Summary
Corporate Social Responsibility
CHAPTER1 – WHAT IS CSR?
THE NEED OF CSR
To understand why CSR exists, we must first understand why it is necessary. Businesses have an enormous potential
impact on society – both positive and negative. Historical disasters such as the Bhopal gas leak (1984) and the collapse
of the Rana Plaza building in Dhaka (2013), in which hundreds of garment workers lost their lives, illustrate just how
devastating business activities can be for people and communities.
But responsibility is rarely clear-cut. Take the chocolate industry: cocoa farmers earn less than $1 a day, child labour is
widespread, and there are even cases of slavery. Who is responsible for this? The farm itself? The company that buys
cocoa from it? Or the consumer who eats the chocolate?
This question lies at the heart of the Justice Argument for CSR. Companies and their suppliers and customers cause
externalities: undesirable impacts on third parties who are not involved in the business decision. When a factory
pollutes rivers or when a fashion chain allows its supplier to exploit workers, the victims are people who were never at
the table. The justice argument maintains that companies do bear responsibility for this.
WHAT IS THE PURPOSE OF A COMPANY
Before we can discuss corporate responsibility, we need to consider a more fundamental question: what exactly is a
company, and what is its purpose?
There are 4 theories regarding the nature of a company:
- Artificial entity: companies are artificial entities that owe their existence completely to the government
- Real entity: each corporation has an identity and existence that is separate and independent from the state
and the individuals who organize, operate and own it
- Aggregate: corporations are merely collections of individuals tied together through the intersection of various
obligations
- Collaboration: collaborations among state governments and the people who organize, operate and own them
These theories may seem abstract, but they have concrete implications. If a company is purely a creation of the state,
the state is entitled to intervene. If it is an autonomous entity, it has its own responsibilities. If it is merely the sum of its
shareholders, only their interests matter.
That theoretical question leads directly to a practical debate: what is the purpose of a business? Historically, there
have been two schools of thought on this.
1. Friedman Doctrine: use resources and engage in activities designed to increase its profits as long as it stays
within the rules of the game
o Goal: maximize profit
o Constraint: the law and human decency
1
, 1. Purpose-driven companies: maximize the contribution to society while ensuring adequate return for
stakeholders
o Goal: contribution to society
o Constraint: keeping shareholders satisfied
For a long time, Friedman’s logic seemed untouchable. But in 2019, the tide turned. The Business Roundtable, an
organisation of CEOs from America’s largest companies that for years defended shareholder value as a sacred principle,
published a statement setting out a new definition: companies must operate for the benefit of all stakeholders, not just
shareholders. The 5 guiding principles:
- Delivering value to customers
- Investing in employees
- Dealing fairly and ethically with suppliers
- Supporting communities
- Creating long-term value for shareholders
WHAT IS CSR
Now that we know why CSR is necessary and how a company’s purpose is evolving, we can ask the key question: what
exactly is CSR?
The answer is less straightforward than it seems. As Votaw aptly put it back in 1973: "The term CSR is a brilliant one; it
means something, but not always the same thing to everybody." That vagueness is no accident — CSR is a broad
concept that is interpreted in different ways by businesses, policymakers and academics.
Nevertheless, there are 2 commonly used reference definitions:
- EU definition: CSR is the responsibility of enterprises for their impact on society
- ISO 26000: Social responsibility is the responsibility of an organization for the impacts of its decisions and
activities on society and the environment, through transparent and ethical behavior.
→ Both definitions emphasise impact and responsibility, but the ISO definition goes further: it also refers to
transparency and ethical conduct, and applies to all organisations — not just businesses.
In this course, we use a more detailed definition. CSR is a stakeholder-oriented concept that:
- Involves an organisations voluntary commitments
- Relates to issues both within and outside the organisation
- Is driven by the organisation’s sense of moral responsibility regarding its impact on society
→ 3 elements stand out: voluntary (not merely a legal obligation), extends beyond the boundaries of one’s own
organisation (supply chain is also taken into account), and driven by a sense of moral responsibility, not merely self-interest.
