6

CORPORATE SOCIAL
RESPONSIBILITY
 Learning Outcomes

At the end of this chapter, you should be able to:

 Define stakeholders
 Explain a firm’s primary and secondary stakeholders
 Describe the different forms of Stakeholder Theory
 Explain the meaning of corporate social responsibility
 Examine the critical arguments in favour of and against
corporate social responsibility
 Analyze a firm’s corporate social responsibility
performance using Carroll’s four-part model

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 Learning Outcomes (cont.)

 Summarize Davis’s model of corporate social

responsibility
 Distinguish between corporate social responsibility and
corporate social responsiveness

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 Definition of Stakeholder

 Early definitions of stakeholder:

 Evan and Freeman (1993), Crane and Matten (2016): “… an

individual or a group which either is harmed by, or benefits
from, the corporation; or whose rights can be violated, or
have to be respected, by the corporation.”
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 Definition of Stakeholder (cont.)

 A stakeholder refers to a specific person or groups of

people, who have an interest or a claim in a firm and
can affect and be affected by the firm’s decisions and
actions.
 The management of the firm ought to determine how
the interests of such groups can be incorporated or
represented in their decisions and actions.
 A more inclusive approach is needed rather than an
exclusive approach when making decisions.

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 Stakeholders

 Primary stakeholders are the most influential, so firms

have to treat them well.
 If any primary stakeholder group (e.g.
customers/suppliers) becomes dissatisfied and
withdraws their participation, the firm will be seriously
damaged or unable to continue as a going concern.
 Secondary stakeholders may not be as influential as
the primary stakeholders, but they can negatively affect
the reputation of the firms.

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 Stakeholders (cont.)

 Types of stakeholders and their stakes:

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 Stakeholders (cont.)

 Power, legitimacy and urgency

– Power: the ability to exert influence over a particular
decision. Primary stakeholders have a high degree of
power that can be used.
– Legitimacy: the extent of validity or an appropriateness of
a stakeholder’s claim to stake. Primary stakeholders have
a legitimate interest in a firm and this increases salience to
a firm.
– Urgency: the extent to which stakeholders’ demands or
claims call for immediate attention from the firm. The
urgency depends on its degree of sensitivity and the
importance of the relationship to a firm.

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 Three Perspectives of
Stakeholder Theory

 Normative perspective:
– The core of the Stakeholder Theory (Donaldson and
Peterson, 1995).
– Attempts to explain the motivation for a firm to take into
consideration its stakeholders’ views in decision-making.
– This perspective is based on Kant’s Ethics of Duty
theory, where firms have civil duties that are important
to increase or maintain the net good in society.
– Stakeholders should be treated based on some
underlying moral or philosophical principles.

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 Three Perspectives of
Stakeholder Theory (cont.)

 Descriptive perspective:
– Attempts to describe and explain the behaviour of firms
and their managers in dealing with various stakeholders.
– Firms are likely to consider some group of stakeholders
as more important than others because of their ability to
influence the needs of the firms at any organizational life
cycle stage.
– In short, the strategy that firms adopt in their relationship
with stakeholders depends on the relative importance of
a particular stakeholder group in relation to other
stakeholders.

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 Three Perspectives of
Stakeholder Theory (cont.)

 Instrumental perspective:
– This perspective asserts that a firm must manage its
stakeholder relations will in order to make profits.
– Corporate managers have to balance and meet the
needs of various stakeholders.
– This perspective argues that there is a justification for
treating stakeholders well as it is necessary to achieve
economic goals.

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 Concept and Nature of Corporate
Social Responsibility

 Corporate social responsibility means that firms are not

only responsible to shareholders, but also accountable
for the effect of their actions on various stakeholder
groups.
 Firms have an obligation to take actions that protect and
enhance the well-being of their stakeholders other than
promoting their own interests.
 Firms are expected to protect the welfare of their
stakeholders by avoiding negative impacts that their
actions can bring unto them.

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 Concept and Nature of Corporate
Social Responsibility (cont.)

 The CSR concept promotes the idea that firms cannot

exist in a vacuum. They need support from both
shareholders and stakeholders to survive.
 In short, firms do have responsibilities beyond making
profit for shareholders.
 In Malaysia, Bursa Malaysia Securities launched a CSR
framework for public-listed firms in 2006 which
emphasizes that CSR is more than philanthropy and
community initiatives.

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 Concept and Nature of Corporate
Social Responsibility (cont.)

 The Bursa Malaysia CSR dimensions:

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 Concept and Nature of Corporate
Social Responsibility (cont.)

 Carroll’s Pyramid of Corporate Social Responsibility

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 Concept and Nature of Corporate
Social Responsibility (cont.)

 Examples of Socially Responsible Activities

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 Concept and Nature of Corporate
Social Responsibility (cont.)
Davis’s Model of Corporate Social Responsibility

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 The Debate of Corporate Social
Responsibility

Arguments Against CSR Arguments in Favour of CSR

Classical economics Good for business in the long term

Incompetent to deal with social Prevent future external interference

issues
Competitive disadvantage Business have the resources, so let
them try
Individuals have moral It is the right thing to do
responsibility, not firms
Stakeholders bear the cost
Dilutes the primary purpose of a
business

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 Corporate Social Responsiveness

 Corporate Social Responsiveness is an extension of

the CSR concept that focuses on actions rather than
merely identification of firms obligations.
 It is not enough for firms to merely identify and fulfil
their obligations to stakeholders.
 Instead, they need to be proactive in determining the
needs of the society and do something to meet those
needs.

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 Corporate Social Responsiveness
(cont.)

 Four philosophies of corporate social responsiveness:

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