Corporate Social Responsibility Theories
OxfordHandbooksOnline
CorporateSocialResponsibilityTheories DomènecMelé
TheOxfordHandbookofCorporateSocialResponsibility
EditedbyAndrewCrane,DirkMatten,AbagailMcWilliams,JeremyMoon,andDonaldS.Siegel
PrintPublicationDate: Feb2008
OnlinePublicationDate: Sep
2009
Subject: BusinessandManagement,BusinessPolicyand
Strategy,History
DOI: 10.1093/oxfordhb/9780199211593.003.0003
AbstractandKeywords
ThisarticlefollowsthestudyofGarrigaandMelé(2004),whichdistinguishesfourgroupsofcorporatesocial
responsibilitytheories,consideringtheirrespectivefocusonfourdifferentaspectsofthesocialreality:economics,
politics,socialintegration,andethics.Thefirstonefocusesoneconomics.Herethecorporationisseenasamere
instrumentforwealthcreation.Thesecondgroupfocusesonthesocialpowerofthecorporationandits
responsibilityinthepoliticalarenaassociatedwithitspower.Thethirdgroupfocusesonsocialintegration.It
includestheorieswhichconsiderthatbusinessoughttointegrate.Indescribingeachtheory,thisarticle
commenceswithanoverview,followedbyabriefhistoricalbackground,includingthemilestonesofits
development.Then,itoutlinestheconceptualbasesofthetheory,concludingwithabriefdiscussiononthe
strengthsandweaknessesofeachtheory.
Keywords:economics,politics,socialintegration,ethics,wealthcreation
Introduction
IN ordertoconsiderCorporateSocialResponsibility(CSR)theories,thefirstdifficultyishowtoidentifywithand
organizethegreatvarietyofexistingapproachesonCSR.EventheconceptofCSRitselfisfarfrombeing
unanimous.Carroll(1999)hasreviewedanddiscussedover25differentwaysthatCSRisdefinedintheacademic
literature.Someofthemarewiderwhileothersarenarrowerintheircontents,butmostdefinitionscontaincertain
similarities.SomeproposalsofCSRarepresentedasavaguenotionorevenasabelief.Others,however,respond
toamoreorlesselaboratetheoryonthefirmandthepurposeofbusinessinsociety,inwhichCSRisapart.Those
theoriesgenerallyincludeacertainvisionofthehumanbeingandsocietywithinasocialphilosophyframework,
althoughsometimesinanimplicitmanner.
AmongtheattemptstoclassifyCSRtheories,threestudiescanbepointedout.Klonoski(1991)distinguishesthree
differentkindsoftheories.Hecallsthefirstgroup‘fundamentalism’.Itincludesallpositionsthat,inonewayor
another,claim(p.48) thatcorporationsareonlylegalartifactsandtheonlysocialresponsibilityofbusinessis
increasingprofitsincompliancewiththelaws.Thesecondgroupismadeupofthosetheorieswhichdefendthe
corporation'smoralpersonhoodandpointtoitsmoralagency.Consequently,corporationscanbeheldmorally
responsiblefortheiractions.Thethirdgroupconsiderstheoriesinwhichthesocialdimensionofthecorporationis
particularlyrelevant.Therootsofthesetheoriesareinpoliticalandethicaltheories.
Windsor(2006)understandsthattherearethreekeyapproachestoCSR:
(1)ethicalresponsibilitytheory,whichpresentsstrongcorporateself‐restraintandaltruisticdutiesand
expansivepublicpolicytostrengthenstakeholders'rights,
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Corporate Social Responsibility Theories
(2)economicresponsibilitytheory,whichadvocatesmarketwealthcreationsubjectonlytominimalistpublic
policyandperhapscustomarybusinessethics,and
(3)corporatecitizenship,whichlanguageinvokesapoliticalmetaphorwhichprovidesneithertrue
intermediatepositioningnortheoreticalsynthesis.
Inathirdstudy,GarrigaandMelé(2004)distinguishfourgroupsofCSRtheories,consideringtheirrespectivefocus
onfourdifferentaspectsofthesocialreality:economics,politics,socialintegration,andethics.Thefirstone
focusesoneconomics.Herethecorporationisseenasamereinstrumentforwealthcreation.Thesecondgroup
focusesonthesocialpowerofthecorporationanditsresponsibilityinthepoliticalarenaassociatedwithitspower.
Thethirdgroupfocusesonsocialintegration.Itincludestheorieswhichconsiderthatbusinessoughttointegrate
socialdemands.Thefourthgroupoftheoriesfocusesonethics,includingtheorieswhichconsiderthatthe
relationshipbetweenbusinessandsocietyshouldbeembeddedwithethicalvalues.GarrigaandMeléhave
classifiedtheoriesconsideringthemainfocusofeachone,althoughtheypointoutthatinsomecasesthisisnot
tooeasy,sincesometheoriesseemtofocusonmorethanoneaspect.Inaddition,theysuggestthat‘theconcept
ofbusinessandsocietyrelationshipmustincludethesefouraspectsordimensionsandsomeconnectionamong
themmustexist.’(2004:64)
ThischapterfollowsthislaststudybydiscussingfourtheoriesofCSR,ormoreprecisely,fourtheoriesaboutthe
responsibilitiesofbusinessinsociety,whichcanbeconsideredcontemporarymainstreamtheories:
1.CorporateSocialPerformance,atheorybasicallygroundedinsociology.Thistheoryhassomerelationto
thesecondgroupofKlonoski(1991).
2.Thetheorysometimescalled‘ShareholderValueTheory’or‘FiduciaryCapitalism’,whichcomesfroma
particulareconomictheory.ThereiscloserelationshipwithwhatKlonoskicalls‘fundamentalism’andWindsor
‘economicresponsibilitytheory’.
3.Stakeholdertheory,whichinitsnormativeversionisbasedonethicalperspectives.Itcanberelatedto
‘ethicalresponsibilitytheory’ofWilsonandwithsometheoriesincludedinthethirdgroupofKlonoski.
(p.49)
4.CorporateCitizenshiptheory(orapproach),whoserootsareonpoliticalstudies.Windsormentionsitas
oneofthekeyapproachesandKlonoskiconsidersitasoneofthetheoriesincludedinhisthirdgroup.
