The stakeholder theory of Corporate Social Responsibility

By Sneha Naik and Priya Chetty on September 21, 2020

In this era of globalization, Corporate Social Responsibility (CSR) has managed to integrate itself into the corporate culture and has evolved as an integral aspect of corporate performance reviews. It is a voluntary concept to be adopted by organizations. It integrates the social and environmental dimensions of a business in its operational activities. CSR and stakeholder theory both highlight the significance of conducting business operations by taking into consideration the larger societal benefits.

The scope of CSR has now evolved to become a more inclusive concept involving various stakeholders, and ensuring that businesses are operating in an ethical and sustainable manner (Tsutsui & Lim, 2015). With customers becoming more socially and environmentally aware, companies increasingly getting more customer-centric. A key tool towards superior customer service is to integrate CSR in bringing about radical changes and benefits to the company; and the overall socio-environmental arena (Carey, 2019).

While implementing CSR as a part of their corporate culture, organizations face many challenges. Three key challenges faced by organizations have been discussed here, which necessitates the need for applying stakeholder theory in implementing CSR successfully.

Aligning business goals with employees’ goals

Firstly, the foremost challenge for organizations is to conduct normal business operations while making its workforce aware of their responsibilities towards the fulfilment of the social and environmental concerns.

Maintaining clear communication about the scope of CSR

Secondly, due to instances of inadequate communication between an organization and the community, issues arise which hamper the conduct of the CSR activities in a proper manner (Aseghehey, 2018). There is also a lack of proper awareness and consensus of the CSR activities and the related long-term use amongst the various stakeholders, including employees, shareholders, community, customers, etc. This leads to slowing down the various initiatives and duplication in work done by corporates adding to confusion (Księżak, 2016).

Maintaining transparency in the conduct

Thirdly, the lack of transparency in matters of disclosure of various initiatives to be undertaken by the company under its CSR initiatives impacts trust between companies and their stakeholders. These issues can be mitigated by considering the stakeholder theory of CSR (Harrison, et al., 2019). This helps the leadership to come to a consensus on the desired CSR actions considering the interests of all the stakeholders.

The stakeholder theory approach to CSR

Stakeholder theory is a concept that emphasizes the interrelationship between business and its various stakeholders, including investors, customers, employees, suppliers, etc as shown in the figure below (Jansson, 2005).

Stakeholder theory of CSR
Figure 1: Stakeholder theory of CSR (Jansson, 2005)

The stakeholder theory stresses on the fact that an organization should create value for its various stakeholders who are affected by its business actions and decisions, and not only its shareholders. The theory talks about the necessity of managers to be held liable to the various stakeholders for safeguarding stakeholder interests. It works from the point of three perspectives for a business:

  • stakeholders who have an impact on the business operations of the firm
  • how such interconnections have an impact on key stakeholders and the organisation; and
  • how the viewpoints of key stakeholders has an impact on the success of the firm’s strategic measures (Bonnafous-Boucher & Rendtorff, 2016).

Businesses should hence plan strategies to deal with key stakeholders in an appropriate manner to improve efficiency and effectiveness in carrying out business operations successfully over the long term.

The interrelationship between stakeholder theory and CSR

The stakeholders are a critical aspect of the success of CSR initiatives as seen in Figure 2. Organizations would not be able to achieve their CSR goals without the participation, expertise, know-how, and loyalty of its various stakeholders. One important aspect of CSR is that business is accountable to all its stakeholders who have a valid interest in it and the business decisions impact their interests (Kakabadse, et al., 2005).

Interrelationship between stakeholder theory and CSR
Figure 2: Interrelationship between stakeholder theory and CSR (Freeman and Dmytriyev, 2017)

Still, there are similarities between the two concepts. CSR emphasizes the benefit to the society at large whereas stakeholder theory works on building relationships and value between business and its various stakeholders (Freeman & Dmytriyev, 2017). Though there are certain differences between the two concepts, they can be aligned to work for the betterment of the company and the society.

