Corporate Social Responsibility (CSR) and stakeholder theory are central to understanding how modern businesses operate within society. These frameworks help explain why companies make ethical decisions, how they balance competing interests, and how strategic planning goes beyond profit.
What is Corporate Social Responsibility (CSR)?
CSR refers to the concept that a business has responsibilities that go beyond making profits for its owners or shareholders. It recognises that firms operate within a society and have obligations to various stakeholders such as employees, customers, suppliers, communities, and the environment.
Definition of CSR
Corporate Social Responsibility (CSR) is a business approach that contributes to sustainable development by delivering economic, social, and environmental benefits to all stakeholders. It involves a commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families, the local community, and society at large.
Key aspects of CSR include:
Ethical conduct: Treating all stakeholders fairly and justly.
Environmental care: Reducing waste, pollution, and carbon footprint.
Community engagement: Supporting local causes and social issues.
Workplace standards: Ensuring safe and fair working conditions.
CSR is not simply about compliance with the law. Instead, it involves voluntary actions that demonstrate a company’s commitment to responsible business practices.
Reasons for Adopting CSR
There are several strategic and ethical reasons why businesses may choose to implement CSR practices.
1. Enhanced reputation and brand image
A strong CSR record can boost a business’s public image and help build a loyal customer base.
Ethical and environmentally conscious consumers are more likely to support businesses aligned with their values.
2. Increased trust from stakeholders
Ethical behaviour fosters transparency and trust with customers, employees, and investors.
A business known for doing the right thing is more likely to enjoy long-term stakeholder support.
3. Sustainable long-term growth
By addressing social and environmental concerns, businesses can mitigate future risks and ensure continued access to key resources.
For example, investing in sustainable materials can avoid supply chain disruptions in the future.
4. Attracting investment
Institutional investors increasingly consider Environmental, Social, and Governance (ESG) criteria.
Firms with strong CSR performance may benefit from greater access to capital.
5. Employee attraction and retention
Many workers, especially younger generations, prefer to work for ethical organisations.
CSR initiatives such as employee volunteering, diversity policies, and environmental targets help boost morale and engagement.
Reasons Against CSR
Despite the benefits, some critics argue that CSR is an unnecessary or even harmful distraction from a business's main goal—profit maximisation.
1. Increased costs
CSR initiatives often involve substantial expenditure, such as sustainable raw materials, eco-friendly technology, or social investment programmes.
These costs may reduce short-term profits, which could upset shareholders.
2. Potential inefficiency
CSR efforts can lead businesses to make decisions that are not financially optimal.
For example, investing in carbon offsets might not yield an immediate return.
3. Risk of superficiality or 'greenwashing'
Some companies undertake CSR purely for PR purposes without genuine commitment.
This can backfire if the public detects insincerity or unethical practices behind the scenes.
4. Dilution of core objectives
Critics like Milton Friedman argue that diverting resources from profit-making towards social goals undermines the primary economic purpose of business.
Stakeholder vs Shareholder Models
Understanding CSR also requires examining how different models of business purpose influence decision-making. The shareholder and stakeholder models offer contrasting perspectives.
The Shareholder Model
The shareholder model holds that a company’s main obligation is to its owners or shareholders. This model, strongly advocated by economist Milton Friedman, suggests that the primary purpose of a business is to maximise profits.
Key beliefs of the shareholder view:
Businesses exist to generate wealth for their shareholders.
Any social responsibility should be pursued only if it increases shareholder value.
CSR actions are justifiable only if they enhance profitability (e.g. by improving reputation or reducing costs).
Example: A retail chain reduces packaging waste only if doing so saves money or attracts eco-conscious consumers.
Critics argue that this model:
Ignores the interests of other affected groups (employees, environment, community).
Encourages short-termism and risk-taking behaviour.
May harm long-term sustainability by prioritising profit above ethics.
The Stakeholder Model
The stakeholder model argues that businesses have responsibilities to a wider range of parties beyond just shareholders.
Stakeholders include:
Customers: Deserve quality, safety, and fair pricing.
Employees: Require fair pay, working conditions, and job security.
Suppliers: Should be treated fairly and paid on time.
Communities: Are affected by pollution, noise, and traffic.
Governments and regulators: Expect compliance and ethical conduct.
Key principles of the stakeholder view:
Business decisions should balance competing needs rather than prioritise shareholders alone.
Profit is still important, but it should be achieved ethically and sustainably.
Managers act as stewards who protect the interests of all stakeholders.
Example: A tech firm offering generous parental leave, even if not legally required, to support employee wellbeing.
The stakeholder model is more compatible with CSR thinking, as it supports ethical decision-making, sustainability, and long-term planning.
Carroll’s CSR Pyramid
To better understand the components of CSR, AQA students must study Carroll’s CSR Pyramid, a widely accepted model developed by Archie Carroll in 1991. This pyramid outlines four levels of corporate responsibility, starting with the most basic economic obligations and moving up to philanthropic efforts.
Level 1: Economic Responsibility
This is the foundation of the pyramid. Businesses must be profitable to survive, invest, and pay stakeholders.
Responsibilities:
Be efficient and productive.
Provide value to customers.
Generate income for shareholders and owners.
Example: A supermarket offering affordable products while keeping operating costs low.
Without economic viability, a company cannot sustain the other layers of CSR.
Level 2: Legal Responsibility
Businesses are expected to obey laws and regulations, which represent minimum standards of behaviour in society.
Responsibilities:
Abide by employment laws (e.g. minimum wage, health and safety).
Follow consumer protection rules.
Pay taxes and maintain transparent records.
Example: A construction firm meeting building codes and safety regulations.
Compliance with the law ensures fair competition and protects stakeholders from harm.
