(ChatGPT) MODULE 4 – CORPORATE
SOCIAL RESPONSIBILITY: THEORIES
AND ITS COMPONENTS
INTRODUCTION TO CORPORATE SOCIAL
RESPONSIBILITY (CSR)
• Corporate Social Responsibility (CSR) is a concept that provides a framework for
defining the mission and vision of a business organization, as well as for expressing the
extent of its obligations or accountability.
• It refers to policies and programs aimed at benefitting stakeholders, including:
o Shareholders
o Employees
o Customers
o Suppliers/contractors
o Community
• Business has a social responsibility to protect the interests of society.
• A social contract binds businesses to stakeholders and society.
• CSR requires corporations to serve interests beyond shareholders, including the
environment and other stakeholder groups.
EVOLUTION OF THE DEFINITION OF CSR
Key Definitions and Authors
• Bowen (1953)
→ CSR refers to the obligations of businessmen to pursue policies and decisions desirable in terms
of society’s values.
• Frederick (1960)
→ Social responsibility implies using economic and human resources for broad social ends.
• Friedman (1962)
→ The only social responsibility of business is to increase profits while following rules (no fraud
or deception).
• Davis & Blomstrom (1966)
→ Social responsibility is considering the effects of decisions on the whole social system.
• Sethi (1975)
→ Corporate behavior must align with social norms, values, and expectations.
• Carroll (1979)
→ CSR includes economic, legal, ethical, and discretionary expectations.
• Jones (1980)
→ Corporations have obligations beyond stockholders and legal requirements.
• Wood (1991)
→ Business and society are interwoven.
• Baker (2003)
→ CSR is about managing business processes to create a positive societal impact.
• McWilliams & Siegel (2001)
→ CSR includes actions that promote social good beyond legal requirements.
• Windsor (2006)
→ CSR deals with how managers handle social and public policy issues.
• Eells & Walton (2006)
→ CSR involves ethical principles governing business and society relationships.
THEORETICAL CONCEPTS / FRAMEWORK OF CSR
1. Corporate Social Performance (CSP)
• A sociological theory focusing on improving company conduct to benefit society.
• Based on Carroll’s Pyramid of CSR:
o Economic responsibility → doing what capitalism demands
o Legal responsibility → following laws
o Ethical responsibility → meeting expectations
o Philanthropic responsibility → voluntary contributions
• Businesses must:
o Generate income
o Meet societal needs
o Maintain reputation
• Failure to meet expectations may damage corporate reputation.
2. Shareholder Value Theory (SVT)
• Also called Fiduciary Capitalism.
• Main idea:
→ The only social responsibility of business is profit maximization.
• Key points:
o Firms exist to increase shareholder value
o Managers must act in the best interest of shareholders
o Social activities are allowed only if:
▪ Required by law
▪ Increase shareholder value
• Agency Theory (Jensen & Meckling, 1976):
o Owners = principals
o Managers = agents
o Managers must maximize long-term shareholder value
3. Stakeholder Theory
• Focuses on all stakeholders, not just shareholders.
• Stakeholders include:
o Employees
o Customers
o Suppliers
o Community
o Investors
• Key ideas:
o Businesses have obligations beyond stockholders
o Stakeholders contribute:
▪ Capital
▪ Labor
▪ Social acceptance
• Management must:
o Balance conflicting stakeholder interests
o Prioritize stakeholders based on:
▪ Legitimacy
▪ Power
• Emphasizes strategic management and sustainability.
4. Corporate Citizenship (CC)
• Refers to a company acting as a responsible member of society.
• Includes:
o Social
o Legal
o Ethical
o Economic duties
• Focus:
→ Improving quality of life and community welfare
• Characteristics:
o Voluntary actions
o Promotes goodwill
o Closely related to CSR
COMPONENTS OF CORPORATE SOCIAL
RESPONSIBILITY
CSR is composed of four major responsibilities (Carroll’s Pyramid):
1. Economic Responsibilities
• The foundation of CSR
• Businesses must:
o Be profitable
o Provide goods and services
o Pay employees fairly
o Pay taxes
• Key idea:
→ Profitability supports all other responsibilities
2. Legal Responsibilities
• Businesses must follow laws and regulations
• Includes:
o Labor laws
o Tax laws
o Government regulations
• Key idea:
→ Laws define acceptable and unacceptable behavior
• Failure may lead to:
o Lawsuits
o Loss of reputation
o Loss of customers
3. Ethical Responsibilities
• Doing what is right, fair, and just
• Goes beyond legal requirements
• Includes:
o Avoiding harm
o Respecting stakeholders
o Protecting the environment
o Paying fair wages
• Key idea:
→ Ethical behavior is expected by society
4. Philanthropic Responsibilities
• Voluntary actions to improve community welfare
• Examples:
o Donations
o Community programs
o Employee volunteering
• Key idea:
→ Being a good corporate citizen
KEY INSIGHTS ABOUT CSR COMPONENTS
• The four responsibilities are:
o Not mutually exclusive
o Interconnected and dynamic
• There are tensions between:
o Economic vs. Ethical
o Legal vs. Philanthropic
• A company is fully socially responsible if it:
✔ Is profitable
✔ Obeys the law
✔ Acts ethically
✔ Contributes to society
(Gemini) MODULE 4 – CORPORATE
SOCIAL RESPONSIBILITY: THEORIES
AND ITS COMPONENTS
I. Core Concepts and Definitions
Corporate Social Responsibility (CSR) is a concept providing a framework for defining an
organization's mission and vision, and expressing the extent of its obligations or accountability.