Indescribingeachtheorywewillcommencewithanoverview,followedbyabriefhistoricalbackground,including
themilestonesofitsdevelopment.Then,wewilloutlinetheconceptualbasesofthetheory,concludingwithabrief
discussiononthestrengthsandweaknessesofeachtheory.
CorporateSocialPerformance
Overview
CorporateSocialPerformance(CSP)theoryhasevolvedfromseveralpreviousnotionsandapproaches.Inoneof
itsprominentversions,CorporateSocialPerformanceisunderstoodas‘theconfigurationinthebusiness
organizationofprinciplesofsocialresponsibility,processesofresponsetosocialrequirements,andpolicies,
programsandtangibleresultsthatreflectthecompany'srelationswithsociety’(Wood,1991b:693).Thistheory
maintainsthatbusiness,apartfromwealthcreation,alsohasresponsibilitiesforsocialproblemscreatedby
businessorbyothercauses,beyonditseconomicandlegalresponsibilities.Thisincludesethicalrequirements
anddiscretionaryorphilanthropicactionscarriedoutbybusinessinfavorofsociety.Inotherwords,improving
corporatesocialperformance‘meansalteringcorporatebehaviortoproducelessharmandmorebeneficial
outcomesforsocietyandtheirpeople’(Wood,1991a:68).
Inordertodeterminespecificresponsibilities,manyauthorsinsistontheimportanceofpayingattentiontosocial
expectationsregardingthefirm'sperformanceandconcernforsocialneeds.Amongotherargumentsforassuming
CSR,itisstressedthatbusinesshaspowerandpowerrequiresresponsibility.Itisalsoemphasizedthatsociety
giveslicensetobusinesstooperateand,consequently,businessmustservesocietynotonlybycreatingwealth,
butalsobycontributingtosocialneedsandsatisfyingsocialexpectationstowardsbusiness.
Italsoemphasizestherisktowhichacompanywouldbevulnerableifitsperformancewascontrarytothe
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Corporate Social Responsibility Theories
expectationsofthosepeoplewhoconstitutethecompany'ssocialenvironment(Davis,1975).Inapositivesense,
corporatereputationisalsorelatedtotheacceptanceofthecommunitywhereacompanyisoperating(Lewis,
2003).Nevertheless,thelong‐termeconomicconsequencesforthecompany,whicharenotalwayseasyto
evaluate,arenotthemainconsiderationformanyauthors,whopointoutthatassumingsocialresponsibilitiesisnot
considered(p.50) primarilyaneconomicquestionbutasocialandethicalmatter:beingresponsibleisdoingthe
rightthing.
HistoricalBackground
HowardR.BowenmarkedthebeginningofthemodernperiodofCSRliteraturewithhisbookSocialResponsibility
oftheBusinessman,publishedin1953.Hestartedbyaskingthefollowing:‘Whatresponsibilitytosocietymay
businessmenreasonablybeexpectedtoassume?’Then,heexplainedthatthesocialresponsibilityof
businessmen[atthistimethepresenceofwomeninmanagementwasrare]‘referstotheobligationof
businessmentopursuethosepolicies,tomakedecisions,ortofollowthoselinesofactionwhicharedesirablein
termsoftheobjectivesandvaluesofoursociety’(1953:6).Inamoredetailedandpragmaticway,theCommittee
forEconomicDevelopment(1971)(USA)definedCSRasrelatedto(i)products,jobs,andeconomicgrowth,(ii)
societalexpectations,and(iii)activitiesaimedatimprovingthesocialenvironmentofthefirm.
Inthe1970s,newdirectionsappearedinthebusinessandsocietyliterature.Theyarosewithinacontextof
protestsagainstcapitalismandbusinessandgrowingsocialconcerns,whichledtoanincreasinggovernment
regulatoryproceduresandformalrequirements.Atthistime,Ackerman(Ackerman,1973;AckermanandBauer,
1976),Sethi(1975),andothersstartedtopayattentiontowardwhatwascalled‘corporateresponsiveness’,or
adaptationofcorporatebehaviortosocialneedsanddemands,evenactinginapro‐activemanner.Sethi(1975)
setoutathree‐levelmodel,whichwasapredecessorofthecurrent‘corporatesocialperformance’theory.This
modelincluded:(i)socialobligations,asresponsetolegalandmarketconstraints,(ii)societalresponsibility,thatis,
congruentwithsocietalnorms,and(iii)socialresponsiveness(adaptive,anticipatory,andpreventive).
Theconceptof‘socialresponsiveness’wassoonwidenedtotheconcept‘issuesmanagement’.Thelatterincludes
theformerbutemphasizessocialandpoliticalissueswhichmayimpactsignificantlyupontheprocessofcorporate
response.Considering‘issuesmanagement’attemptstominimizethe‘surprises’whichaccompanysocialand
politicalchangebyservingasanearlywarningsystemforpotentialenvironmentalthreatsandopportunities.
PrestonandPost(1975)introducedthenotionof‘publicresponsibility’.Withthisnotion,theytriedtodefinethe
functionoforganizationalmanagementwithinthespecificcontextofpubliclife.Theterm‘public’ratherthan
‘social’waschosen‘tostresstheimportanceofthepublicprocess,ratherthanindividualopinionandconscience,
asthesourceofgoalsandappraisalcriteria’(1975:112).
Thisapproachprovokedcontroversyamongdefendersof‘corporateresponsiveness’whichemphasizesthe
processratherthanthecontent.Jones(1980)positedthatsocialresponsibilityoughtnottobeseenasasetof
outcomesbutasaprocess.(p.51) Fromthisperspective,hewascriticalofabstractconceptofCSRand
particularlywiththeconceptof‘publicresponsibility’proposedbyPrestonandPost.ThelatterrepliedtoJonesby
updatingtheirmainthesisandpresentingpracticalapplications(PrestonandPost,1981).
