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Chapter Five : Corporate Social Responsibility

5.1. Rationale for corporate social responsibility
If you’re a business owner, the days of operating solely for
profit are gone. Whilst this is obviously still important, many
companies now focus largely on corporate social responsibility.

Corporate Social Responsibility (CSR) is when a company

operates in an ethical and sustainable way and deals with its
environmental and social impacts. This means a careful
consideration of human rights, the community, environment,
and society in which it operates. the importance of corporate
social responsibility, and the benefits that sustainable and ethical
practices can bring to your business.It’s incredibly important
that your company operates in a way that demonstrates social
responsibility. Although it’s not a legal requirement, it’s seen as
good practice for you to take into account social and
environmental issues.CSR demonstrates that you’re a business
that takes an interest in wider social issues, rather than just those
that impact your profit margins, which will attract customers
who share the same values. Therefore, it makes good business
sense to operate sustainably.

5.2. Describing social responsibility

Social responsibility means that individuals and companies must
act in the best interests of their environment and society as a
whole. As it applies to business, social responsibility is known
as corporate social responsibility (CSR) and is becoming a more
prominent area of focus within businesses due to shifting social
norms.The crux of this theory is to enact policies that promote
an ethical balance between the dual mandates of striving for
profitability and benefiting society as a whole.

Many companies, such as those with “green” policies, have

made social responsibility an integral part of their business
models, and they have done so without compromising
profitability.

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Additionally, more investors and consumers are factoring in a
company’s commitment to socially responsible practices before
making an investment or purchase. As such, embracing social
responsibility can benefit the prime directive: maximization of
shareholder value.

There is a moral imperative as well. Actions—or the lack

thereof—will affect future generations. Put simply, social
responsibility is just good business practice, and a failure to do
so can have a deleterious effect on the balance sheet.Social
responsibility can also boost company morale, especially when a
company can engage employees with its social causes.

5.3. Social responsibility debate

There is an ongoing debate over whether a firm should exist
solely for making profits or whether it should pay heed to the
social and environmental concerns that accompany the practice
of Corporate Social Responsibility or CSR. The proponents of
the view that a firm exists solely for making profit argue about
the market being the final arbiter of allocating resources and
point to the market as the place where incentives for allocating
resources for social and environmental causes is to be found.
The opponents of this view take the stand that everything cannot
be left to the market and there needs to be a mechanism in place
whereby the environmental and social causes need to be taken
care of.

If we examine both sides of the debate as well as take into

account superficial attempts by businesses to pay lip service to
CSR, the first strand of thought that comes to mind is about the
need for businesses to invest in CSR as a way of mitigating the
deleterious effects of the industrial paradigm on the
environment. The practice of CSR by industrial companies is in
vogue these days because of the fact that they have contributed
to polluting the environment.
Hence, in this interconnected and flat world there is a need for
concerted action by the businesses to take steps that would

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alleviate the pressing issues of the day. However, the opponents
of this view are some of the multinationals themselves as can be
seen from the following excerpt, “Thus the central theoretical
and practical question in the discussion of corporate social
responsibility is whether it remains a voluntary choice of the
business or should be ensured through formal control”.The point
here is that CSR is being enforced rather than voluntarily
embraced. This fact alone makes it clear that businesses by
themselves do not contribute to CSR and that they have to be
regulated to do so.
5.4. Social responsibility theories
According to the traditional view of the corporation, it exists
primarily to make profits. From this money-centered
perspective, insofar as business ethics are important, they apply
to moral dilemmas arising as the struggle for profit proceeds.
These dilemmas include: “What obligations do organizations
have to ensure that individuals seeking employment or
promotion are treated fairly?” “How should conflicts of interest
be handled?” and “What kind of advertising strategy should be
pursued?” Most of this textbook has been dedicated to these and
similar questions.

While these dilemmas continue to be important throughout the

economic world, when businesses are conceived as holding a
wide range of economic and civic responsibilities as part of their
daily operation, the field of business ethics expands
correspondingly. Now there are large sets of issues that need to
be confronted and managed outside of, and independent of the
struggle for money. Broadly, there are three theoretical
approaches to these new responsibilities:

 Corporate social responsibility (CSR): The title corporate

social responsibility has two meanings. First, it’s a general name for
any theory of the corporation that emphasizes both the reponsibility to
make money and the responsibility to interact ethically with the
surrounding community. Second, corporate social responsibility is
also a specific conception of that responsibility to profit while playing
a role in broader questions of community welfare.

