Social responsibility is an important part of business ethics. A business is responsible not only for treating its employees and customers well, but also for keeping up its end of the bargain with society at large. Some of a business' responsibilities to society include minimizing environmental impact, donating money to the needy and recalling dangerous products. Problems with responsibility and business ethics sometimes occur when a business has to weigh these responsibilities against its responsibility to shareholders.
A business' social responsibilities frequently clash with its ethical responsibilities. Corporations are legally responsible for looking after shareholder profits. At the same time, they are socially responsible for minimizing socially damaging (albeit sometimes profitable) business decisions. Ethical business leaders therefore face the challenge of making a profit without forcing society to foot the bill.
Externalities are business costs that society pays for. When a business pollutes a river, for example, the local sanitation department is responsible for cleaning up the mess that the business made. Ethical business leaders have a social responsibility to avoid behavior that results in a drain on society's resources.
Many shareholders do not have a strong understanding of the companies behind their stock certificates. These shareholders may demand increased performance from managers, thus creating a pressure on management to cut corners in ethics. To avoid such situations, management must speak openly with shareholders, explaining in detail why legal and ethical shortcuts have consequences that outweigh the value of a short-term profit.
In many countries, governments have turned a blind eye to corporate malfeasance. In situations where a government does not regulate business ethics, it is the responsibility of management to set their own standards. This can be a difficult challenge for managers, who are trained to put economic profit first and foremost in their minds.
Corporate executives are expected to minimize costs. Indeed, this is part of their mandate: cost minimization is a logical corollary of profit maximization. However, problems begin to arise when companies start laying off massive numbers of employees in an attempt to cut costs quickly and rapidly. This drives unemployment up and creates a massive drain on social assistance programs. It is the responsibility of managers to keep these sorts of things in mind when making decisions.