In this chapter, the theoretical framework for further analysis is presented. It starts with a description on the responsibilities corporations should bear towards society and the motives behind corporate activities. The description is then followed by the relationship between corporate managers with different moral level and their stakeholder orientation, as well as the benefits and challenges of CSR. The theories presented are summarized in a final section as propositions for how to measure attitudes of Swedish corporate managers towards CSR
Definition of CSR
The concept of CSR has evolved over time and researchers hold different views about what responsibilities and roles corporations should have towards society. The discussion of CSR generally falls into two schools of thoughts. One school argues that the main and only obligation of business is to maximize profit within the legal boundaries and minimal ethical constraints (Friedman, 1970; Levitt, 1983); while the other school argues that corporations should bear a broader range of obligations besides economic interest towards society (Carroll, 1979; Andrews, 1973; Davis & Blomstrom, 1975; Epstein, 1987; McGuire, 1963).
Both schools argue that the economic responsibility is fundamental since the corporation otherwise would not exist (Freidman, 1970; Carroll, 1979). However, apart from making profit and complying with the law, corporations have other obligations that are derived from the demands of employees, shareholders, consumers and other community citizens (Carroll, 1991). This study agrees that corporations should bear economic, legal and ethical responsibilities towards society.
This study uses two models as the frame of research to define CSR. These two models are the CSR pyramid developed by Carroll (1991), and the Three Domain Model of CSR developed by Carroll and Schwartz (2003). These models are applied since Carroll and Schwartz are widely recognised in the CSR field and their work is cited by numerous theorists and empirical researchers (Carroll & Schwartz, 2003)
The CSR Pyramid
Carroll (1991) suggests that corporations besides having economic and legal obligations, also have the duties to comply with ethical standards and promote the good of society. He (Carroll, 1991) creates the “Pyramid of Corporate Social Responsibility” (The CSR pyramid) (see figure 2-1) which includes four components: economic, legal, ethical and philanthropic, to conceptualize responsibilities that corporations should bear towards society.
The pyramid depicts economic and legal as required responsibilities and ethical responsibilities as expected responsibilities that corporations should bear towards society, while philanthropic responsibilities are merely voluntary actions and are thus not,compulsory, even though it is desired by society (Carroll, 1991). Since the CSR pyramid displays the responsibilities that corporations should fulfill in the society in a clear and pedagogical manner, it is used to define the responsibilities corporations should have towards society in this study
The economic component consists of the fundamental aim of business and entrepreneurship which is to provide goods and services to society and make profit. To be consistently as profitable as possible, the core goals for corporations should be maximizing share value and maintaining a strong competitive position on the market (Carroll, 1991).
According to the legal component, business is obliged to follow rules and regulations stated by the federal, state and local governments. Corporations need to comply with the legal obligations in a state while making profit. Laws and regulations can be seen as codified ethical responsibilities instead of unwritten ethical standards, which will be explained in the next section (Carroll, 1991).
The ethical component in the pyramid describes which ethical responsibilities the stakeholders expect corporations to take. Corporations are expected to behave and act in an ethical manner and avoid harm in its actions. Legal responsibilities in Carroll’s CSR pyramid are all based on ethical norms, values and standards. However the ethical responsibilities according to the CSR pyramid reflect what different stakeholders consider as fair and in accordance with moral rights, even though the ethical responsibilities are not codified by law. Nowadays, stakeholders often have expectations on corporations to accomplish more than only following written laws and regulations. Therefore, the ethical requirements that corporations are expected to meet broaden the above mentioned legal layer in the CSR pyramid (Carroll, 1991)
This component consists of corporate activities that are pursued to show that the corporation is a good citizen. Activities taken within this component are not required from society as actions taken according to the ethical component above. Therefore, Carroll (1991) claims that this component is not as important to corporations as the other three components. Examples of philanthropic contributions are to contribute with financial resources and participation to activities for assisting the fine arts, educational institutions and other elements that improve the quality of life for citizens in the community. Corporations are not considered as unethical if they do not perform according to this component and therefore, the philanthropic component consists of discretionary or voluntary actions as opposed to the other three components (Carroll, 1991)
The Three Domain Model of CSR
The Three Domain Model of CSR consists of a depiction of economic, legal and ethical domains of responsibility in a Venn diagram which results in overlapping domains (Carroll Schwartz, 2003). The model suggests that all the three domains are equally important and significant. It is developed based on the CSR pyramid with an exception of the philanthropic component. The philanthropic component is subsumed under either the ethical or economic domain depending on the motives behind the actions (Carroll & Schwartz, 2003). Since the Three Domain Model discusses motives behind corporations’ activities which the CSR pyramid does not develop, it is used in this study to explain why corporations engage in CSR.
