The Theoretical Frameworks that underpin CSR

Learning Objectives : 

• Understand the theories in the context of the modern business
• Gain a strong understanding of the theories that underpin CSR
• See an example (conclusion section) of the theories in action using the movie “A Civil Action”

Corporate Social Responsibility – The Theoretical Foundations of CSR

Corporate Social Entrepreneurship (CSE) is a relatively new area which has its origins in Corporate Social Responsibility (CSR).  Understanding theories which underpin CSR is useful as they in turn are the foundational theories which impact the theoretical framework of CSE.

Most research studies reference four main CSR theory areas.  The first, Shareholder Value theory stems from economic theory, the second Stakeholder theory is based on ethical perspectives, the third, Corporate Social Performance theory evolved from sociology, and the fourth, Corporate Citizenship theory has its origins in political science.

Shareholder Value theory (SVT) states that the only social responsibility of business is to make a profit, thereby increasing the organisation’s economic value for its shareholders.  Any additional social activities that a company engages in are only acceptable if they are required by law, or if they contribute to increasing shareholder value (Friedman, 1970).  Though Peter Drucker (1954) stated that profitability and social responsibility are compatible, at its core this theory is primarily focused on creating wealth by focusing the company’s efforts towards maximising shareholder value.  Tax systems are seen as the way for some of the wealth created by business to be shared with society through government mediation. Any negative social impacts of business can be managed appropriately through the law, and non-governmental organisations (NGO) can address other social problems and inequalities. This model is still widely used by many organisations today.

Stakeholder theory takes into account the individuals or groups with a “stake” in the company whether they are beneficiaries, or can be harmed by the actions of the business. This concept of CSR according to Jones (1980) means that “corporations have an obligation to constituent groups in society, other than stockholders and beyond that prescribed by law or union contact”. There are a variety of approaches to stakeholder theory, Evan and Freeman (1988) base stakeholder theory on two ethical principles called the ‘Principle of Corporate Rights’ (P1) and ‘Principle of Corporate Effects’(P2).  The former establishes that corporations ought to be managed for the benefit of its customers, suppliers, owners, employees and local communities. These groups should have the opportunity to participate in decisions that impact on their welfare, and their rights must be ensured. The latter states that management bears a fiduciary responsibility to stakeholders and must act in their interests, in addition to the interest of the corporation to ensure its survival. This theory appears to be ethically stronger than shareholder value theory as it considers the rights of the stakeholders and their legitimate interests, therefore managerial responsibility extends beyond fiduciary obligation to the shareholders.

Corporate Social Performance theory evolved from several approaches building on theories by Sethi (1975), Carroll (1979) and Preston & Post (1981).  Carroll first introduced the concept of “corporate social performance” outlining a set of four obligations an organisation has to society; economic, legal, ethical and philanthropic and created the “Pyramid of Corporate Social Responsibility”.  This was revised by Carroll & Schwartz (2003) to three core domains; economic, legal and ethical and a Venn model framework. By integrating these three domains the model describes the organisations efforts to meet changing societal conditions and provides a starting point to motivate and guide the activities of the business.

Corporate Citizenship theory has its roots in political science where ‘citizenship’ is at the core of the concept and reflects the participation of business in society and, as noted by Matten et al., (2003) business has it’s ‘rightful place in society, next to other ‘citizens’ with whom the corporation forms a community’.  Corporate citizenship publicises both the ethical and social  aspects of business, and the role it plays in defending and respecting human rights. In addition corporate citizenship activities are seen to have global scope, can enhance an organisations reputation and have the ability to deliver long term financial performance as they are in fact strategic investments according to Gardberg & Fombrun (2006).

All of these theories can be used to explain what companies are doing in the area of CSR.  In practice companies are following different models.  In the US the shareholder model is popular, while Europe and Japan tend to adopt the stakeholder model.  However, companies are also following the corporate social performance model and many transnational companies adopt the corporate citizenship model.  A strong normative theory is needed with a good philosophical foundation according to Melé, (2008).  It will need to reflect a view of humanity, business and society and the relationship between society and business to be truly effective.  Each of the theories described in this blog has their foundation in a different philosophical areas and each has positive and negative attributes.

Read the Conclusion below or listen to the audio version here

Conclusion on the Three Forms of Corporate Social Responsibility

Traditionally, the directors of companies have had an extremely difficult but very narrowly defined responsibility: guide the enterprise toward money. The best companies have been those generating the highest sales, gaining the most customers, and clearing the largest profits. As for ethical questions, they’ve been arranged around the basic obligation to represent the owners’ central interest, which presumably is to profit from their investment. Consequently, the field of business ethics has mainly concerned conflicts and dilemmas erupting inside the company as people try to work together to win in the very competitive economic world. The idea of corporate social responsibility—along with the related ideas of the triple bottom line and stakeholder theory—opens a different kind of business ethics. Morality in the economic world is now about corporate directors sensing and responding to a broad range of obligations, ones extending through the town where the business is located and then out into surrounding communities and through society generally.

