Lecture Notes: Chapter 3 – Corporate Social

Responsibility and Citizenship

Learning Objectives
After studying this chapter, students will be able to:

1. Understand the role of big business and the responsible use of corporate power in society.
2. Explain the origin and evolution of the concept of Corporate Social Responsibility
(CSR).
3. Discuss the key arguments for and against CSR.
4. Define Corporate Citizenship and understand how it is practiced globally.
5. Identify the sequential stages of global corporate citizenship.
6. Describe how businesses assess and report their social performance.

1. Introduction: Understanding Corporate Social

Responsibility (CSR)
Businesses today are not only economic institutions; they are also social actors that shape the lives
of people, communities, and nations. Society now expects companies to act responsibly—
balancing profit-making with social welfare and environmental protection. Corporate Social
Responsibility (CSR) is built on this belief. It means that while pursuing profit, a firm should also
contribute positively to society and be accountable for any harm it causes.

Definitions:
CSR is the idea that businesses should act in ways that enhance
society and the environment while being accountable for their
impact on people and the planet.

Social responsibility is the obligation of decision makers to take

actions which protect and improve the welfare of society as a
whole along with their own interests.

For example, Grameenphone’s ommitment is to do business in a responsible way that helps to

create value for its people, shareholders, and society as well as empower and sustain the world for
generations to come. Starbucks Coffee Company launched a $70 million initiative to help coffee
farming communities around the world mitigate their climate change impacts and promote long-
term crop stability.

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Carroll’s Pyramid of CSR
Carroll's CSR Pyramid is a simple framework that explains how and why businesses should centre
CSR principles at the heart of their business. Developed by Archie Carroll in 1991, the pyramid is
as relevant as ever. Often referred to and quoted by business leaders, politicians, and academics,
the pyramid gives businesses the structure to meet economic, legal, and ethical demands.

A. Economic Responsibilities – Be Profitable

The foundation of CSR is economic performance. A business’s first duty to society is to
produce quality goods and services that people need and sell them at fair prices, ensuring
profitability and sustainability. Profit is not just for owners—it fuels jobs, innovation, and
community growth.
B. Legal Responsibilities – Obey the Law
Businesses must operate within the boundaries of laws and regulations—the “codified
ethics” of society. Following labor, environmental, and consumer protection laws builds
trust and fairness.
C. Ethical Responsibilities – Do What Is Right
Beyond law, businesses are expected to act ethically—doing what is fair, just, and
morally right, even when not legally required. Ethics guide companies to consider
stakeholder welfare and societal values.
D. Philanthropic Responsibilities – Be a Good Corporate Citizen
At the top of the CSR pyramid lies philanthropy—voluntary actions that show goodwill
toward society. These include donations, community programs, and employee
volunteerism.

Figure 3.1 Carroll’s Pyramid of CSR

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2. The Evolution and Origins of CSR
The concept of CSR began in the early 20th century when corporations in the United States were
criticized for unethical and monopolistic behavior. In response, visionary business leaders
promoted philanthropy and social welfare. For example,

• Henry Ford introduced welfare programs and fair wages for employees.

Table 3.1 William C. Frederick’s Four Stages of CSR Evolution

Stage Period Focus Key Features

CSR1: Corporate Social 1950s–60s Philanthropy Charity, donations,
Stewardship community aid
CSR2: Corporate Social 1970s Social response Pollution control, fair labor
Responsiveness
CSR3: Business Ethics 1980s–90s Ethical conduct Codes of ethics, anti-
corruption policies
CSR4: Corporate Citizenship 1990s– Sustainability & Integrating social goals
present partnerships into business strategy

This evolution shows that CSR has moved from charity-based goodwill to strategic integration
within business operations.

3. Corporate Power and the Iron Law of Responsibility

Corporate Power

Large corporations today hold immense economic, political, and social power. Their operations
influence employment, trade, culture, and even government policy. For example, the annual
revenue of Walmart equals the size of Norway’s economy—showing that modern corporations are
as powerful as some nations. The Ready-Made Garments (RMG) sector is a major driver of
employment and exports, influencing labor standards and national policies. This demonstrates how
corporate power can shape entire economies.

The Iron Law of Responsibility

The Iron Law of Responsibility states that:

“In the long run, those who do not use power in ways that society
considers responsible will tend to lose it.”

This means that corporate power and responsibility are inseparable. When a business gains
economic or social power, it also inherits the duty to use that power ethically and for the common
good.

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Example: After the Rana Plaza collapse (2013), Bangladeshi factories and global buyers were
pressured to adopt the Accord on Fire and Building Safety—a major step toward responsible
business practices.

Managerial Implications

• Managers must ensure their decisions align with social expectations.

• Firms should use power to benefit stakeholders—employees, customers, suppliers,
communities, and the environment.
• Responsible use of power strengthens corporate citizenship and sustains long-term
success.

