The present practice of corporate social responsibility (CSR) has been depicted and informed by three CSR theories:
- The stakeholder theory of CSR.
- The business ethics theory of CSR.
- 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:
- Changing and emerging social responsiveness and social expectations to particular social problems.
- 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
- 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.
- Freeman, R. Edward (1984). Strategic Management: A Stakeholder Approach, Boston: Pitman. Mehra. M. (2004). National Conference on CSR: Corporate Social Responsibility for Bridging the Gap, 9th November, New Delhi.
- Bigg T (2004), Survival for a small planet: the sustainable development agenda, Earth scan publishers, UK, p 334.