The overlapping domains create seven categories which conceptualize, analyze and illustrate CSR (Carroll & Schwartz, 2003). Carroll and Schwartz (2003) argue that the ideal category is located at the center of the model where economic, legal and ethical responsibilities are all fulfilled. The seven categories are illustrated briefly as follows to provide an illustration of different perspectives that corporations consider before engaging in CSR activities. The diagram of the Three Domain Model is presented in Figure 2-2
Economic/ Legal/ Ethical
Activities that are motivated by economic, legal and ethical factors fall into this category. This category is considered to be the idealist level of CSR (Carroll & Schwartz, 2003). Carroll (1987) defines this type of corporation as “moral management”, which aligns with the thought that corporate managers desire profitability but only if the action is in accordance with the legal framework and ethical standards.
For activities to be considered in the economic domain, the motives of pursuing the activities have to produce either direct or indirect economic benefits to the corporations. For example, actions that are intended to increase sales are considered to produce direct economic benefits. Actions that are pursued to improve employee morale or the corporations’ public images so to benefit the corporation economically can be considered to produce indirect economic benefits. Both of these activities are intended to maximize profit or minimize loss (Carroll & Schwartz, 2003).
For activities to be considered in the legal domain, corporate managers have to comply with laws and regulations intentionally. In other words, corporations that passively comply with the law do not fulfill the legal domain in the Three Domain Model (Carroll & Schwartz, 2003).
For activities to be considered in the ethical domain, they have to be motivated by one of the following motives: 1. to follow standards or norms that have been accepted by the organization, industry, profession or stakeholders as crucial criteria for the proper functioning of business; 2. to promote the good of society or produce the greatest net benefit or lowest net cost to society; 3. to uphold values such as trustworthiness (i.e. honesty, integrity, reliability, loyalty), caring (i.e. avoid unnecessary harm to stakeholders), responsibility, and citizenship (i.e. assist the community, protect the environment) (Carroll & Schwartz, 2003)
Activities that are motivated only by economic factors which produce either direct or indirect economic benefits fall into this category (i.e. maximize profit or minimize loss). These activities can be illegal, passively complying with the law, amoral or unethical (Carroll Schwartz, 2003). Carroll and Schwartz (2003) suggest that most of the highly criticized corporate activities fall into this category. Corporations in this category are called “amoral” corporations (Carroll, 1987).
Activities that are only motivated by legal factors fall into this category. These activities are not considered ethical and produce no economic benefits to the corporations. Very few activities can be considered purely legal since activities that are legal usually are ethical (Carroll & Schwartz, 2003). Posner (1986) also argues that activities that are legally required usually possess economic benefits.
Activities that are purely ethical fall into this category. These activities are not legally required and produce no economic benefits. Very few activities are purely ethical since activities that are ethical usually produce long term indirect economic benefits (Carroll & Schwartz, 2003)
Activities that are motivated by both economic and ethical factors but not based on legal consideration fall into this category. Carroll and Schwartz (2003) argue that most of the corporate activities motivated by the thought of “good ethics is good business” are included in this category, e.g. corporations that contribute to charity for both economic and ethical reasons or sell green products. Reidenbach and Robin (1991) consider these corporations as “emergent ethical’ corporations, which means that the management “actively seeks a greater balance between profits and ethics”. Carroll (1987) also considers this type of corporations as “moral management”
Activities that are motivated by both economic and legal motives fall into this category. Very few activities that are both economic and legal are unethical since activities that are legally required are usually ethical. An exception can be corporations that opportunistically comply with law and search for legal loopholes for economic benefits (Carroll & Schwartz, 2003). This kind of practice is usually considered as unethical. This type of corporation can be termed as “amoral management” (Carroll, 1987)
Activities that are both legal and ethical in nature but produce no economic benefits fall into this category. However, most activities that are both ethical and legal generate economic benefits. One example of activities that is only legal and ethical can be corporations installing an anti-pollution device due to legal requirements and ethical concerns though there may not be long term economic benefits (Carroll & Schwartz, 2003).
