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Social Responsibilities of Business and Business Ethics – Class 11 Business Studies notes, important questions and MCQs

NCERT Class 11 Business Studies, chapter 6. Notes, key terms, important questions with answers and MCQs.

Chapter overview

Business uses society's resources, so it has a responsibility to act in ways that benefit society, beyond earning profit. Social responsibility covers obligations to shareholders, employees, consumers, government and the community, including protection of the environment. In India, the Companies Act, 2013 makes corporate social responsibility (CSR) spending mandatory for certain companies. Business ethics are moral principles that guide business behaviour.

Need and kinds of social responsibility

Arguments for: justification for existence, long-term self-interest, avoiding government regulation, availability of resources, better environment for business and holding public image.
Kinds: economic (produce goods at a profit), legal (obey laws), ethical (behave fairly beyond the law) and discretionary (voluntary, such as charity).
Arguments against include violation of the profit motive, burden on consumers, lack of social skills and lack of broad public support.

Responsibility towards different groups

Shareholders: fair return, safety of investment, transparent information.
Employees: fair wages, safe working conditions, opportunities for growth; consumers: safe, quality products at fair prices and honest advertising.
Government and community: paying taxes, obeying laws, protecting the environment and supporting community development.
Under Section 135 of the Companies Act, 2013, companies with net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more must spend at least 2 per cent of their average net profit of the preceding three years on CSR.

Environment and business ethics

Business causes air, water, land and noise pollution; it should adopt clean technology, recycle and comply with environmental laws.
Business ethics are moral principles guiding behaviour, such as honesty, fairness and not exploiting stakeholders.
Elements of ethics in business: top management commitment, publication of a code of conduct, a compliance mechanism, involving employees at all levels, and measuring results.

Key terms

Social responsibility: the obligation of business to make decisions that are desirable for society
Corporate social responsibility: activities undertaken by companies for social welfare, mandatory for certain companies under the Companies Act, 2013
Business ethics: moral principles that guide the conduct of business
Discretionary responsibility: purely voluntary social obligation, such as donations to charity
Code of conduct: a written statement of the ethical standards that employees must follow

Important questions with answers

What is meant by business ethics?2 marks

Business ethics are moral principles and standards that guide the conduct of business, such as honesty, fairness, transparency and respect for stakeholders. Ethical business avoids practices like adulteration, hoarding, misleading advertising and tax evasion.

Explain the four kinds of social responsibility.3 marks

Economic responsibility means producing goods and services that society wants and selling them at a profit. Legal responsibility means obeying the laws of the land. Ethical responsibility means behaving in a fair and moral way even where the law does not require it, such as respecting religious sentiments in advertising. Discretionary responsibility is purely voluntary, such as donating to charity or helping in disaster relief.

Explain the responsibility of business towards different interest groups and the provision of CSR under Indian law.5 marks

Business has responsibilities towards several groups. Towards shareholders, it must ensure safety of their investment, a fair return and accurate and timely information about the company's performance. Towards employees, it must provide fair wages, good and safe working conditions, opportunities for training and promotion, and respect their right to form unions. Towards consumers, it must supply safe, good-quality goods at fair prices, avoid adulteration, hoarding and misleading advertisements, and handle complaints promptly. Towards the government and community, it must pay taxes honestly, obey laws, protect the environment by controlling pollution, generate employment and contribute to community development such as schools and health care. In India, corporate social responsibility is mandatory for certain companies under Section 135 of the Companies Act, 2013. Companies with a net worth of ₹500 crore or more, a turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more must constitute a CSR committee and spend at least 2 per cent of their average net profit of the three immediately preceding financial years on activities such as eradicating hunger, promoting education and health, environmental sustainability and rural development. Thus social responsibility is both a moral duty and, for large companies, a legal requirement.

Quick revision

Kinds: economic, legal, ethical, discretionary.
Responsibility to shareholders, employees, consumers, government, community.
CSR: Section 135; 2 per cent of average net profit.
Ethics: top management, code, compliance, involvement, measurement.

Exam tips

Write responsibilities as a table: group → responsibility.
Remember the CSR thresholds and the 2 per cent rule.

Practice MCQs

The obligation of business towards society is called
1. profit motive
2. competition
3. monopoly
4. social responsibility
Show answer
Answer: (d) social responsibility. It goes beyond earning profit.
Donating to charity voluntarily is an example of
1. economic responsibility
2. legal responsibility
3. ethical responsibility only
4. discretionary responsibility
Show answer
Answer: (d) discretionary responsibility. It is purely voluntary.
Moral principles that guide business behaviour are called
1. business laws
2. business plans
3. business risks
4. business ethics
Show answer
Answer: (d) business ethics. Honesty is an example.
Mandatory CSR in India is provided under
1. the Partnership Act, 1932
2. Section 135 of the Companies Act, 2013
3. the Consumer Protection Act only
4. the RBI Act
Show answer
Answer: (b) Section 135 of the Companies Act, 2013. It applies to certain companies.
Companies covered under CSR must spend at least
1. 1 per cent
2. 2 per cent
3. 5 per cent
4. 10 per cent
Show answer
Answer: (b) 2 per cent. Of average net profit of the preceding three years.
Providing safe and quality goods at fair prices is a responsibility towards
1. shareholders
2. competitors
3. government
4. consumers
Show answer
Answer: (d) consumers. Consumers deserve honest dealing.
Which argument supports social responsibility
1. it reduces profits
2. business uses society's resources and benefits from a good environment in the long run
3. business lacks social skills
4. consumers bear the cost
Show answer
Answer: (b) business uses society's resources and benefits from a good environment in the long run. It is in long-term self-interest.
Which element of business ethics ensures that ethical standards are actually followed
1. a compliance mechanism
2. publishing advertisements
3. increasing prices
4. reducing staff
Show answer
Answer: (a) a compliance mechanism. Systems check and enforce standards.

All chapters of Class 11 Business Studies

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.