4. Corporate Citizenship
Corporate Citizenship

Corporate citizenship means putting CSR into action—taking concrete steps to improve society
and the environment. It is about behavior, not just philosophy.

Firms demonstrate corporate citizenship by:

• Building partnerships with communities and NGOs.

• Creating sustainable products and operations.
• Reporting social and environmental performance transparently.

Example: Square Pharmaceuticals provides free health checkups and medicine to rural people—
an example of corporate citizenship that supports national health goals. Grameenphone has been

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involved in initiatives like providing educational scholarships, digital literacy programs, and
disaster relief support. BRAC, although originally an NGO, operates businesses and invests in
social development programs, including health, education, and microfinance, demonstrating
responsible corporate citizenship.

Table 3.2 Principles of Corporate Citizenship

Core Dimension Principle Key Idea / Practice

1. Ethical Business 1. Fair and honest Conducts all operations with
Behavior practices transparency and fairness toward all
stakeholders.
2. High ethical Sets strong ethical codes for all
standards employees and managers.
3. Ethical oversight The board ensures ethical compliance and
governance.
2. Stakeholder 4. Benefit of all Balances the needs of shareholders,
Commitment stakeholders employees, customers, and society.
5. Genuine dialogue Builds open communication channels
with stakeholders.
6. Values dialogue Uses feedback from stakeholders for
continuous improvement.
3. Community 7. Reciprocal Builds mutual trust and cooperation with
Engagement relationship the local community.
8. Community Invests in education, health, and social
investment programs where it operates.
4. Consumer 9. Respect consumer Ensures safety, privacy, and fairness for
Responsibility rights all customers.
10. Quality Provides safe, high-quality, and reliable
products/services goods and services.
11. Truthful Offers accurate and useful product
information information.
5. Employee 12. Family-friendly Promotes work–life balance, health, and
Commitment environment safety.
13. Responsible HR Follows fair recruitment, training, and
management retention policies.
14. Equitable rewards Pays fair and competitive salaries.
and wages
15. Open Maintains dialogue between management
communication and employees.
16. Employee Provides continuous learning and career
development growth.
6. Investor and 17. Competitive return Ensures profitability and fair return for
Supplier Relations investors.
18. Fair trading with Treats suppliers ethically and fairly in
suppliers contracts.

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7. Environmental 19. Protect the Minimizes pollution, waste, and carbon
Commitment environment footprint.
20. Sustainable Promotes green energy, renewable
development resources, and long-term sustainability.

5. Arguments For and Against CSR

Arguments For CSR
A. Balances Power with Responsibility
Corporations today hold vast financial and social power that can influence communities
and the environment. CSR ensures that firms use this power ethically and contribute
positively to society rather than focusing solely on profits. It helps create a balance between
corporate influence and social accountability. Example: Bangladesh Bank’s Green
Banking Policy encourages financial institutions to fund eco-friendly projects such as solar
energy and waste recycling. This ensures that banks use their power responsibly to promote
sustainable development.
B. Prevents Government Intervention
When companies voluntarily take steps to address social and environmental issues,
governments are less likely to impose strict laws and regulations. Through CSR, firms can
self-regulate, avoid legal complications, and build a cooperative relationship with
policymakers. Example: Grameenphone invests in digital literacy and rural education
programs. By addressing these social challenges voluntarily, the company helps the
government’s development goals and avoids additional regulatory pressure.
C. Enhances Long-Term Profitability
CSR builds trust, customer loyalty, and a strong reputation—all of which contribute to a
company’s long-term financial success. While it may involve short-term costs, responsible
business behavior results in sustained brand value and loyal customers over time.
Example: PRAN-RFL Group supports rural farmers through training and fair purchasing
practices. This strengthens its supply chain and builds consumer trust, leading to long-term
market growth and profitability.
D. Improves Employee and Community Relations
CSR initiatives often enhance employee morale, attract skilled workers, and foster positive
relations with local communities. Employees feel proud to work for socially responsible
companies, while communities develop goodwill toward these firms. Example: Apex
Footwear Ltd. provides health care and education services for employees. This has
improved job satisfaction, reduced employee turnover, and strengthened community
support for the company.
E. Builds Reputation and Competitive Advantage
A positive social image differentiates a company from competitors and attracts both ethical
consumers and investors. CSR can become a source of brand strength and a tool for gaining
competitive advantage in local and international markets. Example: Grameen Danone
Foods produces affordable, nutritious yogurt for malnourished children in Bangladesh.