Carroll(1979),whofirstintroducedtheconceptof‘corporatesocialperformance’,madeasynthesisofthebasic
principleofsocialresponsibility,theconcreteissuesforwhichsocialresponsibilityexists,andthespecific
philosophyofresponsetosocialissues.Carrollsuggestedthatanentirerangeofobligationsthatbusinesshasto
societymustembodytheeconomic,legal,ethical,anddiscretionary(philanthropic)categories.Heincludedthem
ina‘PyramidofCorporateSocialResponsibility’(Carroll,1991).Morerecently,SchwartzandCarroll(2003)have
proposedanalternativeapproachbasedonthreecoredomains(economic,legal,andethicalresponsibilities)and
aVennmodelframework.TheVennframeworkyieldssevenCSRcategoriesresultingfromtheoverlapofthethree
coredomains.Themodelismorecomplexbuttheessentialconceptsremain.Inaglobalcontext,Carrollhas
appliedhis‘pyramid’understandingthat‘economicresponsibility’istodowhatisrequiredbyglobalcapitalism,
‘legalresponsibility’istodowhatisrequiredbyglobalstakeholders,‘ethicalresponsibility’istodowhatis
expectedbystakeholders,and‘philanthropicresponsibility’istodowhatisdesiredbyglobalstakeholders(Carroll,
2004).
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Corporate Social Responsibility Theories
WartickandCochran(1985)extendedtheCarrollapproachsuggestingthatcorporatesocialinvolvementrestson
theprinciplesofsocialresponsibility,theprocessofsocialresponsiveness,andthepolicyofissuesmanagement.
AnewdevelopmentcamewithWood(1991b),whosemodelwewilldiscussnext.Thisisprobablythemost
completeapproachonCorporateSocialPerformanceconsideringsocialexpectations.However,theWoodmodel
hassomelimitations.Swanson(1995)hasrevisedthismodelintegratingbusinessethicsperspectives.
Inrecenttimes,thesocialexpectationsconsideredinthismodelhavebecomemorespecificintermsofactors,
processes,andcontents.Actorshavemultiplied.Immediatestakeholders,non‐governmentalorganizations(NGOs),
activists(sometimeseven‘shareholders’activists'),media,communities,governments,andotherinstitutional
forcesaskingforwhattheyconsidercorporateresponsiblepractices.Somecompaniesareestablishingprocesses
ofdialoguewithstakeholdersinordertodeterminewhatshouldbeanappropriatecorporatesocialbehaviour.
Besides,moreandmorecorporationsarebeingpro‐activeinpublishingreportsoneconomic,social,and
environmentalperformance,followingtheideaoftriple‐bottomline(Elkington,1998).TheGlobalInitiativeReport
(GIR)hasbecomemoreandmorepopularashavecertificationsorreports,suchastheUNGlobalCompact,the
AA1000,SA8000,andothers.Allofthisintroducesmorecomplexityintothecorporatesocialperformancemodels
but,inessence,theconceptualfoundationsofthistheoryremainunalterable.
(p.52)
ConceptualBases
TheCSPmodelpresentedbyWood(1991b)isprobablyoneofthemostrepresentativewithinthistheory.Itisa
synthesiswhichincludes:(i)principlesofCSR,expressedonthreelevels:institutional,organizational,and
individual;(ii)processesofcorporatesocialresponsiveness,and(iii)outcomesofcorporatebehavior.
The‘InstitutionalPrinciple’isalsocalled‘thePrincipleofLegitimacy’anditsoriginisinDavis(1973).Davis
presentedinterestingargumentsbasedonethics(humanvaluesandresponsibility),sociallegitimacy(whatsociety
considersresponsible),andapragmaticvisionofbusinessthroughconsideringtheconsequencesofan
irresponsibleuseofpower.Hebeganhisapproachbyemphasizingthatresponsibilitygoeswithpower,and
businesshaspowerwhichhassocialimpact(Davis,1960).Consequently,businesshastoassumecorresponding
responsibility.Heremarkedthatthefactorsthatgiverisetothesocialpowerofthefirmarenotcompletelyinternal
tothefirmbutalsoexternalandtheirlocusisunstableandshiftingallthetimefromtheeconomictothesocial
forum,andfromtheretothepoliticalforumandviceversa.Businessneedssocialacceptance.‘Becausesociety
changes’—hewrote—‘evidencesuggeststhatthecontinuedvigorofbusinessdependsuponitsforthright
acceptanceoffurthersocio‐humanresponsibilities’(1960:76).
Davisformulated‘thepower‐responsibilityequation’intheseterms:‘socialresponsibilityofbusinessmenarises
fromtheamountofsocialpowertheyhave’(1967:48),an‘equation’whichgoesalongwiththe‘IronLawof
Responsibility’,whichstatesthat‘thosewhodonottakeresponsibilityfortheirpower,ultimatelyshallloseit’(Davis
andBlomstrom,1966:174;Davis,1967:50).Finally,heappliedtheseideastobusinessbysaying:‘Societygrants
legitimacyandpowertobusiness.Inthelongrun,thosewhodonotusepowerinamannerwhichsociety
considersresponsiblewilltendtoloseit’(Davis,1973:314).
Davisdistinguishedtwotypesofsocialresponsibilitiesforbusinesspeople:first,socio‐economicresponsibilityfor
generaleconomicwelfare;andsecond,socio‐humanresponsibilityforpreservinganddevelopinghumanvalues.
However,herejectedtwoextremepositions:first,thosewhodefendbusinesseshaving‘noresponsibility’forwhat
theyaredoing,thatis,businessstaysinpowerbutacceptsnoresponsibility;andsecond,healsorefusedasense
of‘totalresponsibility’,thatis,businessisresponsiblefor‘everything’(Davis,1967).
Woodunderstoodthe‘OrganizationalPrinciple’or‘PrincipleofPublicResponsibility’followingPrestonandPost
(1975,1981),whoproposedthepublicresponsibilityprinciple,thatis‘widelysharedandgenerallyacknowledged
principlesdirectingandcontrollingactionsthathavebroadimplicationsforsocietyatlargeormajorportions
thereof’(PrestonandPost,1975:56).Inaccordancewiththisview,businessshouldadheretothestandardsof
performanceinlawandtheexistingpublicpolicyprocess.
