Social Responsibility of Business Class 11: Kinds, Interest Groups and CSR under the Companies Act, 2013

Understand Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11)

Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11): key facts

Kinds of responsibility

• •economic produce and sell at a profit
• •legal obey the law
• •ethical behave as society expects
• •discretionary voluntary

Economic is the basic one.

Interest groups

• •shareholders
• •workers
• •consumers
• •government and community

Investors also expect timely repayment.

CSR trigger

• •net worth 500 crore or more
• •or turnover 1,000 crore or more
• •or net profit 5 crore or more

Any one condition.

CSR amount

average net profit of the preceding three years x 2 / 100 | average = sum of three years / 3

Minimum spend.

How to answer Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11) questions

1. 1If it is about producing and selling at a profit, it is economic.
2. 2If a law requires it (tax, labour law, consumer law), it is legal.
3. 3If society expects it though the law does not require it, it is ethical.
4. 4If it is voluntary charity or community support, it is discretionary.
5. 5For CSR first check one of the three thresholds, then average the three years' net profits and take 2%.

Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11) in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Tricks to remember Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11)

Short memory aids. Say each one aloud once, then use it on a question the same day.

• ELED

  Economic, Legal, Ethical, Discretionary in rising order of freedom.

  Use it when: Kinds of responsibility.

• Law requires, ethics expects, charity chooses

  Three levels beyond the basic economic duty.

  Use it when: Classifying actions.

• Two per cent of three-year average

  CSR = 2% x average net profit of three years.

  Use it when: CSR numericals.

Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11): solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Where students lose marks in Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11)

The slips examiners see most often, and what to write instead.

• ✗Mistake: Treating CSR as a one-year profit percentage

  Using current profit instead of the three-year average.

  Wrong working

  2% of the latest year's profit 54 crore

  Right working

  2% of the average of three years 46 crore = 0.92 crore

  ✓Do this: Average first.

  Usually costs: 1 to 2 marks

• ✗Mistake: Mixing ethical and discretionary

  Both go beyond law.

  Wrong working

  Charity is an ethical responsibility

  Right working

  Charity is discretionary; ethical is behaviour society expects

  ✓Do this: Ethical is expected; discretionary is chosen.

  Usually costs: 1 mark

• ✗Mistake: Requiring all three CSR conditions

  Reading "or" as "and".

  Wrong working

  A company needs net worth 500 crore and turnover 1,000 crore and net profit 5 crore

  Right working

  Any one of the three conditions is enough

  ✓Do this: Use or.

  Usually costs: 1 mark

Practice questions on Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11)

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   Under the Companies Act, 2013 a qualifying company must spend on CSR at least
   (a) 1% of its average net profit of three years
   (b) 2% of its average net profit of three years
   (c) 5% of the current year's turnover
   (d) 2% of its net worth

   Hint

   Preceding three financial years.

   Answer

   (b) 2% of its average net profit of three years

2. Q2 · 1 mark · Assertion-reasonHarder board level

   Assertion (A): Social responsibility is wider than legal responsibility.
   Reason (R): Social responsibility includes voluntary actions for the welfare of society.
   (a) Both A and R are true, and R is the correct explanation of A.
   (b) Both A and R are true, but R is not the correct explanation of A.
   (c) A is true, but R is false.
   (d) A is false, but R is true.

   Hint

   Beyond the law.

   Answer

   (a) Both A and R are true, and R is the correct explanation of A.

3. Q3 · 4 marks · Short answerHarder board level

   State any two arguments for and any two arguments against social responsibility of business. (4 marks)

   Hint

   Use the two lists.

   Answer

   For: it justifies the existence and growth of business, and it serves the long-term interest of the firm through goodwill. Against: it violates the profit maximisation objective, and it may burden consumers through higher prices.

4. Q4 · 4 marks · Short answerHarder board level

   A company has net profits of 30 crore, 60 crore and 90 crore in the last three years and spent 80 lakh on CSR this year. Find the minimum CSR requirement and the shortfall. State the conditions that make a company liable. (4 marks)

   Hint

   1 crore = 100 lakh.

   Answer

   Average net profit = (30 + 60 + 90)/3 = 60 crore. Minimum CSR = 2% of 60 crore = 1.2 crore = 120 lakh. Shortfall = 120 - 80 = 40 lakh. A company is liable if its net worth is 500 crore or more, or its turnover is 1,000 crore or more, or its net profit is 5 crore or more in a year.

5. Q5 · 5 marks · Case-basedHOTS / competency

   Case: Hari Foods has a net profit of 12 crore a year. It sells good-quality snacks, pays all taxes, pays workers fair wages, gives employees a welfare canteen, and funds school scholarships in the village near its plant. A critic says social programmes reduce profits. (5 marks)
   (i) Classify the scholarship and the taxes. (2)
   (ii) Name the group served by the canteen and the responsibility. (1)
   (iii) Give one reply to the critic. (2)

   Hint

   Think of long-term interest.

   Answer

   (i) The scholarships are a discretionary responsibility; paying taxes is a legal responsibility. (ii) Workers; welfare amenities and good working conditions. (iii) Social responsibility serves the long-term interest of the firm by building a good public image and goodwill with customers and workers, and a healthy educated society gives a better workforce and market.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.Name the four kinds of social responsibility.Show answer

   Economic, legal, ethical and discretionary.

2. 2.What is the basic responsibility of business?Show answer

   The economic responsibility: produce goods and services and sell them at a profit.

3. 3.Which section covers CSR in the Companies Act, 2013?Show answer

   Section 135.

4. 4.What is the CSR rate?Show answer

   At least 2% of the average net profit of the preceding three financial years.

5. 5.Which responsibility is voluntary?Show answer

   Discretionary.

Kinds of Social Responsibility, Responsibility to Interest Groups and CSR (CBSE 11): frequently asked questions