Summary Lesson 1: What Is Corporate Social
Responsibility (CSR)?
Exam-oriented summary based on the lecture slides and the Study Guidance for Lesson 1
This summary follows the learning objectives and potential exam questions in the study guidance. You mainly
need to explain concepts in your own words and apply them to a company case. You do not need to memorise
every example from the slides; one good example is sufficient. You also do not need to know how chocolate is
made or the name of the founder of Tony’s Chocolonely.
1. Why Do We Need CSR?
Core idea
Companies have a major impact on people, society and the environment. This impact can be positive, but
companies can also cause serious harm.
Examples from the lecture:
• In the chocolate industry, cocoa production can involve extremely low wages, child labour and
exploitation.
• Bhopal (1984) illustrates how industrial activities can cause enormous human and environmental harm.
• Rana Plaza in Dhaka (2013) illustrates how unsafe working conditions and irresponsible supply chains can
lead to disaster.
The central question is: who is responsible for negative consequences in a value chain?
• The supplier where the harm takes place?
• The company buying from that supplier?
• The consumer buying the final product?
The lecture makes clear that responsibility does not necessarily stop at the boundaries of the company itself.
A company must also consider its suppliers, customers, employees, communities and environmental
impacts.
2. The Justice Argument for CSR
What is the justice argument?
The justice argument states that companies must take responsibility because their activities can create
negative consequences for others.
Different actors are involved in a value chain: Suppliers -> Company -> Buyers -> Consumers. At each stage,
unwanted impacts can occur, such as exploitation of workers, pollution, unsafe products, poor working
conditions and poverty among producers.
Externalities
These unwanted consequences are called externalities: costs or harm caused by economic activities, but not
fully borne by the company that benefits from those activities.
Example: A clothing company produces cheap clothes through a supplier with unsafe factories. The low
production cost generates profit for the company and low prices for consumers, but workers carry the risk of
dangerous working conditions.
Exam-ready explanation: CSR is necessary from a justice perspective because companies benefit from
economic activities while stakeholders may bear the social or environmental costs. Companies must
therefore take responsibility for the negative impact of their decisions and activities throughout their value
chain.
Page 1
,3. What Is a Company? Four Theories and Their Influence on CSR
How a company understands CSR depends partly on how it defines what a company is.
Artificial entity theory
A company exists because the government legally allows it to operate. Since society gives the company its
right to exist, society may expect it to take responsibility for its impact.
Real entity theory
A company is an independent entity, separate from the state, owners and employees. The company itself can
therefore be held responsible for its social and environmental impact.
Aggregate theory
A company is a collection of individuals, such as owners, managers and employees. CSR therefore depends
on the moral choices and responsibilities of the people within the company.
Collaboration theory
A company results from cooperation between governments and the people who organise, manage and own it.
Responsibility is shared: companies, governments and individuals must work together to protect societal
interests.
Application to a case
Imagine a clothing company producing through factories with poor working conditions:
• From the artificial entity theory, the government may impose rules because the company owes its
existence to society.
• From the real entity theory, the clothing company itself is responsible, even when the problems occur at
supplier level.
• From the aggregate theory, managers and owners are responsible for choosing to continue buying from
problematic suppliers.
• From the collaboration theory, both public authorities and the company must contribute to a solution.
4. What Is the Purpose of a Company?
The lecture presents two major views: the Friedman doctrine and purpose-driven companies.
4.1 Friedman Doctrine
According to Milton Friedman, the primary responsibility of a company is to increase its profits, as long as it
stays within the rules of the game.
You do not need to reproduce the definition word for word. You do need to know the key characteristics:
• The main objective is profit.
• The company primarily operates in the interests of its shareholders.
• Social responsibility is limited by the law and basic rules of fair and decent behaviour.
Example: A company reduces pollution because the law requires it or because doing so reduces costs or
increases profits.
4.2 Purpose-Driven Companies
A purpose-driven company has the central objective of making a contribution to society while ensuring
sufficient returns for shareholders. Profit remains important, but it is not the only objective. Profit is a
condition that allows the company to continue pursuing its social purpose.
Example: A company offering affordable renewable energy aims to create social and environmental impact
but must remain profitable enough to survive and continue investing.
Page 2
,4.3 Relationship Between the Two Views
• Friedman doctrine: the central objective is to maximise profit; shareholders are the main focus; social
impact is secondary; the limits are law and human decency.