Level 3: Ethical Responsibility
Ethical responsibilities go beyond legal requirements. These are the actions that society expects, even if they are not legally enforced.
Responsibilities
Treat workers fairly.
Ensure supply chains are free from exploitation.
Operate in a transparent and honest way.
Example: A food manufacturer avoiding artificial ingredients even though they’re legally allowed.
This layer of the pyramid reflects moral values and societal norms.
Level 4: Philanthropic Responsibility
At the top of the pyramid are philanthropic responsibilities, which are voluntary contributions to society.
Responsibilities:
Donate to charitable causes.
Sponsor community programmes.
Support education, sports, or health initiatives.
Example: A bank funding financial literacy workshops for underprivileged groups.
Although not required, philanthropic actions can build goodwill and enhance brand loyalty.
Usefulness of Carroll’s CSR Pyramid in Strategic Planning
Carroll’s Pyramid offers a practical structure for analysing CSR strategies and integrating them into business planning. It provides clarity about different types of responsibilities and how they can be prioritised.
Strategic Applications
1. CSR as a competitive advantage
By aligning operations with ethical and philanthropic values, businesses can differentiate themselves in crowded markets.
2. Strategic alignment
The pyramid helps ensure that CSR initiatives are consistent with a firm’s mission, values, and stakeholder expectations.
3. Internal audit tool
Companies can use the four levels to assess their current CSR practices and identify areas needing improvement.
4. Risk management
Fulfilling legal and ethical responsibilities reduces the risk of lawsuits, scandals, or boycotts.
5. Stakeholder engagement
The pyramid supports transparent communication with stakeholders by showing a commitment to all levels of responsibility.
Evaluation: Strengths and Limitations
Strengths:
Simple and easy to understand.
Covers a wide range of business responsibilities.
Adaptable across industries and countries.
Limitations:
Assumes responsibilities are neatly layered, when in practice, they often overlap.
May not reflect urgent environmental and social challenges, such as climate change, that demand more than voluntary action.
Some critics argue that philanthropy should not be optional, especially for large firms with significant influence.
Strategic Implication:
While Carroll’s Pyramid offers a solid foundation, modern firms may need to integrate CSR deeper into core business models, beyond the framework’s structured hierarchy.
FAQ
Businesses can assess CSR success through both qualitative and quantitative indicators. Key performance metrics include reduced carbon emissions, increased employee satisfaction, improved customer loyalty, and supplier ethical compliance rates. Companies often use ESG (Environmental, Social and Governance) ratings, stakeholder surveys, sustainability audits, and third-party certifications such as B Corp or Fairtrade. Monitoring media coverage and customer sentiment online can also indicate reputational impact. Success depends on clear goals, transparency, and ongoing stakeholder engagement to ensure actions align with values.
Employees are crucial in executing CSR, as they often lead or participate in environmental, ethical, and community-focused initiatives. Their behaviour reflects the company’s values in daily operations, from waste reduction to customer service. Internal training ensures staff understand CSR goals, while inclusive policies foster a culture of responsibility. Employees may also contribute ideas, volunteer for charitable projects, or flag unethical practices. Active staff involvement enhances credibility, boosts morale, and strengthens alignment between business strategy and social objectives.
Yes, small businesses can practise effective CSR by focusing on initiatives that align with their capabilities and local community needs. While they may not have the budgets of large firms, SMEs can support local charities, implement eco-friendly packaging, adopt fair employment practices, and reduce energy usage. Many small businesses also build strong stakeholder relationships through ethical sourcing and community engagement. These efforts can offer competitive advantages, increase customer loyalty, and help the business grow sustainably without incurring significant costs.
CSR significantly influences modern consumer decisions, particularly among ethically conscious demographics. Many customers prefer brands that align with their personal values, such as sustainability, animal welfare, or labour rights. Businesses that transparently demonstrate ethical practices—like reducing plastic use or supporting social causes—often enjoy higher customer retention and brand loyalty. Consumers may even be willing to pay more for products from responsible companies. However, insincere or exaggerated CSR claims can lead to backlash and loss of trust.
In saturated markets, where products are similar and price competition is high, CSR can help businesses differentiate themselves. Ethical branding, environmentally friendly practices, and social contributions can attract consumers who seek more than just functional value. CSR builds emotional connections with customers and may also lead to favourable media coverage and awards. Furthermore, strong CSR practices can improve employee retention and supplier relationships, reducing long-term costs. Altogether, this positions the business more favourably than rivals who neglect social responsibility.
Practice Questions
Analyse the value of Carroll’s CSR Pyramid to a business when making strategic decisions.
Carroll’s CSR Pyramid helps businesses prioritise their responsibilities, starting with profit and legal compliance, before addressing ethical and philanthropic aims. This framework supports clear, structured decision-making, ensuring economic obligations are not sacrificed while pursuing wider social goals. It can guide long-term strategy by aligning CSR actions with stakeholder expectations and brand image. However, in dynamic environments, its rigid hierarchy may oversimplify overlapping issues. Nonetheless, the model provides a useful starting point for evaluating CSR decisions, particularly for firms looking to balance profit with reputation, sustainability, and social responsibility in a competitive marketplace.
Explain one reason why a business might choose to follow a stakeholder model rather than a shareholder model.
A business might adopt the stakeholder model to build long-term trust and loyalty with key groups such as customers and employees. For example, by prioritising fair treatment of staff or responding to community concerns, the firm enhances its reputation, reduces conflict, and promotes sustainable success. Unlike the shareholder model, which focuses solely on profit, the stakeholder view acknowledges the importance of ethical relationships and social responsibilities. This broader approach can strengthen brand loyalty, reduce risk, and create value through innovation and cooperation, which in turn contributes indirectly to financial performance over time.