Morality and Corporate managers
Carroll (1991) divides managers into three categories based on the ethical domain mentioned earlier: immoral managers, amoral managers and moral managers (see section 2.3). Understanding the morality of managers is closely related to the purpose of this study since moral standards affect how corporate managers make decisions when engaging in CSR activities.
Managers who intentionally act, decide and behave against what is deemed ethical and moral are called “immoral managers”. Immoral managers see rules as barriers to reach their corporation’s goals and they only care about their corporation’s profits and success. These managers violate legal and ethical principles intentionally to pursue economic benefits. They often practice the strategy of exploiting opportunities for their personal or corporate gain (Carroll, 1991).
Amoral managers are ignorant about how their actions, decisions and behaviors affect others. These managers ignore ethical perspectives in corporate decision making and do not consider ethics or morality in the business context. They often refer to the “letter of law” as their ethical guide instead of respecting the spirit of law (Carroll, 1991).
The third and preferred moral type is the moral managers who do not only base their actions on high levels of professionalism but manage the corporation based on ethical values. Moral managers also have their goals to make profits but they only want to make profit if the means are accepted according to legal and ethical thoughts, e.g. justice and fairness (Carroll, 1991).
There is a correlation between manager types and their stakeholder approaches. Before examining the differences of how immoral, amoral and moral managers treat their stakeholders, stakeholder theory will be presented in the next section to understand what stakeholders mean in this study.
If business would be considered as activities that form part of society as a whole, it is easy to presume that business is responsible for a lot more people than its shareholders only (Evans, 1991, pp. 872-873). Blowfield and Murray (2008) point out that managers are often faced with sets of issues that ask the questions, “What am I responsible for?” and “to whom am I responsible?” in the field of CSR. Stakeholder theory assists management thinking and helps managers to solve the question of who they should be responsible to (Blowfield & Murray, 2008).
Back to the 1930’s, the term “stakeholders” was usually used by corporate managers to differentiate between the main groups to which corporations have different kind of responsibilities, particularly shareholders, customers, consumers and employees (Blowfield Murray, 2008). In 1971, Johnson argued that corporate managers of socially responsible firms should balance “a multiplicity of interests” among stakeholders. A socially responsible enterprise should also take into account the opinions of employees, customers, local communities and the nation instead of striving only for economic interests of its shareholders (Johnson, 1971).
Stakeholder theory was not explored in an extensive and complex manner until the landmark book of Freeman: Strategic management: a stakeholder approach (Blowfield & Murray, 2008). Freeman (1984) defines stakeholder as “any group or individual who can affect or is affected by the achievement of the firm’s objectives” . According to Freeman (1984), stakeholders of a corporation can include shareholders, creditors, employees, customers, public interest groups, competitors and governmental bodies. Evans (1991) argues that lenders and creditors are also important stakeholders for corporations
1.2 Research problem
1.5 Thesis disposition
2 Theoretical framework
2.1 Definition of CSR
2.2 The CSR Pyramid
2.3 The Three Domain Model of CSR
2.4 Morality and Corporate managers
2.5 Stakeholder theory
2.6 Corporate managers’ stakeholder orientation
2.7 Benefits and Challenges of adopting CSR
2.8 Authors’ propositions
3.1 Research approach
3.2 Literature Review
3.3 Primary Data collection
3.4 Questionnaire design
3.5 Profile of respondents
3.6 Preparation of data analysis
3.7 Presentation of data
4 Empirical analysis
4.1 Proposition 1 – The CSR pyramid and the Three Domain Model
4.2 Proposition 2: Stakeholders
4.3 Proposition 3: Challenges and Benefits of CSR
5 End remarks
5.4 Propositions for further research
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