, business grows by leaps and bounds: production is meant for the market; the subsistence system is replaced by the commercialized system and, therefore, exchange transactions multiply. In a post industrial (recent) society business gets specialized and professionalised. With growing monetisation, both primary and secondary, the complexity of business grows manifold. Business grows in variety. Business becomes more and more service-oriented from being production-oriented. Thus as transition takes place in a society through various stages, business changes in terms of size, structure, strategy and system. On the other hand, as business changes in terms of its form and organization, society also undergoes changes. Social values, social institutions, social order, social contract, social conflict, social problems – everything changes along with a change in the business culture. In other words, business determines society as much as society determines business. Therefore, business must be socially responsible.

Over two decades ago, Peter Druker stated in the context of American business, “If there is one development during the last ten years that stands out above all others, it is the eagerness with which business has embraced social responsibilities”. This is true of Indian or any other national business today. It is no longer fashionable for business corporations the world over to take a gleeful pride in making money. What is more fashionable is to show that it is a great innovator, more specifically a great public benefactor and that it exists to serve the public.

From the standpoint of business, we have already identified each element of this public. They are: owners/shareholders, managers, workers, suppliers, distributors, consumers, Government officials and similar social groups. All these have a stake in business and can be known as stakeholders.

Each and every social group has a very definite expectation from business. The shareholders, promoters and owners expect a fair return n their investment; unless lucrative dividends are paid, they do not want to supply venture capital for business.

The workers expect fair wages and bonus, otherwise they feel exploited when they produce output more in value than the input. The salaried managers likewise expect a remunerative packet of pay and perks, otherwise they do not find any incentive to work hard and long for their business concern. The consumers expect a quality product and service at fair prices, otherwise they feel cheated. The suppliers expect a prompt settlement of their bills. The distributors expect after sales service as well as fair commission on sales, otherwise they do not find incentives to promote sales. The Government expects business to pay taxes and to be accountable for subsidies. And, importantly, there are others who are not directly concerned with business, yet they have a lot of expectations from it. These could be ordinary citizens forming themselves into clubs or associations of some type, expecting charitable donations for promoting education and culture; the ecologists who want business to minimize, if not avoid totally, pollution and degradation of the physical environment; the social workers who want business to adopt backward villages and undertake all round development of housing, health, and sanitation. There is no end to the expectations of these various social groups. The more you come up to their expectations, the more they expect from you and your business.

Business has to balance these manifold expectations and optimize a general social welfare function subject to the constraint of maintaining social harmony. This is a difficult and stupendous task and it involves a measure of social efficiency of business operations. Normally, private business enterprises do not bother about social efficiency, they are guided by the commercial profitability criterion. For them, social responsibility is more a facade and a decoration; it is mostly a means of maximizing the long-run return on investment. But, for public enterprises, social desirability is an important consideration. Therefore, they have to attempt a detailed social cost-benefit analysis of their projects and operations. Such enterprises, which produce public goods and services, have to maximize net social return. However, social responsibility does not mean that they should continue to run losses. After all, they are not meant for supplying free or subsidized social service. Social obligations should not eclipse their economic viability, which in itself is a social purpose. Thus, even public enterprises have social as well as commercial obligations. In fact, in India we want our public enterprise to generate source of financing planned economic development. A losing public enterprise is ultimately a burden on society, and therefore if the unit is sick, even if it is a public and hardship in the short run, but in the long run it will be good for society. Social achievements like employment creation and import substitution should never be made an alibi for an unsatisfactory economic and financial performance.

Public enterprises in a democracy like ours are accountable (a) to Parliament, (b) through audit and (c) through annual reports. Parliamentary control over public enterprises is a well-established form of social control. Similarly, as an instrument of accountability, public enterprises are subject to financial audit, efficiency audit and propriety audit. Finally, a well-drafted annual report is an important medium of communication between the enterprises and the public.

Public accountability of private enterprises is also statutorily required. Very often, the Annual General Meeting (AGM) is an occasion where annual reports/balance-sheets can be seriously examined and the shareholders can take their public limited company to task. But this requires the shareholders’ movement to be organized and strong. In fact, strong trade unionism, a strong conservationist movement, and a strong consumer movement are additional requirements to enable any business – private or public, national or multinational, small or big – to discharge – its social obligations and commitment.
Finally you must note that as society has expectations from business, so does business have from society. Society must also act responsibly. Social groups, through violent and irresponsible methods, may hold the business to ransom and ruin it. Ultimately, that will be a social loss. Business can discharge its responsibility, provided it enjoys some authority and support facilities. Social movement should support business by indicating right directions in the national interest.

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