ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

EXTENTION PROGRAM

CHAPTER SUMMARY FOR READING 1 AND READING 2

PREPARED BY: TAMENE AMARE

ID NO: GSE/8922/13

SUBMITED TO DR YOHANNES

APRIL 30, 2021

READING 1, Sustainability and Corporate
Social Responsibility
• Corporate Social Responsibility (CSR) is a concept that ascribes responsibility towards
the society.

The World Business Council for Sustainable Development - a pro-sustainability CEO-led

organization, defined CSR as

“the continuing commitment by business to contribute to economic development while

improving the quality of life of the workforce and their families as well as of the community
and society at large."

• European Commission defined CSR as

“the responsibility of enterprises for their impacts on society and is a process to

integrate social, environmental, ethical, human rights and consumer concerns into their
business operations and core strategy in close collaboration with their stakeholders”

• Corporate Social Responsibility (CSR) is a concept which encourages organizations to

consider the interests of society by taking responsibility for the impact of the
organization's activities on customers, employees, shareholders, communities and the
environment in all aspects of its operations. This obligation is seen to extend beyond the
statutory/legal obligation to comply with legislation and sees organizations voluntarily
taking further steps to improve the quality of life for employees and their families as well
as for the local community and society at large.
The Phases towards Sustainability/CSR
• There are waves/phases towards achieving sustainability/CSR – see the Dunphy mode

Dunphy Model – First Wave

The very first wave comprises of the earliest stages in CSR including, Rejection and Non-
responsiveness, where CSR claims are considered illegitimate (opposing to it) and non-
relevant for business (non-responsiveness) respectively.

This reminds us of the famous theory of economics- the Agency Theory. What
does it hold? And why do you think this popular theory’s importance eventually diminished
despite its popularity in the past in (the70’s)

In 1970 the economist Milton Friedman famously articulated the statement: “The business

of business is business”  - the Agency theory.

Dunphy Model - Second Wave

The second wave contains three stages; Compliance, Efficiency, and Strategic proactively;
whereby companies strive just to meet minimum requirements (avoiding risk of failure),
 avoiding costs and increase productivity (cost logic) and a thrust to innovation to win
stakeholder loyalty (competitive advantage) respectively.

Dunphy Model - Third Wave

The third wave is the highest in order, and is termed sustaining corporation, the focus is on
the roles that a corporation can play in a society (transformation).

Thus, those ideas related to stages of CSR indicate that firms might undergo several stages
while they progress along the CSR maturity level.

Zadek’s – steps to CSR/Sustainability Maturity – 5 stages

• Somehow, similar to Dunphy’s, according to Zadek (2004), there are five steps that
organizations go through as levels to CSR maturity:

Step 1 - The defensive stage - claim that we have never done any harm!

• The defensive stage is characterized by a situation that companies be given unanticipated

criticism and the companies are inclined to consider legal options or a PR strategy to
handle the problem.

Reaction often manifests in a form of rejecting the accusations or denying any link between
the companies’ operations and the unwanted outcomes

Step 2 - The compliance stage - companies begin to develop certain policies (codes of conduct)
but not so practical yet!

In the compliance stage, companies show effort mainly to comply by designing policies that
helps to please criticisms. (May not be so practical about it)

The aim is usually to uphold company image and keep legal accusations away.

Managers tend to think like-

“We need to meet the minimum requirement to avoid confrontation, accusation, legal fines,
punishment etc…”
Step 3 Managerial Stage – companies begin to assume responsibility along with commitment!
They are practical now.

At the managerial stage, companies admit to the reality that the problem lingers, and something
real needs to be done; thus the companies assume responsibility along with commitment for a
lasting solution.

“We take responsibility, and we got to do something about it”

Step 4 Strategic Stage – societal and environmental issues are now part of the company’s
business strategies. CSR is used as marketing tool/strategic tool…. Can be like a USP!

In the strategic stage, companies integrating the societal issue into their core business strategies.

“Sustainability/CSR is now part of our strategy/vision/mission etc….”

Step 5 – Civil stage - now companies are convincing others to be socially and environmentally
responsible!

In the civil stage, that is the last stage, companies go beyond taking responsibility and start to
promote a cause in order to prevail upon other companies in the industry to get involved in
order to better serve the society responsibly together.

Managers/companies are now practical - -they walk the talk

In connection let us see the CSR Principles

• Transparency - a CSR principle, The degree to which affected parties can
observe relevant aspects of transactions or decisions

• Accountability – a CSR principle, Taking responsibility for one’s action. This is

answerability

• Sustainability – A CSR principle, conducting business in a lasting way by

accounting for the needs and interests of both present and future generations.
Ethical behavior
• Competing fairly and honestly, Communicating truthfully, Being transparent, Not
causing harm to others

Reading 2 – CSR Constructs

• There is no a universal definition for CSR.

• The field of CSR is still evolving

• There is still lack of consensus in CSR theories

• CSR is mostly explored through what are known as construct theories – theories that
explain/support/corroborate or give shape to CSR

• The task of “Mapping CSR territory” is still underway – CSR researchers are working on
it.

CSR Constructs – Mapping CSR territories

For the sake of “mapping the territories,” Garriga and Mele (2004) identified four
categories of theories for CSR research. These are:

1, INSTRUMENTAL THEORIES
According to the instrumental theory, the corporation is seen as only an instrument for wealth
creation, and its social activities are only a means to achieve economic results.