This definition is made more concrete by 6 characteristics which, taken together, describe what CSR entails in practice:
- Responsibility: recognizing that the organisation must adapt to the needs of stakeholders
- Going beyond the law: ethical behaviour as an imperative, even if it has negative business consequences
- Continuous process: CSR never stops
- Long-term perspective
- Integrated into the core strategy: not a separate element, but embedded in all operations
- Context-specific: what CSR means varies by sector and situation
2
,Not every company embraces CSR with the same speed or depth. As with any innovation, there are early adopters who
proactively use CSR as a strategic opportunity, and laggards who only take action when external pressure forces them
to do so. This distinction is important:
- Proactive (early adopter/innovators): CSR as an opportunity, integrated into
the strategy
- Reactive (laggards): CSR as a response to external pressure
FRAMEWORKS
One of the most widely used frameworks for understanding CSR is Archie
Carroll’s 1979 pyramid. The pyramid organises a company’s responsibilities into
4 layers, from the most fundamental at the bottom to the most aspirational at
the top. Crucially, the higher layers assume that the underlying layers have
already been met.
- Economic responsibility
o Inside: a company must be profitable to survive →
stakeholders: shareholders
o Outside: a company must pay fair wages → stakeholders: employees/community
- Legal responsibility
o A company must comply with the law → for all stakeholders
- Ethical responsibility
o A company must not cause harm
o Inside: protect employees
o Outside: do not harm communities
- Philanthropic responsibility
o A company contributes to social causes: 4 forms
▪ Cause promotion: donating money to raise awareness
▪ Cause marketing: donating a percentage of product’s sales to a charity
▪ Social marketing: influencing behaviour for a social good (recycling, seat belts)
▪ Volunteering: encouraging employees to volunteer or partner with organisations
In addition to Carroll, Dahlsrud (2006) offers a complementary framework. He identifies 5 dimensions that feature in
almost all CSR definitions and which, taken together, provide a comprehensive picture of what CSR entails:
- Economic: the economic impact of the company
- Social: the relationship with people and communities
- Environmental: the ecological impact
- Stakeholder: the involvement of all stakeholders
- Voluntary: it goes beyond what is legally required
3
, DIFFERENT FORMS OF CSR
CSR is not a monolithic concept. It takes various forms, each with its own distinct approach.
1. Social Entrepreneurship
o Individuals or teams who use business methods to tackle social or environmental challenges. Unlike
traditional entrepreneurs, their focus is on social impact, not financial return. They operate from a
systems perspective and pursue a dual objective: impact and sustainability.
o Mohammed Yunus summed up the key argument powerfully: "A charity dollar only has one life,
whereas a business dollar has multiple lives." A business model is scalable in a way that pure charity is
not.
2. ESG (Environment – Social – Governance)
o ESG is a related but distinct concept. The central question was: how can environmental, social and
governance factors be integrated into investment decisions? ESG is therefore primarily a tool for 3,
whereas CSR is a strategy for companies.
There are three related but clearly distinct concepts:
- CSR:
o Question: How can we be a better corporate citizen?
o Focus: strategic management
o Nature: voluntary
- ESG:
o Question: How are environmental, social and governance aspects integrated into the business model?
o Focus: indicators and indices
o Nature: increasingly legally required
- SRI:
o Question: How do I invest responsibly?
o Focus: investment policy
o Nature: negative or positive screening
→ In Socially Responsible Investing (SRI), investment portfolios are filtered: negative screening excludes sectors such
as arms, tobacco or alcohol, whilst positive screening assesses ESG performance.
- Note: many SRI funds still include companies with questionable CSR performance, such as Microsoft, Walmart
or ExxonMobil.
CSR AS BUSINESS LOGIC
Now that we know what CSR is, a new question arises: why should a company actually engage in it? There are
essentially two answers.
- Do good to do well: CSR pays off, and that’s reason enough
- Do good to do good: companies simply have a moral duty, regardless of the return
In practice, the link between CSR and profitability has not been conclusively demonstrated. Research yields conflicting
results, partly because it is difficult to establish causality (is a company profitable because it engages in CSR, or does it
engage in CSR because it is profitable?) and because CSR performance is difficult to quantify.
