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Companies are coming under pressure for
better environment performance.
90% of the consumers in the U.K considered
green issues in relation to their consumption.
Membership of the largest green groups grew
over 5 million and have a staff of 1500.
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RESPONSIBLE BUSINESSRESPONSIBLE BUSINESS Concerns over pollution and over-population led to
the arising of the modern green movement.
From 1980s onwards a series of ecological
disasters:
Emission at the Union Carbide plant at Bhopal
Chernobyl nuclear reactor in the USSR
Exxon Valdez oil spills in Alaska
Torching of the Kuwaiti oil fields at the end of Iraqi invasion
reawakened public concern and fears about
environment dangers
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Scientific progress has also increased the
green consciousness
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RESPONSIBLE BUSINESSRESPONSIBLE BUSINESSThe Business Response
1) Green products- Companies using
ecological friendliness as a marketing
tool. (CFC free goods)
2) Changed practices- Bad publicity has
actually led to improvements. (tuna fish)
3) Limits- there is a limit to which consumer
are going to change their life style.
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The Business Response.cntd
Environmental impact assessment-
Companies review not just the finishedproduct but their production process too.
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Types of Impact
There can be two types of effects of ecological
concerns on business.
1) Direct Impact
2) Indirect impact
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1) Direct Impacts(b) They can affect costs or the availability of
resources (mining in natural areas)
(c) They can effect consumer demand (Shell)
(d) They effect power balances between
competitors in a market
(e) Legislative change may affect the frame
work within which businesses operate.
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2) Indirect Impacts
Indirect impacts may manifest themselvesin, for example, pressure form suppliers or
staff as a consequence of concern over
ecological problems.
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RESPONSIBLE BUSINESSRESPONSIBLE BUSINESSIssues relevant to business
Among the ecological issues, that are relevant
to business, are the following.
1)Resource Depletion:Resource depletion may influence operations
through impacts on the availability of raw
material through damage to soil, water, trees,plant life, energy availability, mineral wealth,
animal and marine species.
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2)Genetic Diversity:
More relevant to pharmaceutical firms, firms
in bio-technology, the agriculture and food
industry.
Development of many new strains of plants
and new types of medicine depend on the
availability of wild species from which genetic
resources can be drawn.
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Opposition to genetically modified food is
growing.
Production of organically-produced food is
becoming more profitable as consumerare willing to pay a higher price.
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3) Pollution Concerns:
Pollution concerns are at the centre of the most
worries about the environment.(a) Businesses are under pressure to curtail
the impacts of their activities on the water
tables, seas and the oceans. Concern overthe quality of drinking water in U.K.
has generated a massive increase in the size
of the bottled water market in the U.K.
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(b) The quality of air has been much discussed.
(c) Concern about the pollution of land and the
long term damage wrought by industry to theland it occupies, is an other important issue.
(d) Noise pollution is also likely to becomeimportant and can impact the operation of all
manner of business.
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In order to take action to remedy these problems
the Polluter pays principle was adopted by the
OECD in early 1970s and now it has broadacceptance.
Pap aims to relate the damage done by
pollution involved in the production of goodsand services to the prices of these goods.
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The intention is to deter potential polluters by
making it uneconomic to produce goods and
services that create pollution. This principle hasbeen broadly accepted and has been a major
factor. In reaction to major pollution incidents
such as large scale oil and chemical spills.
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4) Acid rains:
Damaged forests throughout northern Europeand acidification of water supplies and fish-
bearing lakes and rivers.Not possible to establish direct culpability
(Swedish farmers)
Bills involved are large and political pressureto constrain the effects of industrial productionhave increased enormously.
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5) Ozone depletion:
Ozone layer has been depleted because
of pollution
Some solvents used in electronics industry
and coolants in refrigerators are a threat to
the ozone layer.
These are being banned now.
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6) Waste:
Example include nuclear waste from powerstations, industrial waste and domestic
waste.National governments are doing legislationto handle the waste.
There are also international agreementsabout the effects of dumping waste on themarine life and on beaches.
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7) Climatic Change:Excess of CO2 in the air can produce un
natural weather.
Consequences include average world
temperature and sea level rising. Disastrous
for agriculture and low lying areas.
The Kyoto Treaty of 1997 was an attempt
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to control pollution of the environment by
emission of the greenhouse gases such as
Chlorofluorocarbons (CFCs) which can causepotentially damaging weather.
Treaty binds industrial nations to reduce
emissions by an average of 5.2% below 1990level over the next decade. USA withdrew
from the treaty in March 2001.
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8) Energy Resources:
There are concerns about the usage of
energy resources.
Some energy resources are yielding far
less of their potential than possible. For
example, coal.