• Purpose-driven company: the central objective is to maximise contribution to society; multiple
stakeholders matter; social impact is central; the company must keep shareholders sufficiently satisfied.
Important insight: The two views are not completely incompatible. A purpose-driven company must also
remain financially viable. The major difference lies in priority: in the Friedman doctrine, societal responsibility
limits the pursuit of profit; in a purpose-driven company, societal contribution is the objective, while profit is
necessary to sustain it.
5. From Shareholders to Stakeholders
In 2019, the Business Roundtable, a group of leading American CEOs, stated that companies should not
operate only for shareholders, but for all stakeholders.
Shareholder
A shareholder owns shares in a company and has a financial interest in profits and increasing company value.
Stakeholder
A stakeholder is any person or group that influences the company or is influenced by its activities. Examples
include shareholders, employees, customers, suppliers, local communities, society and the environment.
Example: fictional chocolate company
• Shareholders: profit and financial return.
• Cocoa farmers: fair prices and decent working conditions.
• Employees: safe work and fair wages.
• Consumers: safe and ethically produced chocolate.
• Local communities: no exploitation or environmental damage.
• Environment: sustainable production and reduced deforestation.
Business Roundtable: five principles
1. Deliver value to customers.
2. Invest in employees.
3. Deal fairly and ethically with suppliers.
4. Support the communities in which they work.
5. Generate long-term value for shareholders.
6. What Is CSR?
6.1 Why Are There So Many Definitions of CSR?
CSR does not mean exactly the same thing to everyone. Companies, governments, researchers and civil-
society organisations place emphasis on different aspects: voluntary actions, laws and obligations, social
impact, environmental impact, governance or stakeholders. Therefore, CSR has a general meaning, but its
exact interpretation can differ between actors and contexts.
6.2 Important Definitions
European Union: CSR is the responsibility of enterprises for their impact on society.
ISO 26000: Social responsibility is the responsibility of an organisation for the impacts of its decisions and
activities on society and the environment through transparent and ethical behaviour.
Page 3
, 6.3 The Four Key Concepts in the Definition of CSR
According to the lecture, CSR is a stakeholder-oriented notion involving voluntary commitments by a business
organisation concerning issues both inside and beyond its boundaries, driven by the organisation’s
understanding and acknowledgement of its moral responsibilities regarding the impacts of its activities on
society.
1. Stakeholder-oriented
A company does not only consider its shareholders. It also considers all parties affected by its activities. For
example, a clothing company must consider not only profit, but also factory workers, suppliers, consumers,
communities and the environment.
2. Voluntary commitments
Traditionally, CSR involves actions that go beyond what is legally required. A company takes additional
responsibility because it believes this is ethically necessary. For example, a company may pay suppliers a
living wage even if the legal minimum wage is lower.
3. Issues inside and beyond the organisation
CSR concerns internal issues such as employee safety, diversity and fair wages, as well as external issues
such as working conditions at suppliers, community impacts and environmental impacts throughout the value
chain.
4. Moral responsibility for impact
A company recognises that its choices affect other people and that it should not focus only on profit. For
example, a chocolate company cannot claim that child labour is solely the supplier’s problem when it benefits
from extremely cheap cocoa.
6.4 Six Important Characteristics of CSR
1. Responsibility: the organisation adapts to the needs of stakeholders.
2. Going beyond existing laws: ethical behaviour may be necessary even when it has negative business
consequences.
3. An ongoing process: CSR never fully ends; expectations and challenges continue to evolve.
4. A long-term perspective: CSR concerns sustainable impact rather than only short-term profit.
5. Embedded in core strategy and operations: CSR should not be a simple add-on or marketing exercise.
6. Context-specific: good CSR depends on the sector, location, value chain and potential impacts.
7. Carroll’s CSR Pyramid
Carroll distinguishes four levels of corporate responsibility.
7.1 Economic Responsibility
A company must be financially viable and create economic value. It must be profitable enough to survive, but
economic responsibility can also involve creating economic benefits for other stakeholders, for example
through fair wages.
Example: A company makes a profit and pays fair wages.
7.2 Legal Responsibility
A company must obey the law. Compliance with applicable legislation is a minimum requirement for
responsible business behaviour.
Example: A factory follows safety and environmental legislation.