4
Corporate Social Responsibility
CHAPTER1 – WHAT IS CSR?
THE NEED OF CSR
To understand why CSR exists, we must first understand why it is necessary. Businesses have an enormous potential
impact on society – both positive and negative. Historical disasters such as the Bhopal gas leak (1984) and the collapse
of the Rana Plaza building in Dhaka (2013), in which hundreds of garment workers lost their lives, illustrate just how
devastating business activities can be for people and communities.
But responsibility is rarely clear-cut. Take the chocolate industry: cocoa farmers earn less than $1 a day, child labour is
widespread, and there are even cases of slavery. Who is responsible for this? The farm itself? The company that buys
cocoa from it? Or the consumer who eats the chocolate?
This question lies at the heart of the Justice Argument for CSR. Companies and their suppliers and customers cause
externalities: undesirable impacts on third parties who are not involved in the business decision. When a factory
pollutes rivers or when a fashion chain allows its supplier to exploit workers, the victims are people who were never at
the table. The justice argument maintains that companies do bear responsibility for this.
WHAT IS THE PURPOSE OF A COMPANY
Before we can discuss corporate responsibility, we need to consider a more fundamental question: what exactly is a
company, and what is its purpose?
There are 4 theories regarding the nature of a company:
- Artificial entity: companies are artificial entities that owe their existence completely to the government
- Real entity: each corporation has an identity and existence that is separate and independent from the state
and the individuals who organize, operate and own it
- Aggregate: corporations are merely collections of individuals tied together through the intersection of various
obligations
- Collaboration: collaborations among state governments and the people who organize, operate and own them
These theories may seem abstract, but they have concrete implications. If a company is purely a creation of the state,
the state is entitled to intervene. If it is an autonomous entity, it has its own responsibilities. If it is merely the sum of its
shareholders, only their interests matter.
That theoretical question leads directly to a practical debate: what is the purpose of a business? Historically, there
have been two schools of thought on this.
1. Friedman Doctrine: use resources and engage in activities designed to increase its profits as long as it stays
within the rules of the game
o Goal: maximize profit
o Constraint: the law and human decency
1
, 1. Purpose-driven companies: maximize the contribution to society while ensuring adequate return for
stakeholders
o Goal: contribution to society
o Constraint: keeping shareholders satisfied
For a long time, Friedman’s logic seemed untouchable. But in 2019, the tide turned. The Business Roundtable, an
organisation of CEOs from America’s largest companies that for years defended shareholder value as a sacred principle,
published a statement setting out a new definition: companies must operate for the benefit of all stakeholders, not just
shareholders. The 5 guiding principles:
- Delivering value to customers
- Investing in employees
- Dealing fairly and ethically with suppliers
- Supporting communities
- Creating long-term value for shareholders
WHAT IS CSR
Now that we know why CSR is necessary and how a company’s purpose is evolving, we can ask the key question: what
exactly is CSR?
The answer is less straightforward than it seems. As Votaw aptly put it back in 1973: "The term CSR is a brilliant one; it
means something, but not always the same thing to everybody." That vagueness is no accident — CSR is a broad
concept that is interpreted in different ways by businesses, policymakers and academics.
Nevertheless, there are 2 commonly used reference definitions:
- EU definition: CSR is the responsibility of enterprises for their impact on society
- ISO 26000: Social responsibility is the responsibility of an organization for the impacts of its decisions and
activities on society and the environment, through transparent and ethical behavior.
→ Both definitions emphasise impact and responsibility, but the ISO definition goes further: it also refers to
transparency and ethical conduct, and applies to all organisations — not just businesses.
In this course, we use a more detailed definition. CSR is a stakeholder-oriented concept that:
- Involves an organisations voluntary commitments
- Relates to issues both within and outside the organisation
- Is driven by the organisation’s sense of moral responsibility regarding its impact on society
→ 3 elements stand out: voluntary (not merely a legal obligation), extends beyond the boundaries of one’s own
organisation (supply chain is also taken into account), and driven by a sense of moral responsibility, not merely self-interest.
