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:

• attract customers and employees who agree with its policy;

• have to change its operations to fit in with this policy, for example approving certain suppliers;

• have to set a policy for all the business in areas such as recruitment and marketing.

4. Business and the environment

It is possible that the activities of business can have certain beneficial effects on the environment. For example, a new factory may be built in a derelict area. The new premises may be landscaped, improving the view. A grass area built might have a bench which could be used by pedestrians.

Businesses are becoming more and more aware of the need to consider the environment in their operations. Many critics of certain business activities suggest that they have a negative effect on the environment in the surrounding area. Some of the negative effects of business activity include:

• air pollution caused by the discharge of emissions into the atmosphere and traffic visiting retail outlets;

• water pollution as a result of the dumping of waste;

• congestion from employees going to work or consumers visiting retail outlets;

• noise from factories and traffic;

• destruction of natural habitats from the building of premises.

How might these effects be controlled? There are laws, such as the Clean Air Act, which try to restrict the environmental impact of business activity. The government and the EU have planning regulations and legislation affecting the location of businesses. Taxes on petrol and diesel are often raised in an attempt to reduce the use of transport.

In many areas, businesses are becoming responsible for regulating their own behaviour. The ethics of a business can affect the extent to which it controls its impact on the environment. Some businesses have adopted their own stringent codes of practice and policies to control their activities. It is likely that attempts to control the effect on the environment by businesses will lead to:

• increased costs in the short term;

• the attraction of customers who agree with the policy of the business;

• a change in production methods.

5. Pressure groups

PRESSURE GROUPS are groups without the direct political power to achieve their aims, but whose aims lie within the sphere of politics. They usually attempt to influence local government, central government, businesses and the media. They aim to have their views taken into account when any decisions are made. Such influence can occur directly, through contact with politicians, local representatives and business people, or indirectly by influencing public opinion.

The use of pressure groups is one way in which stakeholders can exert influence over those making decisions within a business. Pressure groups can represent stakeholders directly involved with the business, such as employees or shareholders. They can also represent those not directly involved in the business, such as local communities or consumer groups.

There is a number of ways in which pressure groups can affect firms.

• Pressure groups often seek to influence the behaviour of members of the public about a particular product, business or industry. Friends of the Earth attempt to persuade the public to use cars less and public transport or bicycles more in order to reduce emissions into the atmosphere. This campaign, if successful, would have important implications for a wide range of firms involved in the transport industry.

• Political parties, through their representatives in Parliament, are able to pass laws which regulate the activities of businesses. Therefore it is not surprising that many pressure groups devote resources to lobbying politicians. An example of this is the attempt

by the anti-smoking group, ASH, to change the law so that all advertising of tobacco is made illegal.

• The actions of pressure groups can reduce the sales of firms. This is often most successfully achieved when efforts are targeted at particular firms. Consumers are then called upon to boycott these firms.

• Firms can face increased costs as a result of the activities of pressure groups. This may involve new production processes or waste disposal methods. Firms may have to counteract any negative publicity from a pressure group. For example, many believe that the campaign to attract visitors to the Sellafield nuclear site was a result of the negative publicity from environmental groups.

• Businesses with a tarnished reputation as a result of pressure group activity may find it more difficult to recruit employees.

How might businesses react to pressure groups?

• By positively responding to the issues raised by pressure groups. It was argued that pressure from Greenpeace contributed to Shell’s decision not to dump the Brent Spar oil platform in the North Sea in 1995. Instead it was dismantled and used to build a ferry quay in Norway. Similarly, local pressure groups have been successful in persuading some firms to change building plans and landscape nearby areas.

• Through promotions and public relations. Firms can attempt to counteract negative publicity through their own promotional and public relations work. For example, a number of oil companies which have been criticised for their impact upon the environment have sought to deal with this by promoting the `greener’ aspects of their industry, such as the availability of lead free petrol.

• A number of leading firms either lobby politicians themselves or pay for the services of professional lobbyists to represent their interests.

• Legal action. Where pressure groups make false allegations about a business, this can be dealt with by the legal system. For example, allegations by pressure groups that McDonald’s were contributing to the destruction of the Amazonian rainforest were dealt with through legal action in the courts.