Chapter 6: Corporate Social Responsibility — Study Notes

Learning Outcomes

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
Summarize Davis’s model of corporate social responsibility
Distinguish between corporate social responsibility and corporate social responsiveness

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.”
Definition of Stakeholder (modern/expanded):
- 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.

Primary stakeholders are the most influential; 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 primary stakeholders, but they can negatively affect the firm’s reputation.

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 appropriateness of a stakeholder’s claim to stake. Primary stakeholders have a legitimate interest in a firm, increasing salience to a firm.
Urgency: the extent to which stakeholders’ demands or claims call for immediate attention from the firm. Urgency depends on the degree of sensitivity and the importance of the relationship to a firm.

Normative perspective (Donaldson & Preston, 1995):
- The core of Stakeholder Theory.
- Attempts to explain the motivation for a firm to consider its stakeholders’ views in decision-making.
- Based on Kant’s Ethics of Duty, where firms have civil duties important to increase or maintain the net good in society.
- Stakeholders should be treated based on underlying moral or philosophical principles.
Descriptive perspective:
- Attempts to describe and explain the behaviour of firms and their managers in dealing with stakeholders.
- Firms are likely to consider some groups more important than others because of their ability to influence needs at various stages of the organizational life cycle.
- The strategy firms adopt depends on the relative importance of particular stakeholder groups in relation to others.
Instrumental perspective:
- A firm must manage its stakeholder relations in order to make profits.
- Corporate managers must balance and meet the needs of various stakeholders.
- There is a justification for treating stakeholders well as it is necessary to achieve economic goals.

CSR 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 beyond 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.
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.

The Bursa Malaysia CSR framework exists and is referenced in the text, but the specific CSR dimensions are not enumerated in the transcript provided.

Carroll’s Pyramid of Corporate Social Responsibility is introduced as a framework for CSR, but the transcript does not list its components.
The pyramid is cited as a key model for understanding CSR duties across multiple dimensions.

Examples of socially responsible activities are referenced but not enumerated in the transcript.
Davis’s Model of Corporate Social Responsibility is introduced, but the transcript does not provide details of the model.

Corporate Social Responsiveness is an extension of the CSR concept that focuses on actions rather than merely identifying firm obligations.
It is not enough for firms to merely identify and fulfil their obligations to stakeholders.
Instead, firms need to be proactive in determining the needs of society and do something to meet those needs.

The text indicates there are four philosophies of corporate social responsiveness, but the transcript does not provide the specifics of these four philosophies.
Note: Content for these four philosophies is not included in the transcript provided.