CERTIFICATE LEVEL

Subject Fundamentals of Ethics, Corporate Governance & Business Law (BA4)

Boopathy Kahathuduwa
Lecturer Attorney At Law, CIMA Exams Complete, BBA (International Business) UOC

Module Tute 07 - Corporate Social Responsibility 2

Code BA4/BK/09
Carroll’s CSR Pyramid

Carroll’s CSR pyramid is a framework that explains how and why organisations should take
social responsibility. The pyramid was developed by Archie Carroll and highlights the four
most important types of responsibility of organisations. These are:

• Economic responsibility
• Legal responsibility
• Ethical responsibility
• Philanthropic responsibility

The pyramid’s base is profit. This foundation is necessary for a company to meet all laws and
regulations, as well as the demands of shareholders. Before a company can and should then
take its philanthropic responsibility or discretionary responsibility, it must also meet its ethical
responsibilities.

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Economic responsibility in Carroll’s CSR pyramid

The economic responsibility of companies is about producing goods and services that society
needs and to make a profit on them. Companies have shareholders who expect and demand
a reasonable return on their investments, they have employees who want to do their jobs
safely and fairly, and have customers that want quality products for fair prices. That’s the
foundation of the pyramid upon which all the other layers rest.

Legal responsibility in Carroll’s CSR pyramid

The legal responsibility of companies is about complying with the minimum rules that have
been set. Organisations are expected to operate and function within those rules. The basic
rules consist of laws and regulations that represent society’s views of codified ethics. They
determine how organisations can conduct their business practices in a fair manner, as defined
by legislators on national, regional, and local level.

Legal responsibility in CSR is:

• Operating in a consistent way in accordance with government requirements and the

law
• Complying with different national and local regulations
• Behaving as loyal state and company citizens
• Meeting legal obligations
• Supplying goods and services that meet the minimum legal requirements

Given below are situations where the company will be demonstrating lack of legal
responsibility.
1. Anti – Competitive behavior focusing on maximizing market share and profits
2. Chagrining unnecessarily higher prices when the law stipulates a maximum price
3. Price fixing by collusion (Where competitors get together and fix a price)

When following legal responsibilities some economic responsibilities may become limited.

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Ethical responsibility in Carroll’s CSR pyramid
The ethical responsibility of businesses goes beyond laws and regulations. In addition, society
expects organisations to conduct and manage their business in an ethical manner. Taking
ethical responsibility means that organisations embrace activities, standards, and practices
that haven’t necessarily been written down, but are still expected.

The difference between legal and ethical expectations can be difficult to determine.
Obviously, laws are based on ethical premises, but ethics goes beyond that.

Ethical responsibility in CSR includes:

• Performing in a way that’s consistent with society’s expectations

• Recognising and respecting new or evolving ethical and moral standards that have
been adopted by society
• Preventing ethical standards from being infringed upon to achieve objectives
• Being proper business citizens by doing what’s ethically or morally expected
• Acknowledging that business integrity and ethical behaviour go beyond compliance
with laws and regulations

Philanthropic responsibility

Philanthropic responsibilities are what is desired from the organisation although there is no
expectation nor a legal requirement for the organisaiton to do it. The word philanthropic is
derived from the Greek “Love of Society”, there is no obligation to do Philanthropic activities
however and organisation may decide it is the correct thing to do.

Example :

Making a Donation to a charity

Giving a sponsorship
Providing sports facilities for employees

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Exam Point
It is argued that Philanthropic responsibilities are less important than the other three
because they are simply desired and not required from the organisation.

TEST YOUR KNOWLEDGE – LIVE SESSION

Which of the following is not an example of Carroll's economic model of CSR?

A. Employees to be provided with safe and fairly paid jobs.

B. Customers to be able to obtain good quality products at a fair price.
C. Sponsor the arts (e.g. Tate and Lyle sponsoring the Tate gallery in London)
D. Shareholders requiring a return on their investments.