(p.53)
Atthecoreofthe‘PublicResponsibility’approachpresentedbythesescholarsliestheideathatbusinessand
societyaretwointerpenetratingsystems.Theyemphasizedtheinterdependencebetweensocialinstitutions.This
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differsfromthefunctionaltheoryofthebusiness‐societyrelationship,inwhicheverysocialinstitution(family,
school,business,etc.)ismono‐functional.Consideringbusinessandsocietyareinterpenetratingsystems,firms
shouldbesociallyresponsible,becausetheyexistandoperateinasharedenvironment.
ForPrestonandPoststandardscomefrompublicpolicy,butunderstandingthat‘publicpolicyincludesnotonlythe
literaltextoflawandregulationbutalsothebroadpatternofsocialdirectionreflectedinpublicopinion,emerging
issues,formallegalrequirementsandenforcementorimplementationpractices’(PrestonandPost,1981:57).They
recognizedthatdiscoveringthecontentoftheprincipleofpublicresponsibilityisacomplexanddifficulttask,
variableovertime,whichrequiressubstantialmanagementattention.
Atthesametime,PrestonandPostareinfavorofbusinessinterventioninthepublicpolicyprocessespeciallywith
respecttoareasinwhichspecificpublicpolicyisnotyetclearlyestablishedorisintransition:‘Itislegitimate—and
maybeessential—thataffectedfirmsparticipateopenlyinthepolicyformation’(PrestonandPost,1981:61).
Wood(1991b),withoutacceptinginfullPrestonandPost'stheory,understandsbusinessandsocietyrelationsina
similarway,as‘interwovenratherthanbeingdistinctentities’.Hence,socialexpectationshavedirectinfluenceon
theshapingofCSR.
PrestonandPost(1975)analyzedthescopeofmanagerialresponsibilityintermsofthe‘primary’and‘secondary’
involvementofthefirminitssocialenvironment.Primaryinvolvementincludestheessentialeconomictasksofthe
firm,suchaslocatingandestablishingitsfacilities,procuringsuppliers,engagingemployees,carryingoutits
productionfunctions,andmarketingproducts.Italsoincludeslegalrequirements.Secondaryinvolvementsfollow
(e.g.careerandearningopportunitiesforindividuals),arisingfromtheprimaryactivityofselectionand
advancementofemployees.
The‘IndividualPrinciple’is,forWood,‘thePrincipleofManagerialDiscretion’.Sincemanagersaremoralactors,
theyareobligedtoexercisesuchdiscretion,withintheverydomainofCSR,asisavailabletothem,towards
sociallyresponsibleoutcomes.Inotherwords,thisprincipleimpliesthat‘becausemanagerspossessdiscretion,
theyarepersonallyresponsibleforexercisingitandcannotavoidthisresponsibilitythroughreferencetorules,
policies,orprocedures’(Wood,1991b:699).
Withinthe‘ProcessesofCorporateSocialResponsiveness’,Wood(1991b)includes‘environmentalassessment’,
adaptingtheorganizationtoitsenvironmentinordertosurvive,‘stakeholdermanagement’,analyzingstakeholder
relationshipsand(p.54) processesinordertomanageinterdependencesandrelationscorrectly,and‘issues
management’,whichincludesexternalissues,suchaspublic‐privatepartnership,communityinvolvement,social
strategies,etc.andinternalissuessuchascorporateethicalprograms,corporatecodesofethics,etc.Finally,
‘outcomesofcorporatebehavior’includestudiesonsocialimpacts,socialprograms,andsocialpolicies.
StrengthsandWeaknesses
TheCSPmodelisasynthesisofrelevantdevelopmentsonCSRuptothe1980s.Actually,it‘providesacoherent
structureforassessingtherelevanceofresearchtopicstocentralquestionsinthebusinessandsocietyfield’
(Swanson,1995:43).However,thismodelsuffersfromseveralweaknesses.Thefirstcomesfromthevaguenessof
theconceptofCSR.However,thisisnotthemostimportant,sincethiscanbepartiallysolvedbyintegrating
stakeholderperspectiveswithinthosetraditionalapproaches(Carroll,1991,2004).
Moreimportantistheweaknessofthelackofintegrationbetweenethicalnormativeaspectsandbusinessactivity.
Wood'sinstitutionalprinciple,whichsearchesforlegitimacy,doesnotadvocatethemoralmotivationofrespect
(Swanson,1995:48).But,apartfromthat,thistheoryonlyemphasizesthesocialcontrolofbusinessbypaying
attentiontopublicresponsibility.AsFreemanandLiedtka(1991)havesuggested,CSRappearsexclusivelytogive
ahumanfacetocapitalism,butwithacompleteseparationofeconomicsandethics.
Actually,fromtheverybeginning,proponentsofthismodelstruggledforabusinessrespectfultoallpeople,
defendinghumanrightsandhumanconditionsintheworkplace.Inspiteoftheethicalcontentofthesegoals,many
pioneersinCSRliteraturewerereluctanttoconnectCSRwithethics,maybebecauseofthedominantethical
relativisminthosedaysortoavoiddiscussingwhatismorallyrightorwrong.Instead,theypreferredtouseterms
suchas‘valuesofoursociety’,‘socialexpectation’,‘performanceexpectation’,andsoforth,insteadof‘ethical
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duties’orequivalentexpressions.Thus,aswehaveseenabove,Bowen(1953)talkedabout‘objectivesand
valuesofoursociety’.Similarly,Frederickaffirmedthatsocialresponsibility‘meansthatbusinessmenshould
overseetheoperationsofaneconomicsystemthatfulfillstheexpectationsofthepublic’(1960:60),andSethi
consideredthatCSR‘hastobecongruentwiththeprevailingsocialnorms,values,andexpectationsof
performance’(Sethi,1975:62).ArchieB.Carroll(1979)alsoemphasizedtheroleofthechangingexpectationsof
societyonthecontentsoftheCSR.Evenwhenhetalkedaboutethicsresponsibilitieshemeantthekindsof
behaviorsandethicalnormsthatsocietyexpectsbusinesstofollow(Carroll,1999:283and1979:500).
