Corporate Social Responsibility (CSR): Theories

Corporate Social Responsibility (CSR): Importance in recent years and explanation of various concepts

What is Corporate Social Responsibility (CSR)?

Corporate social responsibility (CSR), also known as corporate responsibility (CR) or business sustainability, is a form of corporate self-regulation integrated into a stakeholder type business model.

CSR focuses on achieving business sustainability through the delivery of economic and social value to its stakeholders, as it recognizes that an organisation’s activities impacts the workforce, environment, economy and the society.

Here are the various definitions of CSR.

Griseri and Seppala (2010, p.7) provide the following broad definition for Corporate Social Responsibility (CSR):

“the accommodation of corporate behaviour to society’s values and expectations” They note there is a wide variety of meaning included within the term.

“Corporate responsibility (CR), also known as corporate social responsibility (CSR) or business sustainability, addresses the ethics of an organisation’s activities and how it operates in a way that is viable over the long term. These two factors are intrinsically linked, as a business that damages the systems on which it depends will ultimately be unsustainable.”

“Companies’ integrating social and environmental concerns in their daily business operations and in their interactions with their stakeholders on a daily basis.” (European Commission, 2001 in Robinson and Dowson, 2010)

“the only social responsibility of business is to maximize profits.” (Friedman, 1970 in Crane and Matten, 2010).

Kotler and Lee (2005) define CSR as ‘A commitment to improve community well-being through discretionary business practices and contributions of corporate resources’.

Carroll (1991) argues that in order for CSR to be accepted, a business should adhere to four different responsibilities – be economically profitable for stakeholders; obey laws and regulations, should be socially supportive and ethical (Carroll, 2015).

Friedman states that the sole social responsibility of a business is to use its resources to maximize its profit as long as the activities are within the rules and regulations; this would reduce the organisations to be involved in fraud (Friedman, 2004).

These definitions mention similar aspects which come in the form of ethical, social, and profit making businesses.

CSR Focus Areas

CSR initiatives focus on four main areas

• Workplace: Focuses on the rights and well-being of employees and other workers in the value chain.
• Marketplace: Is concerned with the impact of its products or services, supply chain issues, as well as fair trading, corporate taxes and anti-bribery.
• Environment: Is concerned with the organisation’s environmental impact.
• Community: Focuses on how the organisation’s activities positively or negatively affect the societies in which they operate.

Characteristics & Justifications for CSR

Core characteristics of CSR

These are voluntary activities beyond the law, sometimes done to prevent ‘additional regulation through compliance with societal moral norms’.

Internalizing or managing externalities. Externalities are the positive and negative sides of economic behaviour that are borne by others, but are not taken into account in a firm’s decision making process, and are not included in the market price for goods and services’. Examples include pollution and human rights violations in the workforce.

Alignment of social and economic responsibilities CSR should not conflict with profitability.

Practices and values: A philosophy or set of values that underpin business practices.

CSR is about how the entire operations of the firm (production, marketing, procurement) affect society. It is much more than philanthropy. Philanthropy, which is about giving funds or practical help to ‘good causes’ (e.g. after a natural disaster such as an earthquake; or to civilians in war-torn countries) is costly and may not always be linked to major stakeholders.

Justifications for CSR (Porter, Dec 2006 Harvard Business Review):

• Moral obligations: ‘doing the right thing’
• Sustainability: community ‘stewardship’
• Reputation: may be related to marketing
• License to operate: companies need tacit or explicit approval from governments, local communities etc. to do business
• Legitimacy and security from attack or takeover. Some firms may be particularly at risk due to their product or national origins

Business/Commercial Advantages of CSR

Here’s how CSR helps a business achieve a competitive advantage.

Increased customer loyalty, brand awareness and reputation, often leading to better financial benefits.

Studies suggest that more consumers are drawn to brands and companies with good reputations in CSR related issues (Tsoutsoura, 2004). Also, companies that are seen as socially responsible are good at attracting capital.

Corporate social activities create the perception of businesses operating from within communities which leads to the offsetting of any unfavourable publicity, and the creation of opportunities for collaboration and innovation (Frederick, 1998).

Reduced operating costs

By adopting CSR principles, a firm starts thinking about reducing resource usage, waste and emissions, which leads to more efficient ways of operating. For example, by reducing packaging materials and optimising deliveries (in outbound logistics and distribution), a firm is able to deliver both environmental and cost benefits which enhances both its reputations as well as bottom lines.

Attracting and retaining talent

As per the 2017 Millennial Impact report, millennials were more engaged in philanthropic causes compared to previous years. By having a strong CSR agenda, businesses can attract and retain younger talent. Studies indicate a strong link between businesses that demonstrated a strong commitment to CSR, with their capabilities in retaining talent and reduced recruitment and training costs (Turban and Greening, 1997).

Market for virtue [Book by David Vogel]

If firms can clearly distinguish themselves as good employers, environmentally responsible, and/or helpful to communities then consumers can knowingly choose to buy their goods and services even paying a premium price in some cases.

Can help become and “employer of choice” which can attract better applicants.

Socially responsible firms may be favoured in getting investor funds if ‘ethical funds’ are available for savers to select (Marks and Spencer’s ‘Plan A’).