The various challenges in implementing CSR initiatives can be mitigated by aligning the concept with stakeholder theory as this enables leaders to have a more pragmatic approach considering the interests of all its stakeholders and planning its actions accordingly. Stakeholder theory addresses the issue of a lack of awareness of the benefits of CSR (Harrison, et al., 2019). CSR aligned with stakeholder theory generates the maximum benefits in the form of societal development as well as creating a motivated workforce, better company branding, larger sales and profitability, satisfied customers, etc (Nikolova & Arsić, 2017). Thus, CSR is an integral part of corporate responsibility which involves the participation of its various stakeholders for its successful implementation.

Case example of CSR and stakeholder theory: McDonald’s

McDonald’s, one of the oldest companies in operations in the global food industry, is seen as a pioneer in implementing CSR initiatives. The various stakeholders at McDonald’s have an impact on consumer perception. To address its stakeholders’ interests and fulfill its social responsibilities, the company has undertaken various CSR initiatives (Mc Donald’s CSR Report, 2018). The company considers its employees as its key stakeholder and works on improving its interests through career development programs, providing training and development, and good compensation. It works on improving customer satisfaction by providing them affordable and healthy food choices.

Its CSR initiatives include affordable products through standardization and having a robust supply chain, boosting employment for the local workforce. It addresses the interests of its shareholders by having stable business operations and increasing profitability and revenues. In addition, McDonald’s undertakes community development support and environmental programs for the betterment of the larger community. For instance, the company initiated a global program called Scale for Good to overcome global societal challenges (Mc Donald’s CSR Report, 2018). These initiatives show that the company takes its CSR responsibility towards its various stakeholders seriously.

References

  • Aseghehey, A. M., 2018. Challenges in Implementation of CSR, Karlstad: Karlstad Business School.
  • Bonnafous-Boucher, M. & Rendtorff, D. J., 2016. Stakeholder Theory: A Model for Strategic Management. Cham: Springer.
  • Carey, F., 2019. Importance of Corporate Social Responsibility. Analysis of a scientific article on international hotel chains. Verlag: GRIN Verlag.
  • Freeman, R. E. & Dmytriyev, S., 2017. Corporate Social Responsibility and Stakeholder Theory: Learning From Each Other. SYMPHONYA Emerging Issues in Management, pp. 1-14.
  • Harrison, J., Barney, J., Freeman, E. & Robery, P., 2019. The Cambridge Handbook of Stakeholder Theory. Cambridge: Cambridge University Press.
  • Harrison, S. J., Barney, B. J., Freeman, R. E. & Phillips, A. R., 2019. The Cambridge Handbook of Stakeholder Theory. Cambridge: Cambridge University Press,.
  • Jansson, E., 2005. The Stakeholder Model: The Influence of the Ownership and Governance Structures. Journal of Business Ethics, 56(1), pp. 1-13.
  • Kakabadse, N. K., n.d. Corporate social responsibility and stakeholder approach: A conceptual review.
  • Kakabadse, N., Rozuel, C. & Lee-Davies, L., 2005. Corporate social responsibility and stakeholder approach: A conceptual review. International Journal of Business Governance and Ethics, 1(4).
  • Księżak, P., 2016. The CSR Challenges in the Clothing Industry. Journal of Corporate Responsibility and Leadership.
  • Mc Donald’s CSR Report, 2018. Mc Donald’s CSR Report, Tokyo: Mc Donald.
  • Nikolova, V. & Arsić, S., 2017. THE STAKEHOLDER APPROACH IN CORPORATE SOCIAL RESPONSIBILITY. Engineering management, pp. 24-35.
  • Tata Motors, 2020. https://live.tmlcsr.com/stackholder.html. [Online]
    [Accessed 6 July 2020].
  • Tsutsui, K. & Lim, A., 2015. CSR is the catalyst that brings about a positive social change that is welcome for business, government, and society at large. Benefits to a company include iCorporate Social Responsibility in a Globalizing World. Cambridge: Cambridge University Press.
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