Otherearlyscholars,however,withoutforgettingsocialexpectationsanddemands,tookintoconsiderationethical
requirementsaswell.Thus,Eellsetal.,(p.55) wrotethat‘whenpeople,talkaboutcorporatesocial
responsibilitiestheyarethinkingintermsoftheproblemsthatarisewhenthecorporateenterprisecastsitsshadow
onthesocialscene,andoftheethicalprinciplesthatoughttogoverntherelationshipsbetweenthecorporation
andsociety’(1961:457–8).Likewise,Davis,whowasagreatchampionofCSRinthe1960sand1970s,asserted
that‘thesubstanceofsocialresponsibilityarisesfromconcernfortheethicalconsequencesofone'sactsasthey
mightaffecttheinterestofothers’(1967:46).Referencetoethicalprinciplesandethicalvaluesbecamemore
frequentafterthebusinessethicsmovementstartedbythelate1970s,andsomerelevantscholars,suchas
Frederick(1986),advocatefornormativeethicalfoundationofCSR.
BecausetheCSPmodeldoesnotintegrateeconomicandduty‐alignedperspectives,someattemptshavebeen
madetosolvethisproblem(Swanson,1995,1999).However,andinspiteofsomeadvances,wearestillfarfrom
havingasound‘integratedtheory’ofCSP.
ShareholderValueTheory
Overview
ShareholderValueTheory(SVT)orFiduciaryCapitalismholdsthatonlysocialresponsibilityofbusinessismaking
profitsand,asthesupremegoal,increasingtheeconomicvalueofthecompanyforitsshareholders.Othersocial
activitiesthatcompaniescouldengageinwouldonlybeacceptableiftheyareprescribedbylaworifthey
contributetothemaximizationofshareholdervalue.Thisisthetheorythatunderliesneoclassicaleconomic
theory,primarilyconcernedwithshareholderutilitymaximization.TheNobellaureateMiltonFriedmanisthe
paramountrepresentativeofthisview.Hewrote,withhiswifeRoseFriedman:‘Insuchaneconomy,thereisone
andonlyonesocialresponsibilityofbusiness—touseresourcesandengageinactivitiesdesignedtoincreaseits
profitssolongasitstayswithintherulesofthegame,whichistosay,engagesinopenandfreecompetitions,
withoutdeceptionorfraud’(FriedmanandFriedman,1962:133).
InafamousarticlepublishedintheNewYorkTimesMagazinein1970,Friedmanrepeatedandcompletedthis
approachbysaying:‘theonlyoneresponsibilityofbusinesstowardsthesocietyisthemaximizationofprofitsto
theshareholders,withinthelegalframeworkandtheethicalcustomofthecountry’(1970).
Thisapproach,whichcurrentlyispresentedas‘shareholdervalue‐oriented’,usuallytakesshareholdervalue
maximizationasthesupremereferenceforcorporate(p.56) governanceandbusinessmanagement.Generally,
‘shareholdervalue‐oriented’goesalongwiththeAgencyTheory(Ross,1973;JensenandMeckling,1976),which
hasbeendominantinmanybusinessschoolsinthelastfewdecades.Inthistheory,ownersaretheprincipaland
managersaretheagent.Thelatterbearfiduciarydutiestowardstheformer,andaregenerallysubjecttostrong
incentivesinordertoaligntheireconomicinterestswiththoseoftheowners,andwiththemaximizationof
shareholdervalue.
HistoricalBackground
TheSVThasbeenquitecommonintheUSAandotherAnglo‐Saxoncountries,supportedbythelaw,atleastuntil
themid‐twentiethcentury.
Inthe1960sand1970sabigdebatetookplacebetweenFriedmanandotherswhodefendedthebusiness
enterpriseasbeingresponsibleonlyformakingasmuchprofitaspossible,alwaysincompliancewiththelaw,and
incontrast,scholarsincludingDavis(1960,1973),Walton(1967),andAndrews(1971)whoarguedthat
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Corporate Social Responsibility Theories
corporationshadmuchpowerandpowerentailsresponsibility,therefore,corporationshadresponsibilitiesbeyond
theeconomicandlegal.
Friedman'spositionwasclearlyagainsttheconceptofsocialresponsibilitycurrentlyheldinthe1960s,
emphasizingtheresponsibilityofbusinessfacingsocialproblems,includingthosesuchaspollutioncreatedby
companiesthemselves.Hewrote:‘Fewtrendscouldsothoroughlyunderminetheveryfoundationsofourfree
societyastheacceptancebycorporateofficialsofasocialresponsibilityotherthantomakeasmuchmoneyfor
theirstockholdersaspossible’(FriedmanandFriedman,1962:133).Likewise,TheodorLevitt,whowaseditorof
HarvardBusinessReview,wroteaboutthedangerofcorporatesocialresponsibilities.Inhisownwords:‘Corporate
welfaremakesgoodsenseifitmakesgoodeconomicsense—andnotinfrequentlyitdoes.Butifsomethingdoes
notmakeeconomicsense,sentimentoridealismoughtnottoletitinthedoor’(1958:42).
Sincethen,andinlinewithFriedman,someeconomistshavearguedthatthemarket,insteadofmanagers,should
havecontrolovertheallocationofresourcesandreturns.Thestartingpointwasthebeliefthatthemarketis
alwayssuperiortoorganizationsintheefficientallocationofresources,andmanagersmayleadcompaniesin
favoroftheirowninterestsandnotofshareholderinterests.Iftherateofreturnoncorporatestockwastakenas
themeasureofasuperiorperformanceandmanagers'remunerationreflectsthisrate,opportunisticbehaviorsof
managerswouldbeavoided.Inthisviewshareholdersareseenastheprincipalandmanagersasagentsofthis
principal.Theexpectedroleofthemanagerisexclusivelytoservetheprincipalinterests.Thusagencytheory,
andthemaximizationofshareholdervalue,becameanewcreed(LazonickandO'sullivan,2000),reinforcingthe
(p.57) Friedmanposition.Underthisphilosophy,fromthelate1970s,mergerandtakeoveractivitywaswidely
employed,especiallyinAmericanandBritishcompanies,todisciplinemanagerswhofailedintheirresponsibilityto
enhanceshareholdervalue.