In Woburn, Massachusetts, in the early 1980s, this conflict between two ways of running a business played out in the Hollywood depiction of the lawyer played by John Travolta. At the movie’s beginning, right and wrong for a business got decided in dollars and without broader sensibility. Travolta’s law firm existed to make money and operated by accepting only cases that promised big payouts. That’s what brought Travolta to Woburn, the chance to sue deep-pocketed W. R. Grace for poisoning the land with toxic runoff and for destroying the lives of families living near the pools of contamination. Over the course of the movie, however, Travolta becomes attached to Woburn’s cause and the social good of fighting for a clean environment. By the end, he’s risking his firm’s high profits—and, according to his law-firm partners, all common sense—to make sure that harmed people living in town get their good lives back, and to ensure that a Woburn-like toxic disaster won’t happen again.

In terms of business ethics, it’s not difficult to interpret Travolta’s transformation from a businessman taking care of the bottom line, to one engaged by a broader vision of social responsibility. Each of the three discussed theories—corporate social responsibility, the triple bottom line, stakeholder theory—can be fit into the movie A Civil Action.

In terms of corporate social responsibility, Travolta came to believe that his job as the law firm’s leader obligated him to satisfy his economic responsibility to make money for the firm by suing for financial damages while also acting legally. Further, his firm needed to satisfy the ethical responsibility to help others in Woburn get their good lives back. Here, there is a basic duty to help others in need when you have the capability. Finally, there was an element of philanthropy in Travolta’s endeavor because his law firm pursued a case that served the greater good even though more profitable work opportunities were available.

In terms of the triple bottom line of economics, society, and the environment, Travolta came to believe that his job as the law firm’s leader obligated him to take account of and do well in all three areas. It was no longer enough to win money; his business had a moral responsibility to win for society and to win for the environment also. The long-term goal was to ensure the economic sustainability of his firm, the sustainability of healthy family life in Woburn, and the sustainability of clean earth and air in that part of Massachusetts.

In terms of stakeholder ethics, Travolta came to believe that his job as the law firm’s leader obligated him not only to work for the firm’s owners (including himself) but also to take direction from those who would be affected by the firm’s actions. That meant considering—trying to balance and to add up—the interests of his partners and all those who lived in Woburn.

Finally, because Travolta’s story was also a Hollywood story, his transformation on the big screen was presented as the change from an aloof bad guy to a caring good guy. It’s not clear, however, in the real world whether a corporate ethics based on social responsibility, the triple bottom line, or all stakeholders is actually recommendable. The debate between the two ways of thinking about business—the traditional, profit-centered view and the broader, socially responsible view—is hard-fought and intensified by good arguments on both sides.

Content from: saylordotorg.github.io

References

Carroll, A. B. 1979. ‘A Three‐Dimensional Conceptual Model of Corporate Performance’. Academy of Management Review, 4: 497–505

Drucker, P. 1954. The Practice of Management. New York: Harper.

Evan, W. M., and Freeman, R. E. 1988. ‘A Stakeholder Theory of the Modern Corporation: Kantian Capitalism’. in T. Beauchamp and N. Bowie (eds.), Ethical Theory and Business. Englewood Cliffs, NJ: Prentice Hall, 75–93.

Friedman, M. 1970. ‘The Social Responsibility of Business is to Increase its Profits’. New York Times Magazine

Gardberg, N. A., and Fombrun, C. 2006. ‘Corporate Citizenship: Creating Intangible Assets across Institutional Environments’. Academy of Management Review, 31(2): 329–46.

Jones, T. M. 1980. ‘Corporate Social Responsibility Revisited, Redefined’. California Management Review, 22(2):59–67

Matten, D., Crane, A. and Chapple, W. 2003. ‘Behind the Mask: Revealing the True Face of Corporate Citizenship’. Journal of Business Ethics, 45(1–2): 109–20

Melé, D., 2008. Corporate social responsibility theories. The Oxford handbook of Corporate Social Responsibility, pp.47-82.

Preston, L. E., and Post, J. E. 1981. ‘Private Management and Public Policy’. California Management Review, 23(3): 56–63.

Schwartz, M. S., and Carroll, A. B. 2003. ‘Corporate Social Responsibility: A Three‐Domain Approach’. Business Ethics Quarterly, 13(4): 503–30.

Sethi, S. P. 1975. ‘Dimensions of Corporate Social Performance: An Analytical Framework’. California Management Review, 17(3): 58–64.