Page 4
Responsibility (CSR)?
Exam-oriented summary based on the lecture slides and the Study Guidance for Lesson 1
This summary follows the learning objectives and potential exam questions in the study guidance. You mainly
need to explain concepts in your own words and apply them to a company case. You do not need to memorise
every example from the slides; one good example is sufficient. You also do not need to know how chocolate is
made or the name of the founder of Tony’s Chocolonely.
1. Why Do We Need CSR?
Core idea
Companies have a major impact on people, society and the environment. This impact can be positive, but
companies can also cause serious harm.
Examples from the lecture:
• In the chocolate industry, cocoa production can involve extremely low wages, child labour and
exploitation.
• Bhopal (1984) illustrates how industrial activities can cause enormous human and environmental harm.
• Rana Plaza in Dhaka (2013) illustrates how unsafe working conditions and irresponsible supply chains can
lead to disaster.
The central question is: who is responsible for negative consequences in a value chain?
• The supplier where the harm takes place?
• The company buying from that supplier?
• The consumer buying the final product?
The lecture makes clear that responsibility does not necessarily stop at the boundaries of the company itself.
A company must also consider its suppliers, customers, employees, communities and environmental
impacts.
2. The Justice Argument for CSR
What is the justice argument?
The justice argument states that companies must take responsibility because their activities can create
negative consequences for others.
Different actors are involved in a value chain: Suppliers -> Company -> Buyers -> Consumers. At each stage,
unwanted impacts can occur, such as exploitation of workers, pollution, unsafe products, poor working
conditions and poverty among producers.
Externalities
These unwanted consequences are called externalities: costs or harm caused by economic activities, but not
fully borne by the company that benefits from those activities.
Example: A clothing company produces cheap clothes through a supplier with unsafe factories. The low
production cost generates profit for the company and low prices for consumers, but workers carry the risk of
dangerous working conditions.
Exam-ready explanation: CSR is necessary from a justice perspective because companies benefit from
economic activities while stakeholders may bear the social or environmental costs. Companies must
therefore take responsibility for the negative impact of their decisions and activities throughout their value
chain.
Page 1
,3. What Is a Company? Four Theories and Their Influence on CSR
How a company understands CSR depends partly on how it defines what a company is.
Artificial entity theory
A company exists because the government legally allows it to operate. Since society gives the company its
right to exist, society may expect it to take responsibility for its impact.
Real entity theory
A company is an independent entity, separate from the state, owners and employees. The company itself can
therefore be held responsible for its social and environmental impact.
Aggregate theory
A company is a collection of individuals, such as owners, managers and employees. CSR therefore depends
on the moral choices and responsibilities of the people within the company.
Collaboration theory
A company results from cooperation between governments and the people who organise, manage and own it.
Responsibility is shared: companies, governments and individuals must work together to protect societal
interests.
Application to a case
Imagine a clothing company producing through factories with poor working conditions:
• From the artificial entity theory, the government may impose rules because the company owes its
existence to society.
• From the real entity theory, the clothing company itself is responsible, even when the problems occur at
supplier level.
• From the aggregate theory, managers and owners are responsible for choosing to continue buying from
problematic suppliers.
• From the collaboration theory, both public authorities and the company must contribute to a solution.
4. What Is the Purpose of a Company?
The lecture presents two major views: the Friedman doctrine and purpose-driven companies.
4.1 Friedman Doctrine
According to Milton Friedman, the primary responsibility of a company is to increase its profits, as long as it
stays within the rules of the game.
You do not need to reproduce the definition word for word. You do need to know the key characteristics:
• The main objective is profit.
• The company primarily operates in the interests of its shareholders.
• Social responsibility is limited by the law and basic rules of fair and decent behaviour.
Example: A company reduces pollution because the law requires it or because doing so reduces costs or
increases profits.
4.2 Purpose-Driven Companies
A purpose-driven company has the central objective of making a contribution to society while ensuring
sufficient returns for shareholders. Profit remains important, but it is not the only objective. Profit is a
condition that allows the company to continue pursuing its social purpose.
Example: A company offering affordable renewable energy aims to create social and environmental impact
but must remain profitable enough to survive and continue investing.
Page 2
,4.3 Relationship Between the Two Views
• Friedman doctrine: the central objective is to maximise profit; shareholders are the main focus; social
impact is secondary; the limits are law and human decency.