AdherentsofthisviewconsideredCSRasathreateningdragonforshareholdervaluecreation.However,an
interestinganswercamefromPeterDrucker.Thiswell‐knownmanagement‘guru’,whohadalreadymentioned
socialresponsibilityofbusiness(1954),reintroducedthistopicthreedecadeslater,stressingtheideathat
profitabilityandresponsibilitywerecompatible,andthechallengewastoconvertbusinesssocialresponsibilities
intobusinessopportunities.Hewrote:‘…theproper“socialresponsibility”ofbusinessistotamethedragon,that
is,toturnasocialproblemintoeconomicopportunitiesandeconomicbenefit,intoproductivecapacity,intohuman
competence,intowell‐paidjobs,andintowealth’(1984:62).AsimilarviewwasheldbyPaulSamuelson,another
Nobellaureate,arguingthat‘alargecorporationthesedaysmaynotonlyengageinsocialresponsibility,ithad
damnwellbettertrytodoso’(1971:24,quotedbyDavis,1973).
Subsequently,othershaveinsistedthatsocialcontributionscanbeprofitable,presentingCSRasaquestionof
enlightenedself‐interest(Keim,1978).Asaresult,argumentshavebeenmadeforcause‐relatedmarketing(Murray
andMontanari,1986;VaradarajanandMenon,1988;SmithandHiggins,2000),corporatephilanthropyina
competitivecontext(PorterandKramer,2002,2006),andstrategiesforthebottomoftheeconomicpyramid,that
is,strategieswhichcansimultaneouslyservethepoorandmakeprofits(Prahalad,2003).
Today,itiscommonlyacceptedthatundercertainconditionsthesatisfactionofsocialinterestscontributesto
maximizingshareholdervalueandmostlargecompaniespayattentiontoCSR,particularlyinconsideringthe
interestsofpeoplewithastakeinthefirm(stakeholders).Inthisrespect,Jensen(2000)hasproposedwhathecalls
‘enlightenedvaluemaximization’.Thisconceptspecifieslong‐termvaluemaximizationorvalue‐seekingasthe
firm'sobjective,whichpermitssometrade‐offswithrelevantconstituenciesofthefirm.
However,itishardtoaffirmthatallpracticesofCSRareprofitable.BurkeandLogsdon(1996)haveproposedthe
conceptof‘StrategicCorporateSocialResponsibility’(SCSR)torefertopolicies,programes,andprocesseswhich
yield‘substantialbusinessrelatedbenefitstothefirm,inparticularbysupportingcorebusinessactivitiesandthus
contributingtothefirm'seffectivenessinaccomplishingitsmission’(p.496).Onthisperspective,thereisan‘ideal’
levelofCSRdeterminablebycost‐benefitanalysisanddependingonseveralfactors(McWilliamsandSiegel,
2001).Inthisway,CSRbecomescompatiblewithFriedman'svision,ifonecarefullycalculateswhattheoptimal
levelofsocialoutputformaximizingshareholdervalueisineachsituation(HustedandSalazar,2006).
(p.58)
ConceptualBases
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MiltonFriedman,inhisNewYorkTimesMagazinearticle,madeseveralreferencestovaluessuchas:‘free
society’,‘free‐enterprise’,‘private‐propertysystem’,and,beforestatingthattheonlyresponsibilityofbusinessis
toincreaseprofits,heestablishesasacondition:‘Inafreesociety…’.
Again,whenheexplainsthatacorporateexecutiveisanemployeeoftheowners,hegivesasapremise:‘Ina
free‐enterprise,private‐propertysystem…’.Inthesamesense,Friedman'scriticismsofhiscounterpartswho
defendcorporatesocialresponsibilitiesappealtothefactthattheirtheories‘underminethebasisofafreesociety’;
theyarea‘fundamentalsubversivedoctrine’.Headdsthatthosewhospreadtheideaofbusinessasnot
concerned‘merely’withprofits‘arepreachingpureandunadulteratedsocialism’.Itisadoctrine—hesaid—that
‘harmsthefoundationofafreesociety’.Talkingaboutvoluntarycooperationyoufindthesamelogic:‘Inanideal
freemarketrestingonprivateproperty,noindividualcancoerceanyother,allcooperationisvoluntary…’.
ShareholderValueTheorycontainsseveralphilosophicalassumptions.Thosetendtooriginateintheseventeenth
century,particularlyfromtheBritishphilosopherJohnLocke,who,fromanatomisticvisionofsociety,wrote
extensivelyon‘natural’lawsoflibertiesfortheindividualandthenecessityofsocialcontractsforlivingtogether,
asbuyersandsellers,andchampioningofalimitedgovernment.TheseideasarrivedinAmericaintheeighteenth
centuryandhadanenormousinfluenceontheUSConstitutionand,toagreatextent,servedasaneconomicand
businessframeworkalongwithAdamSmith'sideasonafreemarketeconomy.
Humanbeingsareseenasindividualswithdesiresandpreferences.Somecivicrightssuchastherightstolife,
privateproperty,andfreedomareparticularlyemphasized.Societyisnomorethanthesumoftheindividualsand
thegoodofsocietyisonlytheagreementonindividualinterests.Thisindividualismiscompatiblewithasenseof
‘equality’understoodas‘equalopportunity’andwiththeformationof‘interestgrouppluralism’asakeymeansof
directingsociety.
Privatepropertyisconsideredpracticallyasanabsoluteright,limitedonlybyafewlegalrestrictionstoavoid
abuses.Privatepropertyiscrucial,sinceitisconsideredthebestguaranteeofindividualrights.Therightof
propertyistraditionallyseenasaconceptthatassuresindividualfreedomfrompredatorypowersofsovereign.
Thus,Sternberg(2000)stronglydefendspropertyrights,andarguesthatownersarelegallyentitledtothe
(residual)fruitsoftheirfinancialinvestmentandanyotheruseisunjust.
Regardingtheconceptofthefirm,SVTgenerallyacceptsthat‘acorporationisanartificialperson’,thatistosay,a
creationofthelaw(Friedman,1970),(p.59) whichestablishesdutiesandrightsforthecorporation.Frequently,
thefirmisseen‘anexusofcontracts’,especiallyintheeconomicneoclassicalliterature(WilliamsonandWinter,
1991).Intheagencytheory,contractsadoptarelationofprincipal‐agent(JensenandMeckling,1976).
