Business and Society

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Business and Society

1. Business and social constraints

Businesses affect the societies in which they operate. A sole trader running a small grocery store may benefit local residents by opening for a few hours on a Sunday. On the other hand such a business may have negative effects. Canned drinks bought from the shop may be left in the street. Opening on a Sunday may lead to more traffic in the area. Decisions made by a multinational company can have a huge impact in many different countries. For example, it may decide to relocate its factory from one country to another. This is likely to lead to a fall in income and employment in the country that the company has left. The new location may gain from more jobs, the building of infrastructure, such as roads, and perhaps spending on health care and community projects.



These examples show that businesses do not operate in isolation. The decisions they make can affect a range of other groups and individuals. The businesses can be seen as part of the societies in which they operate. As a result, governments often pass laws and set regulations to control the conduct of businesses. Consumer laws try to ensure that businesses do not deliberately mislead consumers. Employment laws attempt to provide safe working conditions and set standards for working hours and payments.

Such laws tend to set the legal minimum in terms of the way in which businesses behave. However, do businesses have any further responsibilities to society? Should businesses consider the implications of their decisions upon society and not just take into account whether these decisions help the business to achieve its objectives? For example, a cement factory may have emissions within legal limits. The local community might argue that the emissions cause health problems amongst children and the elderly in the area. Should the business try to reduce the emissions?

Some would argue that businesses are self-regulating. They do not need to be controlled by government. If they ignore the views of society, consumers will not buy their products. They will lose trade and perhaps go out of business. Others argue that, without external regulation, businesses may have negative effects upon society. People who are adversely affected by business activity may not be in a position to influence the business. The children and elderly people living near the cement factory may not buy cement. The young and old may not be able to exert any outside pressure by complaining to the management of the business.

2. Business and stakeholders

One way of condiering the impact of business upon society is to view all of the groups affected by the behaviour of a business as stakeholders. The stakeholders in a business are likely to include customers, employees, shareholders, suppliers, government, local communities and businesses, financial institutions and other creditors.


Businesses have tended to be influenced mainly by customers, employees and shareholders. Increasingly, however, other groups are affecting business behaviour. For example, some businesses will only supply their products to other businesses that have an ethical or environmental policy. Some pension companies will not invest in businesses that sell arms. This suggests that businesses need to have a greater SOCIAL RESPONSIBILITY to groups beyond those immediately involved in the business.

3. Business ethics

The way in which businesses respond to issues such as the sale of arms or health risks from pollution may depend on their ETHICS. Ethics are the values and beliefs which influence how individuals, groups and societies behave. For example, an electricity generating business may be operating within legal emissions limits. However, it may feel that it has to change its production methods to reduce emissions even further because it believes businesses should work towards a cleaner environment.

In part the ethics of a business will depend upon the values of its employees. However, the ethical stance of the business is likely to be determined by the values of senior managers, directors and other important stakeholders. It will also be influenced by codes of conduct which may operate in the industry. The term ETHICAL is used to refer to businesses which explicitly recognise the importance of social responsibility and the need to consider the effects of its actions upon stakeholders. Business ethics are examined in detail in unit 33. It is possible that a business following an ethical policy may:

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