Energy saving programs are underway in
most of the developing countries.
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New energy efficient products are being
developed.
Legislations is required to limit the use of
certain scarce and dangerous resources.
A carbon tax, for example can help.
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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY
OF ORGANIZATIONSOF ORGANIZATIONS
Social responsibility is expected from allSocial responsibility is expected from allorganizations, be they businesses,organizations, be they businesses,
governments, universities and colleges, orgovernments, universities and colleges, or
religious institutions.religious institutions.
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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY OF BUSINESS
One school of thought argues that management
of a business has only one social responsibilityand that is to maximize wealth for its share
holders.
There are two reasons given to support this
view.
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1) Businesses is owned by shareholders so it istheir right that they be given maximum
return and revenue should not be wasted
on other activities.
2) Managements job is to maximize wealth,
as this is the best way that society can
benefit from a business activity.
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HOW ????
It will increase tax revenue.
Increased wealth may have the trickledown effect.
Many companies share are owned bypension funds whose ultimate beneficiariesmay not be wealthy persons.
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An other school of thought argues that the aim
of the business is not only to maximize wealth
( to make money) but it is also binding upon
them to give something back to society; so their
business should be RESOPONSIBLE
BUSINESS.
This school supports its view by giving some
arguments.
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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITY1) In practice organizations are rarely
controlled effectively by shareholders.Most share holders are passive investors.
2) Large corporations can manipulate markets.Social responsibility, forced or voluntary is away of recognizing this.
3) Businesses do receive a lot of governmentsupport. The public pays for infrastructure.
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Businesses pay tax but public pays through
higher prices.
4) There are dire social consequences of the
activities of the firms ( increased traffic,
pollution, stress) which are inflicted on thewider population.
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The arguments for and against the social
responsibility of organizations although complex
can be traced to different assumptions about thesociety and the relationships between the
individuals and organizations within it.
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If the stakeholder concept of business is held
then the public is also a stake holder.
Business will only succeed if it is part
of a wider society. Giving to charity is oneway of encouraging a relationship.
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Charitable donations and artistic sponsorships
are a useful medium of public relations andcan reflect well on business. It is just like an
other form of promotion which can enhance
consumer awareness of the business. ( Its aninvestment)
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A very strong argument for social
responsibility
is Market Failure.
Market failure refers to a situation in which a
free market mechanism fails to produce themost efficient allocation of resources.
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Private cost- cost to the firm of resources used
Social cost- cost to the society as a whole, of
resources used by a firm
Private benefit- benefits obtained directly by a
consumer or a producer
Social benefit- total benefits obtained directly or
indirectly by suppliers & consumers
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The principal causes of market failure areconsidered below.
(a) Imperfections in the market(b) Divergence between private costs and
social costs.
(c) The existence of public goods.(d) The need to consider non-market goals,
such as social justice
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(a) Imperfections in the world
Factories causing pollution dont have to
compensate nearby residents for the cost ofcleaning their buildings.
Employers dont have to pay for work practiceswhich leave their workers feeling unfulfilled,
stressed and pressured. Car manufacturers dont have to pay for the
cost of road congestion which results fromthe sale of more cars.
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(b) Social costs and private costs
In a free market, producers
and consumers make output and buying decisions
for their own private benefit and these decisions
determine how the economys resources will be
allocated to production and consumption. Private
and social costs determine what goods are made &bought in a free market.
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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITYWhen private & social costs or private & social
benefits are not the same, such an allocation ofresources will occur that will be not socially
acceptable to the society.
Private cost not equal to social cost
1) Emission of pollution during production-private
cost not equal to social cost.2) A firm produces a good -private cost not equal
to social cost.
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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITYPrivate benefit not equal to social benefit
Musicians being hired at a local
restaurant. (private benefit not equal to
social benefit)
Employees sent on training by a firm-
(private benefit not equal to social benefit)
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(C) Public goodsThe production of such goods are
provided by the state. Every one can use public
goods. Its available for every one and it is almost
impossible to exclude anyone from its use.
In a free market individuals benefiting from public
goods will have no incentive paying for them. Theymight as well be free riders, while other continue
to pay for it.
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(d) Social Justice
The firm makes money by
doing business in the society. Its part of
the society and not an alien entity. Its only
fair that the business pays something back
to the society with out whom it cant exist.
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SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITYThe existence of market failure and externalities
suggest the need for intervention by the
government , in order to improve the allocation
of resources
Merit and demerit goods
Merit goods are considered to be
worth providing in greater volume than needed inthe market because of its long term public interest.
Education is one example.
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Demerit goods are those goods that government
want to see consumed less because of its
harmful long term effects for the society.
Examples include tobacco.