Thisvisionofthecorporationcomesfromlegalfictionorfromahypothesisemployedineconomicandfinancial
theory.But,tosomeextent,itisalsoapartoftherealityonecanobserveeverywhere:thosewhoownbusiness
corporationshirepeopletomanagethemandtheseinturnhirelabortoworkinthem.Managersandworkersare
employeesoftheownersofthebusiness.Onbehalfofthecompanymanagersestablishasetofcontractswith
suppliers,creditors,andbuyers.Soitseemsunquestionablethatinthefirmthereisanetofcontractsandas
Friedmanpointsout,‘thepersonsamongwhomavoluntarycontractualarrangementexistsareclearlydefined’
(1970).
Coincidingwithothertheories,SVTacceptsasamatteroffactdemocracy,marketeconomy,andlibertiesincluded
ineconomicactivity,suchasfreedomofcontract,freedomofassociation,freedomtostartupabusiness,tohire
labor,forchooseproductsandtotrade.Morecontroversialisanotherassumptionimplicitinthistheory:afull
separationofthefunctionsofthepublicandprivatespheres.Sobusinessisconsideredasaprivateand
autonomousactivityonlyrestrictedbytheregulationsofthegovernment,withoutresponsibilityotherthantomake
profitsandcreatewealth.Thismono‐functionalviewleadstotherejectionofresponsibilitiesfortheconsequences
ofbusinessactivities.Thus,responsibilityforthepollutionofafactoryhastobetakenintoaccountonlyifthereis
alegalrequirementtoavoidit.Friedmanliterallysaysthatitisnotacceptable‘tomakeexpendituresonreducing
pollutionbeyondtheamountthatisinthebestinterestsofthecorporationorthatisrequiredbylawinorderto
contributetothesocialobjectiveofimprovingenvironment’(1970).Inotherwords,thepublicgoodhastobe
pursuedexclusivelybypublicservantsandpoliticians,butnotbyprivatebusinesses.SoinFriedman'sview,ifthe
corporateexecutiveassignscorporateresourcesto‘socialobjectives’thatmeansthatheorsheisimposing
‘taxes’onshareholders.
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Asaconsequenceofpropertyrights,thosewhoownthemeansofproductionhiremanagers,whohavetodefend
theowners'interests.Thisraisesacrucialpoint:corporatemanagementhasfiduciarydutiestowardstheowners.
Thesefiduciaryduties,asFriedman(1970)stated,comefromconsideringthat‘acorporateexecutiveisan
employeeoftheownersofthebusiness’.Consequently,‘he[orshe]hasdirectresponsibilitytohisemployers’.
Thepurposeofbusinessinsociety,accordingtoFriedman(1970),istogenerateprofits.Thispurposeisexpressed
bythiscriticismtowardsthosewhostatethat‘businessisconcerned‘merely’withprofits.’Thatistheexclusive
responsibilityofbusiness.Inhisownwords:‘thereisoneandonlysocialresponsibilityof(p.60) business:…
increaseitsprofits’(Friedman,1970).Nowadays,itisexpressedinawiderwaybysayingthecorporationhasto
beorientedto‘maximizingshareholdervalue’.
IntheSVTtherearetwobasicnormativestandards:thefiduciarydutiesofcorporateexecutivesandthe
compliancewiththelaw,withaminimalistpublicpolicy.Thefiduciarydutiesofcorporateexecutivestowardsthe
shareholdersorthecompany'sownersbecomeanimportantstandardforresponsibilities.AccordingtoFriedman
(1970),‘acorporateexecutiveisanemployeeoftheownersofthebusiness’andtherefore‘hehasadirect
responsibilitytohisemployers’.Hisorherresponsibilityistoconductthebusinessinaccordancewiththeowners'
desires,whichgenerallywillbetomakeasmuchmoneyaspossible.
Corporatestructureinshareholdertheorygenerallyincludesadecision‐makingstructurebasedonprincipal‐
agencytheoryandtofacilitatethefiduciarydutiesofexecutivestowardsshareholders.Likewise,theroleofthe
corporategovernanceisseenbasicallytodefendtheshareholders'interests.Managerialsystemsalsohavetobe
designedinordertomaximizeshareholderwealth.
Thesecondstandardcoversobservanceofthe‘rulesofthegame’ofopenandfreecompetitionandabidingthe
law.Somedefendamitigatedtheoryinwhichsomeothervoluntaryresponsibilitiescanalsobeacceptable,
accordingtoacustomaryethics.
StrengthsandWeaknesses
Thosewhosupportshareholdertheoryusuallyemphasizetheefficiencyofthismodelforcreatingwealth.
Managingandgoverningacompanytowardsmaximizationofshareholdervalueisnotonlytoenrichthe
shareholders,butalsotoachieveabettereconomicperformanceofthewholesystem.Itisarguedthatconducting
businessforself‐interest,presentingprofitsasthesupremegoal,andoperatingunderconditionsoffreeand
competitivemarketswithinaminimalistpublicpolicyarethebestconditionsforwealthcreation.ForJensen(2000),
twocenturiesofexperiencestronglysupportthisthesis.Theabove‐mentionedconditionsprovideincentivesfor
innovation,cuttingcostsandprices,producingproductswitheconomicaddedvalue,andhavingcapitalforfuture
investments.Atthesametime,thetaxsystempermitsapartofthewealthgeneratedtobesharedbysociety
throughgovernmentalmediation.Thenegativesocialimpactsofbusinesscanbeavoidedthroughappropriate
lawsandgovernmentactionsalongwithprivatecharity,whichcandealwithinequalitiesandothersocialproblems
createdbymarkets.
Thisapproachiswidelysupportedbythelawandmanycompaniesarerunningundertheguidanceofthismodel,
especiallyinAnglo‐Saxoncountries.However,therearealsomanycriticswhopointoutseveralweaknessesof
thistheory.(p.61) Tobeginwith,economicperformanceisnotthewholepublicgood.Profitscangoup,while
workersareexploited,naturalresourcesareirreversiblyexhaustedandtheenvironmentseriouslydamaged.