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 This initiative not only fulfills a social need but also enhances the company’s reputation as
a socially responsible and caring brand.
Arguments Against CSR
A. Increases Costs
Implementing CSR often requires significant financial investment, which may reduce
short-term profitability—especially for smaller firms. Expenses related to
environmental compliance, employee welfare, or community programs can burden
company finances. Example: Many small garment factories in Bangladesh find it
difficult to afford wastewater treatment plants and safe working facilities, even though
they are socially desirable.
B. Unequal Burden
CSR expectations are often more easily met by large corporations with greater financial
resources, while small and medium-sized enterprises (SMEs) struggle to contribute at
the same level. This creates an uneven playing field. Example: Unilever Bangladesh
can spend millions on hygiene awareness campaigns, but local soap producers cannot
afford such activities, putting them at a disadvantage in terms of brand image.
C. Lack of Expertise
Corporate managers may lack the necessary skills to design, implement, and evaluate
social programs effectively. Poorly planned CSR initiatives may waste resources and
fail to create meaningful social impact. Example: Some textile manufacturers in
Bangladesh introduce educational or health projects without professional guidance,
resulting in ineffective and unsustainable programs.
D. Dilution of Business Purpose
Critics argue that focusing on social activities distracts businesses from their primary
economic role—producing goods, creating jobs, and generating profits. Overemphasis
on CSR might weaken competitiveness and efficiency. Example: According to Milton
Friedman’s classical view, a company’s sole social responsibility is to increase profits
within legal and ethical limits, as profit generation itself benefits society through taxes
and employment.
E. Government Responsibility Argument
Some believe that solving social problems is the responsibility of the government, not
private companies. When corporations take over welfare roles, it may allow
governments to neglect their duties or create duplication of efforts. Example: In
Bangladesh, some critics argue that corporate involvement in education or health
through CSR overlaps with public programs, which ideally should be managed and
coordinated by the government.

6. Stages of Corporate Citizenship

CSR develops progressively through several stages, reflecting how deeply social responsibility is
embedded in a company’s culture and strategy. This model shows how companies move from
reactive to transformational stages of responsibility.

Table 3.3 Stages of Corporate Citizenship (Mirvis & Googins Model)

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 Stage Key Features / Management Examples
Characteristics Approach
1. Elementary Citizenship is undeveloped. Defensive and Small manufacturing
Stage Managers are uninvolved in reactive; avoids firms that only meet
social issues. The company social engagement legal labor and tax
focuses only on profit and beyond what’s requirements.
compliance with the law. required by law.
Communication is one-way
(company → stakeholders).
2. Engaged The company becomes Compliant but Home Depot’s
Stage aware of public responsive; limited commitment to sell
expectations and recognizes engagement through only environmentally
the need to maintain its departments. certified wood;
social license to operate. Bangladeshi banks
Starts developing formal supporting disaster
CSR policies, increases relief programs.
philanthropy, and senior
management becomes
involved.
3. Innovative Firms realize they lack the Active and strategic; Robi Axiata’s
Stage structure or capacity to launches structured “Internet4All”
meet CSR goals, leading to CSR initiatives and program promoting
organizational innovation. begins social digital inclusion; Tata
CSR becomes more reporting. Group’s sustainability
systematic; reporting and reporting.
coordination start; external
stakeholders become more
influential.
4. Integrated CSR becomes part of the Proactive and Unilever Bangladesh
Stage core business strategy. The collaborative; CSR embedding
company adopts triple integrated across all sustainability into
bottom line (People, Planet, departments and every aspect of its
Profit) metrics, conducts leadership levels. value chain; ABB
external audits, and builds coordinating
long-term partnerships with sustainability
stakeholders. programs globally.
5. CSR reaches the highest Transformational Grameen Bank
Transforming level — the company has and purpose-driven; empowering women
Stage visionary leadership guided global leadership in and transforming
by a higher purpose. It CSR and social global microfinance;
partners globally to address innovation. BRAC operating
social and environmental worldwide to reduce
challenges and operates poverty.
with a strong moral
mission.

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7. Assessing and Reporting Social Performance
To be credible, firms must measure and communicate their CSR achievements.

Methods of Assessment

• Social Audits: Systematic review of social, ethical, and environmental performance.

• Sustainability Reports: Following the Global Reporting Initiative (GRI) framework.
• Triple Bottom Line (TBL): Measuring performance in Profit, People, and Planet.

8. Key Takeaways
• CSR integrates economic, legal, and social responsibilities into business strategy.
• The Iron Law of Responsibility emphasizes that power must be used responsibly.
• CSR has evolved from philanthropy to global citizenship and sustainability.
• Responsible corporations are rewarded with trust, loyalty, and long-term success.
• In Bangladesh and Asia, CSR is increasingly seen as a strategic necessity, not just charity.

Review & Discussion Questions

1. How does the “Iron Law of Responsibility” apply to powerful corporations in
Bangladesh, such as banks or garment exporters?
2. Which stage of CSR development do you think most Bangladeshi firms currently fall
into, and why?
3. Can CSR and profitability coexist? Provide local or Asian examples to support your
view.
4. Should the government make CSR mandatory for all large companies?
5. How can young managers promote CSR and ethical practices in future organizations?