Corporate Social Responsibility: Definitions and Theories

• Week 6 focuses on Corporate Social Responsibility (CSR) definitions and theories.
• Dr. Kelvin Pang prepared the materials on 20 Feb 2025.

Learning Objectives

• Define CSR
• Discuss Carroll's CSR Pyramid theory
• Discuss the Triple Bottom Line (TBL) theory
• Discuss Stakeholder Theory

Introduction

• CSR practices are under scrutiny by regulators, policymakers, and businesses due to financial scandals and environmental accidents like the Lehman Brothers collapse and oil spills.
• Research connects CSR to financial performance.
• CSR emerged in the 1960s.
• CSR focuses on aspects beyond economic and legal obligations and now encompasses environmental, employee health and safety, transparency, and corporate governance.
• CSR is closely linked to a company's financial, social, and environmental results.
• CSR has evolved from voluntary to mandatory due to stakeholder pressures, becoming an investment for long-term business performance.
• Cost savings (fines, lawsuits, clean-up costs, claims, premiums) and faster port turnaround are benefits of CSR.

1.1 Definition of CSR

• CSR is a continuing commitment by businesses to behave ethically, contribute to economic development, and improve the quality of life for the workforce, their families, and the broader community (World Business Council for Sustainable Development).
• Corporations should be accountable for their actions affecting people, communities, and the environment without abandoning their primary mission to make profits (Frederick, 1992).
• CSR involves a company's continued commitment toward the community, increasing operational efficiency, productivity, and maximizing shareholders' profit (Safarzad, 2017).
• Management's sole responsibility is to maximize the profit of its owners and shareholders; societal problems should be resolved independently by the free market system (Friedman, 1962).

Garriga and Mele (2006) classified CSR theories into four groups:

• Instrument theories: corporations are seen as instruments for wealth creation, where social activities achieve economic results.
• Political theories: corporations use their power in political life to support human rights, labor rights, women's rights, and fight corruption.
• Integrative theories: corporations focus on satisfying social and ethical demands, such as supporting charities, orphanages, and youth or sports centers.
• Ethical theories: ethical responsibilities encompass corporate commitment to respect societal ethics, including transparency and credibility with stakeholders.

1.2 CSR Theories

• Four theories are focussed on:
• Economic
• Triple Bottom Line Theory
• Stakeholder Theory

2. Carroll's CSR Pyramid Theory

• This imposes a four-part definition of CSR. To be socially responsible, a business must meet economic, legal, ethical, and philanthropic expectations given by society at a given point in time.
• Economic responsibilities are vital, while philanthropic responsibilities are of least importance.

2.1 Economic Responsibility

• Business organization has an obligation to make money.
• This obligation is vital for business survival at the base of the pyramid.
• Profits are necessary to reward investors and owners.
• Profits must be reinvested back to maintain business growth.
• Economic responsibility is represented through investments, marketing strategies, business operations, and long-term financial strategies.

2.2 Legal Responsibility

• Corporations must respect laws and regulations.
• Responsible organizations adhere to law because fair business reacts positively on whole economy and society.
• Tax evasion or money laundering are not CSR values.

2.3 Ethical Responsibility

• Corporations must behave as good citizens in society.
• It allows corporations to do what is good for society, even if not legally required.
• Ethically sourcing all materials is an example.

2.4 Philanthropic Responsibility

• Voluntary activity guided by a business's desire to participate in social activities.
• Voluntary activities aren't required by law, nor widely accepted as an ethical sense.
• Philanthropy increases corporate reputation and good citizenship image.
• Examples would be sponsoring sports, volunteering employees/donating a % of earnings to a prominent cause.

3. Triple Bottom Line Theory

• TBL is an accounting framework including social, environmental, and economic results, as bottom lines.
• TBL adds social and environmental concerns to measure an organization's impact on its surroundings based on three P's.

3.1 Economic

• Measurements are based on financial performance and profitability of a business.
• TBL theory says most important for a company is continuous profit for the long term, not high profits.
• Further measurements are based on business contribution to overall economy and growth of its industry.

3.2 Social

• Measurements help measure the organization's commitment to people.
• Social Measurements are based on including all stakeholders, employees, individuals throughout supply chain, customers, community and future generations.
• Methods of measurement are based on Advancing Human Rights, Donating to Global Poor or Hungry, and Promoting Diversity, Race and Gender Equality.

3.3 Environmental

• This measures and improves organizations' commitment to reduce their environmental footprint.
• Measuring includes reducing energy consumption, reliance on fossil fuels
• Measurements include corporations using alternative energy sources to minimize consumption of traditional sources.

4. Stakeholder Theory

• This emphasizes the inter-relationship between a business and its various stakeholders.
• Organizations create value for stakeholders affected by business actions, not just shareholders.

4.1 Stakeholders' Concerns

• Government concerns are taxation, VAT, legislation, employment, truthful reporting, diversity, legalities, and externalities.
• Employee concerns are pay rates, job security, compensation, respect, and truthful communication.
• Customer concerns are value, quality, customer care, and ethical products.
• Supplier concerns are providing products and services used in the end product, and equitable business opportunities.
• Creditor concerns are credit score, new contracts, and liquidity.
• Community concerns are jobs, involvement, environmental protection, shares, and truthful communication.
• Trade Union concerns are quality, worker protection, and jobs.
• Owner(s) concerns are profitability, longevity, market share, market standing, succession planning, raising capital, growth, and social goals.
• Investor concerns are return on investment and income.

4.2 Stakeholder Theory and CSR

• Stakeholders are a critical aspect of the success of CSR initiatives.
• Organisations would not be successful without the participation, expertise, know-how and loyalty of their various stakeholders.