Diriya

Business Ethics and Social Responsibilities

The current business environment is very turbulent due to the rapid and unpredictable changes, including technological advancements, globalization, complex customer preferences, and competitor actions. As a result, especially SMEs find it very challenging to survive and succeed in the face of competition.

On the other hand, conducting the business in an appropriate manner has become a significant challenge especially with every single action of theirs being judged as wrong or right. However, to sustain a business and develop a loyal customer base, it is important for an entity to practice ethics. In today’s business environment where relationship marketing is the key, business ethics and social responsibility are gaining more attention than ever before.

Business Ethics

Ethics can be defined as a set of principles, values, and beliefs that determine what is morally right or wrong, or what is just or unjust. These components of ethics are used to define acceptable and unacceptable behaviors and decisions in a given situation. Essentially, ethics are a set of guidelines that help individuals or organizations determine the right course of action in a particular context. Business ethics refer to the moral principles and standards that a company adheres to as guidelines for conducting its operations. The acceptability of a business organization’s behavior is determined by its stakeholders, which include employees, customers, suppliers, distributors, competitors, the government, the community, and other interested parties. An organization that has identified its business ethics is likely to make ethical decisions in all of its actions, both internally and externally.

Social Responsibilities

More recently, there has been a growing focus on the ethical considerations of companies, which has given rise to burning issues affecting the world in various ways. The discussion around social responsibilities became more widespread during the industrial revolution in the 1960s and 1970s when the negative consequences of increased environmental pollution generated criticism. As a result, the concept of Corporate Social Responsibility (CSR) emerged in the 1980s. Initially, CSR was viewed as a mechanism focused solely on the philosophy of economic growth that generates higher value for future generations that endure the gains of present activities. It  proposes that all the stakeholders including customers, suppliers, employees, government, and society are equally important for the existence of a company, as much as its owners, viewing the entire corporate business environment as a single ecosystem that interconnects every party together.

Accordingly, social responsibility can be defined as the obligations that a business organization owes to maximize the positive impacts of every business activity on society while minimizing the negative impacts as well.

How to become an Ethical and Social Responsible SME?

The primary responsibility of a business organization is to satisfy the expectations of its shareholders/owners, whose foremost concern is profitability and return on their investment. This requires maintaining accurate accounting records and documentation, providing them with relevant information about the business, and safeguarding their rights.

Businesses have a responsibility towards their employees as they are essential to the company. This includes creating a safe and healthy work environment, providing fair and timely compensation, complying with labor laws and regulations, offering equal opportunities for professional development, prohibiting the use of child labor, and promoting employee welfare activities etc. By fulfilling these obligations, the company can build a loyal and committed workforce, which can contribute positively to the company’s overall success.

Business organizations must meet the ethical expectations of customers to ensure their survival and sustainability. This involves delivering high-quality and safe products at affordable prices, respecting customer rights, providing satisfactory after-sale services, giving accurate information about products, and addressing customer complaints promptly. By doing so, companies can maximize customer value and build long-term relationships with their customers.

Fulfilling environmental responsibility has become a critical aspect for business organizations. They are striving to minimize the negative impacts of their business activities on the environment, such as deforestation, greenhouse gas emissions, pollution, and carbon footprint. At the same time, businesses are taking initiatives to protect the environment by engaging in reforestation, renewable energy consumption, protecting animal rights, introducing green and eco-friendly products, recycling and reusing raw materials, and participating in different environmental protection programs.

Business organizations have a social responsibility to the communities in which they operate. This involves contributing to the development of the region, creating employment opportunities, promoting and supporting cultural diversity, and engaging with programs to improve the health and education levels of the community. By fulfilling these responsibilities, businesses can build a positive reputation in the community and enhance their overall social value.

Significance of Business Ethics and Social Responsibilities for SMEs

Many business organizations today make a conscious effort to adhere to ethical considerations and be socially responsible. This is because they realize that business ethics and Corporate Social Responsibility (CSR) initiatives can be a source of competitive advantage. Customers today are particularly concerned about ethical aspects, including environmental impact, and being ethical can attract more loyal customers to the company. Business ethics can be seen as an intangible asset that a company possesses in the modern business world. It enhances the overall goodwill of the organization, not just locally but also globally. Employees are encouraged to provide their maximum contribution to the organization, and managers experience less stress due to the ethical decision-making process, ensuring smooth functioning of the organization. By being ethical towards every stakeholder of the company, organizations can reduce unnecessary costs such as legal fees, compensations, and fines. Building long-term, sustained relationships with stakeholders can also benefit the company. Ultimately, ethical considerations can increase the overall performance of the organization, particularly in financial terms. Investing in ethics and social responsibilities does not result in losses, but creates profits.


This content was facilitated by CeFEnI/COSME and prepared by the University of Sri Jayawardenapura, Kotte

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