The present practice of corporate social responsibility (CSR) has been depicted and

informed by three CSR theories:

1. The stakeholder theory of CSR.

2. The business ethics theory of CSR.
3. And the shareholder value theory of CSR.

The stakeholder theory of CSR

Since the 1990s’ the stakeholder theory has become famous as a direct alternative
and challenge to the shareholder value theory (Freeman 1984). It argues that the
number of stakeholder pressure groups has developed widely since the 1960s’ and
the stakeholder forces impact on business must not be underestimated. Ethical and
pragmatic as it ought to be business success assume vast interests of stakeholders
than the shareholder’s interest alone. The stakeholder theory emphasizes special
social rather than any others unrelated to the corporation. Thus CSR is denoted as a
company stakeholder responsibility.

Business ethics theory of CSR

The business ethics theory is based on wider social obligation and the moral duty
that business has towards society (Bigg, 2004). This theory justifies CSR on 3
varied but interrelated ethical grounds:

1. Changing and emerging social responsiveness and social expectations to

particular social problems.
2. Eternal or intrinsic ethical values always inspired by Kantian ethics and
denoted as some normative and universal principles like social justice, fairness
and human rights
3. Corporate citizenship i.e. corporation as a better citizen in a society to
contribute to social well being.

The business ethics theory views CSR more as philanthropic and ethical
responsibilities rather than legal and economic responsibilities. CSR initiates
where legal obligation declines.

The shareholder value theory of CSR

The shareholder value theory a perspective denoted by the Nobel Laureate Milton
Friedman (1970) argues that only social responsibility of business is to develop its
profits while following legal norms. Neoclassical economists like Hayek assert that
the function of business is doing business that contributes to society and economy
and its function must not be confused with other social functions performed by not
for profit organizations and governments. Otherwise, it is not the most effective
way of allocating resources in a free market. Economists like agency theorists
believe that the corporation owners are its managers and stakeholders as agents
have a fiduciary duty to serve the shareholders interest rather than any others.

Although maximizing the profit of shareholder is justified as the most significant

or only corporate responsibility, corporate social obligations are regarded often as
a strategic instrument for a corporate competitive benefit and more profit gain.