• Purpose-driven company: the central objective is to maximise contribution to society; multiple
stakeholders matter; social impact is central; the company must keep shareholders sufficiently satisfied.
Important insight: The two views are not completely incompatible. A purpose-driven company must also
remain financially viable. The major difference lies in priority: in the Friedman doctrine, societal responsibility
limits the pursuit of profit; in a purpose-driven company, societal contribution is the objective, while profit is
necessary to sustain it.
5. From Shareholders to Stakeholders
In 2019, the Business Roundtable, a group of leading American CEOs, stated that companies should not
operate only for shareholders, but for all stakeholders.
Shareholder
A shareholder owns shares in a company and has a financial interest in profits and increasing company value.
Stakeholder
A stakeholder is any person or group that influences the company or is influenced by its activities. Examples
include shareholders, employees, customers, suppliers, local communities, society and the environment.
Example: fictional chocolate company
• Shareholders: profit and financial return.
• Cocoa farmers: fair prices and decent working conditions.
• Employees: safe work and fair wages.
• Consumers: safe and ethically produced chocolate.
• Local communities: no exploitation or environmental damage.
• Environment: sustainable production and reduced deforestation.
Business Roundtable: five principles
1. Deliver value to customers.
2. Invest in employees.
3. Deal fairly and ethically with suppliers.
4. Support the communities in which they work.
5. Generate long-term value for shareholders.
6. What Is CSR?
6.1 Why Are There So Many Definitions of CSR?
CSR does not mean exactly the same thing to everyone. Companies, governments, researchers and civil-
society organisations place emphasis on different aspects: voluntary actions, laws and obligations, social
impact, environmental impact, governance or stakeholders. Therefore, CSR has a general meaning, but its
exact interpretation can differ between actors and contexts.
6.2 Important Definitions
European Union: CSR is the responsibility of enterprises for their impact on society.
ISO 26000: Social responsibility is the responsibility of an organisation for the impacts of its decisions and
activities on society and the environment through transparent and ethical behaviour.
Page 3
, 6.3 The Four Key Concepts in the Definition of CSR
According to the lecture, CSR is a stakeholder-oriented notion involving voluntary commitments by a business
organisation concerning issues both inside and beyond its boundaries, driven by the organisation’s
understanding and acknowledgement of its moral responsibilities regarding the impacts of its activities on
society.
1. Stakeholder-oriented
A company does not only consider its shareholders. It also considers all parties affected by its activities. For
example, a clothing company must consider not only profit, but also factory workers, suppliers, consumers,
communities and the environment.
2. Voluntary commitments
Traditionally, CSR involves actions that go beyond what is legally required. A company takes additional
responsibility because it believes this is ethically necessary. For example, a company may pay suppliers a
living wage even if the legal minimum wage is lower.
3. Issues inside and beyond the organisation
CSR concerns internal issues such as employee safety, diversity and fair wages, as well as external issues
such as working conditions at suppliers, community impacts and environmental impacts throughout the value
chain.
4. Moral responsibility for impact
A company recognises that its choices affect other people and that it should not focus only on profit. For
example, a chocolate company cannot claim that child labour is solely the supplier’s problem when it benefits
from extremely cheap cocoa.
6.4 Six Important Characteristics of CSR
1. Responsibility: the organisation adapts to the needs of stakeholders.
2. Going beyond existing laws: ethical behaviour may be necessary even when it has negative business
consequences.
3. An ongoing process: CSR never fully ends; expectations and challenges continue to evolve.
4. A long-term perspective: CSR concerns sustainable impact rather than only short-term profit.
5. Embedded in core strategy and operations: CSR should not be a simple add-on or marketing exercise.
6. Context-specific: good CSR depends on the sector, location, value chain and potential impacts.
7. Carroll’s CSR Pyramid
Carroll distinguishes four levels of corporate responsibility.
7.1 Economic Responsibility
A company must be financially viable and create economic value. It must be profitable enough to survive, but
economic responsibility can also involve creating economic benefits for other stakeholders, for example
through fair wages.
Example: A company makes a profit and pays fair wages.
7.2 Legal Responsibility
A company must obey the law. Compliance with applicable legislation is a minimum requirement for
responsible business behaviour.
Example: A factory follows safety and environmental legislation.
Page 4