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The triple bottom line: The triple bottom line is a form of
corporate social responsibility dictating that corporate leaders
tabulate bottom-line results not only in economic terms (costs
versus revenue) but also in terms of company effects in the
social realm, and with respect to the environment. The notion of
sustainability is very specific. At the intersection of ethics and
economics, sustainability means the long-term maintenance of
balance. As elaborated by theorists including John Elkington,
here’s how the balance is defined and achieved economically,
socially, and environmentally:

Stakeholder theory: Stakeholder theory, which has been described by

Edward Freeman and others, is the mirror image of corporate social
responsibility. Instead of starting with a business and looking out into the
world to see what ethical obligations are there, stakeholder theory starts
in the world. It lists and describes those individuals and groups who will
be affected by (or affect) the company’s actions and asks, “What are their
legitimate claims on the business?” “What rights do they have with
respect to the company’s actions?” and “What kind of responsibilities and
obligations can they justifiably impose on a particular business?” In a
single sentence, stakeholder theory affirms that those whose lives are
touched by a corporation hold a right and obligation to participate in
directing it.
Who are the stakeholders surrounding companies? The answer depends
on the particular business, but the list can be quite extensive. If the
enterprise produces chemicals for industrial use and is located in a small
Massachusetts town, the stakeholders include:
 Company owners, whether a private individual or shareholders
 Company workers
 Customers and potential customers of the company
 Suppliers and potential suppliers to the company
 Everyone living in the town who may be affected by contamination
from workplace operations
 Creditors whose money or loaned goods are mixed into the
company’s actions
 Government entities involved in regulation and taxation

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  Local businesses that cater to company employees (restaurants
where workers have lunch, grocery stores where employee families
shop, and similar)
 Other companies in the same line of work competing for market
share
 Other companies that may find themselves subjected to new and
potentially burdensome regulations because of contamination at
that one Massachusetts plant

The first five on the list—shareholders, workers, customers, suppliers,

and community—may be cited as the five cardinal stakeholders.
5.5. Pyramid of CSR
THE CSR PYRAMID: ECONOMIC, LEGAL, ETHICAL, AND
PHILANTHROPIC RESPONSIBILITY
The basis of what we consider the modern definition of CSR is
rooted in Carroll’s pyramid of corporate social responsibility. In
Carroll’s pyramid, a business has four types of
responsibilities, which are as follows:

 To be economically profitable,
 To obey the law,
 To be ethically responsible,
 To give to philanthropic causes.

Economic Responsibilities: Be Profitable: Businesses have an

economic responsibility to society, that is, they need to be
profitable to be sustained. Business creates goods and services
that society needs or wants. To continue operations while
meeting other responsibilities – legal, ethical, and philanthropic
– a company must be financially stable. This means being
attentive to revenues, cost-effective, investing appropriately, and
running effective marketing campaigns.

Business Legal Responsibilities: Obey the Law: Legal

systems are society’s codified ethics of operation. They’re
fundamental moral principles written as rules. Law is born from
society wanting to operate with a rudimental moral grounding.

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For a business, these ground rules include laws, regulations, and
fair business practices. These rules are established by lawmakers
at federal, state, and local levels. Businesses not meeting the
minimal legal requirements will face costly lawsuits and a
tarnished brand image.

Business Ethical Responsibilities: Do What’s Right” The

ethical responsibilities of a business are important because the
normative expectations society holds in law are not always
sufficient. Sometimes the law does not provide guidance or
dictate a business course of action. This is when ethical
principles of practice are needed to protect a stakeholder’s moral
rights.It takes time for the law to catch up to rapidly changing
society. Law often lags behind technology and can reflect a
dominant class rather than the public good. This is why meeting
ethical responsibility in business is vital.

Business Philanthropic Responsibilities: Be A Good

Corporate Citizen: Philanthropy in business embraces
activities that are voluntary and discretionary. These activities
go above and beyond a society’s expectations of what’s
required. Society will label a business as unethical if it does not
meet philanthropic responsibilities.

5.6. Contemporary CSR concepts

More in the area of environmental responsibility, companies
today strive for a sustainable model within their organization.
Areas where this is prevalent is in how organizations balance
present and future needs, environmental protection, and
economic development. There are five key reasons in why
companies embrace a sustainable model:

 Cost Reduction
 Resource Preservation
 Legislative Compliance
 Reputation
 Right Initiative