2, POLITICAL THEORIES
• Political theories - concern themselves with the power of corporations in society and a
responsible use of this power in the political arena.

• This is about the roles that corporations play to address regulatory gaps, mostly in weak
states, and also in strong states when appropriate.

3, INTEGRATIVE THEORIES
• Integrative theories are theories in which the corporation is understood as being focused
on the satisfaction of social demands.
3, Ethical Theories
• Ethical theories are based on ethical responsibilities of corporations to society.

• This group consists of theories that insist that corporations have a duty that is a moral
obligation to be socially responsible.

• Intrinsic variable- ethics– as a driver for socially responsible behavior.

However, the most widely used and more specific CSR constructs in CSR literature are:

1. Stakeholder Theory, 2, Legitimacy Theory, and , 3, Institutional Theory

CSR Constructs - Agency Theory (Friedman) 1970

CSR is indicative of self-serving behavior on the part of managers, and thus, reduces shareholder
wealth

Stakeholder Theory (Freeman (1984)

Managers should tailor their policies to satisfy numerous constituents, not just shareholders.
These stakeholders include workers, customers, suppliers, and community organizations

Stewardship Theory (Donaldson and Davis (1991)

There is a moral imperative for managers to ‘do the right thing’, without regard to how such
decisions affect firm performance

Resource Based view of the firm (Hart (1995))

For certain companies, environmental social responsibility can constitute a resource or capability
that leads to a sustained competitive advantage e.g. logging companies

Theory of the Firm (McWilliams and Siegel (2001)

Presents a supply/demand perspective on CSR, which implies that the firm's ideal level of CSR
can be determined by cost-benefit analysis

Theory of the Firm/Strategic Leadership (Waldman et al. (2004)

Certain aspects of CEO leadership can affect the propensity of firms to engage in CSR.
Companies run by intellectually stimulating CEO’s do more strategic CSR
 • Despite this general direction, there is no a single, unifying theory of CSR, its meaning is
contested and varies widely.

• Nonetheless, most discussions and arguments pertaining to CSR originate from the trendy
theories including stakeholder theory, legitimacy theory, and institutional theory

• The next sub-sections, therefore, highlight stakeholder theory, institutional theory and
legitimacy theory as CSR constructs.

Stakeholder Theory
• Stakeholder theory has always been a core CSR theory, which helps understand the
environment and the different constituents that managers should satisfy in order to
effectively manage the organization

• The stakeholder theory is relevant in addressing questions about how such parties are to
be counted as there is a reciprocal relationship between a business and its stakeholders.

• An organization’s success depends how it is able to manage its relationships with key
groups, such as customers, employees, suppliers, communities, politicians, owners, and
others, that can affect its ability to reach its goals.

• Thus, stakeholder theory helps identify firms’ characteristics and study the kind of
relationships they have with various stakeholders

• This is based on the idea that CSR is a notion that companies are responsible not only to
shareholders, but also to other stakeholders including workers, suppliers, environment/
environmentalists, and communities

Stakeholder Theory – Categorization of Stakeholders

Who are stakeholders?

• Any group or individual who is affected by or can affect the achievement of an

organization’s objectives”
Legitimacy Theory
• Legitimacy theory is another CSR construct that is widely used in CSR studies. It is noted
that since CSR has impact on corporate reputation, identity and image, implementing and
managing CSR practices is important to companies. That is CSR can be used as a tool to
gain legitimacy, which means businesses’ marketing activities that incorporate social
dimensions contribute to achieving legitimacy = reputation, image, goodwill, respect,
identity

• legitimacy is defined as “… a generalized perception or assumption that the actions of

an entity are desirable, proper, or appropriate within some socially constructed system of
norms, values, beliefs, and definitions” (Suchman, 1995).

• So, the point is doing what the society can accept favorably. If your business operation
contradicts or violates the expectation, norms, values, culture, etc… of the society, you
will lose ACEPTANCE. (You will lose legitimacy)

• In other words, in order to achieve legitimacy, organizations need to make sure that their
activities are acceptable to the society.

• Legitimacy theory that focuses on seeking and achieving acceptance.

• Legitimacy theory implies given a growth in community awareness and concern, that
firms will take measures to ensure their activities and performance are acceptable to the
community.
 • Got to do what the society accepts it!

Institutional Theory
• An institutional system is defined as a set of cultural elements and symbols to which
organizations comply with if they are to receive support and legitimacy (Kim, Ha, &
Fong, 2014). An institution is a set of mindsets (cognitive), social (normative) and legal
(coercive) rules with the respective enforcement mechanisms attached. Legitimacy theory
and institutional theory are very closely related.

• The institutional theory helps explore CSR by investigating what types of institutions
affect the corporations under the study.

• Institutional theory states that institutions influence behavior by applying institutional

pressure on the basis of normative expectations, and organizations that best fulfill such
demands are likely to perform the best.

Six propositions/condition (institutions) in which corporations are more likely to act in

socially responsible ways:

(1) Well-enforced state regulations,

(2) Organized and effective industrial self-regulations,

(3) Private, independent organizations including NGOs, social movement organizations,

institutional investors, and the media, which do mobilize and monitor,

(4) Normative calls that are institutionalized in the environment they operate,

(5) Associations including trade or employee associations that support socially responsible
behavior, and

(6) Institutional dialogue with unions, employees, community groups, investors and other
stakeholders.