So the advantages of CSR include:

• Increased sales, brand identity & customer loyalty
• Reduced operating costs & productivity gains
• Improved new product development

A good reputation leads to:

• Company advantage
• Stimulation of customer confidence and loyalty
• Enhancement of stakeholder relationships
• Improvement of staff retention and recruitment
• Reduction of waste and wasteful practice

Related: Triple bottom line (TBL)

Supply/Demand of CSR

Supply can depend on various factors:

• Aim of firms: values, ethics of top managers, shareholders/investors
• Pressure on them to make a quick profit – CSR activities can be seen as a long term investment
• Technical capabilities and knowledge that enable them to develop alternative products and processes e.g. more sustainable ones
• Expectations of government action perhaps especially if they do nothing e.g. sugar tax on fizzy drinks

Buyers’ demand can also depend on various factors:

• Attitudes + values: how green they are
• Knowledge and understanding of social and environmental issues. Science, education and the media have helped
• Income levels: ability to pay top prices

Governments may also require firms to provide more information that makes it possible for buyers to discriminate between firms on social grounds favouring the more responsible ones.

Read: Corporate responsibility: an introduction (CPID)

Various CSR Theories

Carroll’s Pyramid of Corporate Social Responsibility

Carroll’s Pyramid suggests that businesses must adopt four different responsibilities in order to be socially responsible. Ethical, legal and economic responsibilities are essential for the businesses to survive; however, philanthropic responsibilities are an option for the businesses to stand out among its competitors.

Related: Carroll’s CSR Pyramid

Related: Triple bottom line (TBL)

Difference between Shareholder and stakeholder theory

As per economist Milton Friedman, the main social responsibility of a business is to increase profits for its owners/ shareholders. Any diversion of company profits towards social programmes, charity and other not-for-profit generating activities represented a tax on consumers and investors.

Edward Freeman (professor at the University of Virginia) on the other hand suggests that shareholders are just one of the many stakeholders in a business.

Freeman’s theory suggests that a company’s real success lies in satisfying all its stakeholders, and not just the shareholders who might profit from its stock.

Corporate social responsibility (CSR) has been depicted by the following CSR theories based on their respective focus on different aspects of the social reality: economics, politics, social integration and ethics.

Corporate Social Performance (CSP)

Corporate Social Performance means changing corporate behavior to produce less harm and more beneficial outcomes for society and their people.

It means, apart from wealth creation, a business also has responsibilities for social problems created by business, or by other causes, beyond its economic and legal responsibilities. Carroll first introduced the concept of ‘corporate social performance’ applied in his ‘Pyramid of Corporate Social Responsibility.

Shareholder Value Theory (SVT)

Shareholder Value Theory (or Fiduciary Capitalism) holds that, the only social responsibility of business is making profits and, as the supreme goal, increasing the economic value of the company for its shareholders (Crane, et al. 2008).

Stakeholder Theory

In contrast to SVT, the Shareholder Theory takes into account the stakeholders who have a stake in the organization; stakeholders are groups and individuals who benefit from or are harmed by corporate actions (Crane, et al. 2008).

Stakeholders are commonly defined as all actors that have an interest in the operations of a company because they are affected by it.

Corporate Citizenship

A good corporate citizen actively engages in acts to promote human welfare or goodwill and to be a good global corporate citizen is related to philanthropic responsibility, the global society now expects that business will engage in social activities that are not mandated by law nor generally expected of business in an ethical sense (Carroll, 1991).

CSR and Controversial Businesses

Some studies suggest that implementing CSR helps controversial businesses like the tobacco industry to legitimize their products in the view of the society.

Studies suggest that tobacco companies implement CSR to gain public and government support, and weaken the regulations related to tobacco, using CSR for the sole reason to survive.

Many feel that tobacco companies should be banned from implementing CSR activities due to the advantages tobacco companies get through CSR. It might seem that the CSR campaigns of tobacco companies are for the well-being of the society; however, this is not often the case.

For instance, the youth smoking prevention campaigns of tobacco companies may be to reduce the number of young smokers. But, by portraying smoking as an adult activity only, tobacco companies encourage adolescents to buy their products illegally by showing counterfeit ID documents.

Also, by investing in areas like cancer research, education and child labor; tobacco companies further add challenges to the ones they already face.

As a result, Tobacco companies face challenges in implementing CSR due to heavy criticism from NGO’s as well as from the public.

References

Corporate Social Responsibility. Readings and cases in a global context (2008) ed CRANE A MATTTEN D and SPENCE L London Routledge .

Frederick, W. C. (1998) Moving to CSR4. Business and Society 37(1), 40–60.

Tsoutsoura, M. (2004). Corporate Social Responsibility and Financial Performance. Applied Financial Project Haas School of Business, University of California, Berkeley.

Turban, D. B. and Greening, D. W. (1997). Corporate social performance and organizational attractiveness to prospective employees. Academy of Management Journal, 40, 658-763.

Crane, A., McWilliams, A., Matten, D., Moon, J., & Siegal D.S. (2008): The Oxford Handbook of Corporate Social Responsibility. Oxford University Press 47-106.

Carroll, A. B. (1991). The Pyramid of Corporate Social Responsibility: Towards the Moral Management of Organizational Stakeholders. Business Horizons 34(4) 39-48. doi:10.1016/0007-6813(91)90005-G.

Useful links for examples of CSR:

5 EXAMPLES OF CORPORATE SOCIAL RESPONSIBILITY THAT WERE SUCCESSFUL

Lego Sustainability Report 2020

5 Creative Corporate Social Responsibility (CSR) Examples