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Carroll’s Social Responsiveness
Carrol suggested 4 strategies for companies when responding to social pressure

Reaction
The corporation denies any responsibility for social issues.
Defence
The corporation admits responsibility but fights it, doing the very least that seems to
be required.
Accommodation
The corporation accepts responsibility and does what is demanded of it by relevant
groups.
Proaction
The corporation seeks to go beyond industry norms.

TEST YOUR KNOWLEDGE – LIVE SESSION

H operates a successful bakery. He has recently started recycling all waste generated by his
store in response to government legislation. At the request of a local charity, he has also
started donating any leftover food at the end of each day to a shelter for the homeless.

According to Carroll, which ONE of the following philosophies best describes H's actions?

A. Accommodation
B. Reaction
C. Proaction
D. Defence

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What is “Strategic CSR”?

CSR as a part of an organisation’s strategic planning process

Strategic CSR help companies to;

• Identify and respond to threats and opportunities facing their stakeholders
• Determine how to manage their stakeholder relationships
• Development of sustainable business practices
• Balancing the creation of economic value with societal value
• Determining the organization’s capacity for philanthropic activities

Developing a CSR Strategy – MODEL 1

Identify Stakeholders

Classify Stakeholders

Establish Stakeholder Claims

Assess importance of Stakeholders

Decide upon response to social pressure (Carrol's Strategies)

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Suggested approach to develop a CSR strategy – MODEL 2

1. The board makes a published commitment to CSR

The senior members of the board must show their commitment to CSR.
Without top management’s support nothing will work. A clear vision must come
from the top linked to mission, vision and values of the organization. CSR should
be a core business activity similar to Marketing or HR.

2. Determine business objectives, priorities of the company and develop a CSR

strategy that will contribute to the achievement of those objectives
The CSR strategy must help achive Business objectives, therefore before
developing a CSR strategy it is important to understand what business
objectives and priorities are.

Example : ODEL CSR projects on Dogs help support Embark brand’s business
objectives
3. Align CSR strategy with the Firm’s core competencies
CSR strategy must align with what we do best (Core Competencies) otherwise
CSR does not make business sense.
Example : Ford Motor Company supporting breast cancer as a CSR project does
not make any business sense, It would have been much better if they have
donated money to research on alternative fuel.

4. Integrate CSR into the culture, governance and strategy development of the
company

5. Develop Key Performance Indicators to measure the impact of CSR strategies

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Incorporating ethics and CSR into Strategy – Findings by CIMA – Additional Reading

*This is given as an additional reading, this will not be explained in Videos. It is advised
that you read through these CIMA findings to get a full understanding of the concept.

CIMA’s article has six conclusions

1. Strong ethical policies that go beyond upholding the law can add great value to
a brand, whereas a failure to do the right thing can cause social, economic and
environmental damage, undermining a company’s long-term prospects in the
process.

2. Once they have adopted an ethical approach, companies will often find there
are bottom line benefits from demonstrating high ethical standards.

3. The ethical tone comes from the top

4. High quality management information on social, environmental and ethical

performance is vital for monitoring the environmental and social impacts of a
company and for compiling connected reports showing how effective its
governance arrangements are.

5. Corporate communications and reporting on sustainability need to do more

than just pay lip service to the green agenda. They need to provide hard
evidence of the positive impact on society, the environment and the strategic
returns for the business, and how any negative effects are being addressed.

6. Management accountants have a particular ethical responsibility to promote

an ethics based culture that doesn’t permit practices such as bribery

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Arguments for CSR
• To attract customers
• To attract high quality staff
• Avoiding discriminations gives access to a wider HR base
• Avoiding pollution can save money for company in the long run
• Sponsorship and charitable donations are tax deductible and can be seen as a
form of advertising

Arguments against CSR

• Business’s main purpose is to maximize wealth and maximizing wealth itself can
be a form of social responsibility (Eg – Higher Taxes to the government which
can be used for a worthy cause, If shares owned by pension funds then gains
will go to persons who are at a disadvantage)
• Increased cost of ethical sourcing
• Having to turn away unethical business
• Consumption of management time.

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