It involves policies and programs aimed at benefiting stakeholders including shareholders,
employees, customers, suppliers, and the community.
• Social Responsibility: Business has a responsibility to protect the interests of society.
Managers must serve and protect stakeholders like workers, consumers, and the community
at large.
• Social Contract: A contract that binds businesses to their stakeholders and society as a
whole.
• Fundamental Shift: CSR requires a corporation to serve interests other than just those of
shareholders who want to maximize returns.
Evolution of the Definition of CSR
Author Definition
Bowen Obligations to pursue policies, make decisions, or follow lines of action desirable
(1953) in terms of the objectives and values of our society.
Frederick A willingness to see that resources are used for broad social ends rather than
(1960) narrowly circumscribed private interests.
Friedman Only one responsibility: to use resources to increase profits while staying within
(1962) the "rules of the game" (no deception or fraud).
Carroll Encompasses the economic, legal, ethical, and discretionary expectations
(1979) society has of organizations.
Wood The basic idea that business and society are interwoven rather than distinct
(1991) entities.
Baker How companies manage processes to produce an overall positive impact on
(2003) society.
II. Theoretical Concepts / Frameworks of CSR
1. Corporate Social Performance (CSP)
• Definition: A sociological theory implying that changing company conduct benefits
society and its people.
• Key Idea: Business has power, and power demands responsibility.
• Expectations: Businesses must contribute to societal needs and meet social expectations;
falling short can damage a company's reputation.
2. Shareholder Value Theory (SVT) / Fiduciary Capitalism
• Core Principle: The only social responsibility of business is making profits and
increasing economic value for shareholders.
• Management Role: Executives are fiduciaries to shareholders and must maximize long-
term shareholder value.
• CSR View: CSR is often seen as a danger to profit maximization. Social activities are
only allowed if mandated by law or if they contribute to shareholder value.
• Agency Theory: Managers are agents for the owners (principals) and must act in the
owners' best interests.
3. Stakeholder Theory
• Definition: Considers anyone who has a "stake" (gain or loss) in company actions,
including employees, customers, suppliers, and the community.
• Challenge to SVT: Challenges the idea that shareholders have a special privilege over all
other groups.
• Management Task: To balance conflicting stakeholder claims and defend the
organization as a whole.
• Strategic Management: Stakeholder interaction is a key component of CSR management
and essential for firm sustainability.
4. Corporate Citizenship (CC)
• Definition: Implies that business is part of society, not distinct from it.
• Goal: For enterprises to raise the standard of living and quality of life in their
communities while remaining profitable.
• Global Citizenship: Actively promoting human welfare through deeds not compelled by
law or expected in an ethical sense.
III. The Components of Corporate Social Responsibility
Archie Carroll (1991) represents CSR as a pyramid consisting of four integrated components:
1. Economic Responsibilities (The Base)
• Motto: "Be profitable".
• Role: The core foundation that underpins all other operations.
• Requirement: Organizations must generate profits by providing goods and services people
want; sustainability requires paying fair wages and taxes.
2. Legal Responsibilities
• Motto: "Obey the law".
• Role: Following the laws that codify acceptable and undesirable behavior.
• Requirement: Refers to a codified ethics approach where lawmakers define essential
concepts of fair operations.
3. Ethical Responsibilities
• Motto: "Be ethical".
• Role: Doing what is right, just, and fair; avoiding or minimizing harm to stakeholders.
• Requirement: Includes practices that are socially anticipated but not necessarily defined
in law.
4. Philanthropic Responsibilities (The Top)
• Motto: "Be a good corporate citizen".
• Role: Discretionary or voluntary acts to improve the quality of life for societal members.
• Requirement: Includes donations of money, executive time to arts/education, or providing
programs like daycare for working mothers.
Note on Tension: These components are in constant dynamic tension. While the traditionalist
sees a contradiction between profit and social responsibility, the CSR perspective views the
pyramid as an integrated whole.