This definition is made more concrete by 6 characteristics which, taken together, describe what CSR entails in practice:
- Responsibility: recognizing that the organisation must adapt to the needs of stakeholders
- Going beyond the law: ethical behaviour as an imperative, even if it has negative business consequences
- Continuous process: CSR never stops
- Long-term perspective
- Integrated into the core strategy: not a separate element, but embedded in all operations
- Context-specific: what CSR means varies by sector and situation
2
,Not every company embraces CSR with the same speed or depth. As with any innovation, there are early adopters who
proactively use CSR as a strategic opportunity, and laggards who only take action when external pressure forces them
to do so. This distinction is important:
- Proactive (early adopter/innovators): CSR as an opportunity, integrated into
the strategy
- Reactive (laggards): CSR as a response to external pressure
FRAMEWORKS
One of the most widely used frameworks for understanding CSR is Archie
Carroll’s 1979 pyramid. The pyramid organises a company’s responsibilities into
4 layers, from the most fundamental at the bottom to the most aspirational at
the top. Crucially, the higher layers assume that the underlying layers have
already been met.
- Economic responsibility
o Inside: a company must be profitable to survive →
stakeholders: shareholders
o Outside: a company must pay fair wages → stakeholders: employees/community
- Legal responsibility
o A company must comply with the law → for all stakeholders
- Ethical responsibility
o A company must not cause harm
o Inside: protect employees
o Outside: do not harm communities
- Philanthropic responsibility
o A company contributes to social causes: 4 forms
▪ Cause promotion: donating money to raise awareness
▪ Cause marketing: donating a percentage of product’s sales to a charity
▪ Social marketing: influencing behaviour for a social good (recycling, seat belts)
▪ Volunteering: encouraging employees to volunteer or partner with organisations
In addition to Carroll, Dahlsrud (2006) offers a complementary framework. He identifies 5 dimensions that feature in
almost all CSR definitions and which, taken together, provide a comprehensive picture of what CSR entails:
- Economic: the economic impact of the company
- Social: the relationship with people and communities
- Environmental: the ecological impact
- Stakeholder: the involvement of all stakeholders
- Voluntary: it goes beyond what is legally required
3
, DIFFERENT FORMS OF CSR
CSR is not a monolithic concept. It takes various forms, each with its own distinct approach.
1. Social Entrepreneurship
o Individuals or teams who use business methods to tackle social or environmental challenges. Unlike
traditional entrepreneurs, their focus is on social impact, not financial return. They operate from a
systems perspective and pursue a dual objective: impact and sustainability.
o Mohammed Yunus summed up the key argument powerfully: "A charity dollar only has one life,
whereas a business dollar has multiple lives." A business model is scalable in a way that pure charity is
not.
2. ESG (Environment – Social – Governance)
o ESG is a related but distinct concept. The central question was: how can environmental, social and
governance factors be integrated into investment decisions? ESG is therefore primarily a tool for 3,
whereas CSR is a strategy for companies.
There are three related but clearly distinct concepts:
- CSR:
o Question: How can we be a better corporate citizen?
o Focus: strategic management
o Nature: voluntary
- ESG:
o Question: How are environmental, social and governance aspects integrated into the business model?
o Focus: indicators and indices
o Nature: increasingly legally required
- SRI:
o Question: How do I invest responsibly?
o Focus: investment policy
o Nature: negative or positive screening
→ In Socially Responsible Investing (SRI), investment portfolios are filtered: negative screening excludes sectors such
as arms, tobacco or alcohol, whilst positive screening assesses ESG performance.
- Note: many SRI funds still include companies with questionable CSR performance, such as Microsoft, Walmart
or ExxonMobil.
CSR AS BUSINESS LOGIC
Now that we know what CSR is, a new question arises: why should a company actually engage in it? There are
essentially two answers.
- Do good to do well: CSR pays off, and that’s reason enough
- Do good to do good: companies simply have a moral duty, regardless of the return
In practice, the link between CSR and profitability has not been conclusively demonstrated. Research yields conflicting
results, partly because it is difficult to establish causality (is a company profitable because it engages in CSR, or does it
engage in CSR because it is profitable?) and because CSR performance is difficult to quantify.
4