AdamSmithtalkedaboutthe‘invisiblehand’whichprovidespublicgood,andtheideaisstilllatentinmany
approachessupportingShareholderValueTheory.KennethArrow(1973),whocriticizedboththeefficiencyof
marketsandthefactualseparationofpoliticalandeconomicalpower,arguesthattheeffectsofexternalities
throughasymmetricinformation(andforsocialpurposes)destroystheinvisiblehandofAdamSmithandthe
connectionbetweenthemicroandmacrolevels,andthereforetheefficiencyofmarkets.
Inpractice,shareholdermaximizationvaluefrequentlyreflectsshort‐termprofits,suchasareductioninpersonnel
expenses,ratherthanlong‐termprofitability.Thereisincreasingevidencethateconomicsuccessinthelongrun
cannotbeachievedunlessmanagementtakesintoaccountnotonlyshareholderinterests,butalsothoseof
employees,customers,suppliers,localcommunities,andothergroupswithastakeincompanies'activities
(stakeholders).Asuccessfulbusinessfirmneedsmuchmorethanself‐interestandconcernforprofits.Itrequires
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trust,asenseofloyalty,andgoodrelationshipswithallstakeholdersand,asaconsequence,anenduring
cooperationamongthosewhoareinvolvedinorareinterdependentwiththefirm(Hosmer,1995;Kay,1993;Kotter
andHeskett,1992).
Alienatingmanagerswithshareholderinterests,throughhighremunerationstronglyconnectedwithsharevalue
(stocks,stockoptions),isnotalwaysbestforthecompany(Delves,2003).Mergerandtakeoveractivities,
regardlessoftheireffectsondiscipliningmanagers,cancauseeconomicinstabilityandinsecurity(Porter,1992).
Propertyrightsconsideredalmostasanabsoluteright,whichispivotaltoShareholderValueTheory,havealso
beencriticizedasnotacceptableformoderntheoriesofproperty(DonaldsonandPreston,1995).Handy(1997)
arguesthattheoldlanguageofpropertyandownershipnolongerservesusinthemodernworldbecauseitno
longerdescribeswhatacompanyreallyis.Capitalisneithertheonlyassetnorthemainassetofacompany.
Peoplewhoworkinthecorporationare,increasingly,itsprincipalasset.
Regardingconstraintsintroducedbythelaw,criticsrememberthatlawsareimperfectandtheireffectslimited.Itis
neitherpossiblenorconvenienttoregulateeverythinginbusinesslife.Furthermore,lawsgenerallycomeafter
someundesirableimpactoccurs.Moreover,loopholescaneasilybefoundinthelawandmanyregulations
stranglebusinesscreativityandentrepreneurialinitiatives.Inaddition,astronginterventionismwithlaws,rules,
andothergovernmentalactionsisopposedtominimalistregulationofmarkets,alsorequiredforstrongfree
competition.
Last,butnotleast,somecriticismshavebeenmadeofthistheory,andparticularlyofFriedman'sapproach,forits
narrowviewofhumanbeings,limited(p.62) tofreedomofelectionandself‐interest,theatomisticvisionof
society,andtheautonomousconceptionofbusinessactivitywithinsociety(Davis,1960;PrestonandPost,1975;
Sethi,1975;Grant,1991;amongothers).
StakeholderTheory
Overview
Incontrasttothe‘ShareholderTheory’,the‘StakeholderTheory’takesintoaccounttheindividualsorgroupswith
a‘stake’inorclaimonthecompany.Inaverygeneralsense,stakeholdersaregroupsandindividualswhobenefit
fromorareharmedbycorporateactions.Fromthisperspective,thenotionofCSRmeansthat‘corporationshave
anobligationtoconstituentgroupsinsocietyotherthanstockholdersandbeyondthatprescribedbylaworunion
contact’(Jones,1980:59–60).
However,noteverybodydescribesbusinessresponsibilitiestowardsthefirm'sstakeholdersasCSR.Forinstance,
FreemanandLiedtka(1991),whodefendthestakeholderapproach,maintainthatCSRisnotausefulideaand
oughttobeabandoned.Theystatedthatthequestionofsocialresponsibilityjustdoesn'tcomeupifstakeholders
arebroadlydefinedtoincludesuppliers,community,employees,customers,andfinanciers.Theywrote:‘Oncewe
cometoseeeachofthesegroups,andtheindividualswithinthem,aslegitimatepartnersinthedialogueabout
‘whatisthiscorporationgoingtobe,’thesocialresponsibilityoftheresultingentityismoot’.Instead,they
suggestedcorporationshaveresponsibilitytoallthepartiesaffectedbybusinessactivity,thatis,responsibilities
towardsthestakeholdersofthefirm.
MorerecentlyFreemanandcollaboratorshaveinsistedthattheauthenticresponsibilityistocreatevaluefor
stakeholders,includingthelocalcommunity.Thus,FreemanandVelamuri(2006)havesuggestedthatthemain
goalofCSRistocreatevalueforstakeholdersfulfillingthefirm'sresponsibilitiestothem,withoutseparating
businessfromethics.Consequently,theyhaveproposedreplacingCSRwith‘companystakeholderresponsibility’,
notjustasasemanticchangebutasadifferentinterpretationoftheCSRmeaning.PreviouslyWheeleretal.(2003)
presentedaproposaltoreconcilethestakeholderapproach,CSR,andsustainabilitywiththecreationofvalue
(economic,social,andecologic)forconstituenciesofthefirm,notonlyeconomicvalueforshareholders.Apart
fromthisclarification,thereisnodoubtthatthis‘stakeholdervalue‐oriented’isadifferenttheoryforunderstanding
theresponsibilitiesofbusiness,andisthereforerelevanthere.
(p.63)
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Althoughthereareavarietyofapproachestothe‘stakeholdertheory’,asounddefinitionofthistheorycouldbe
thefollowing:‘Thefirmisasystemofstakeholdersoperatingwithinthelargersystemofthehostsocietythat
providesthenecessarylegalandmarketinfrastructureforthefirmactivities.Thepurposeofthefirmistocreate
wealthorvalueforitsstakeholdersbyconvertingtheirstakesintogoodsandservices’(Clarkson,1995).
Stakeholdertheorywasfirstpresentedasamanagerialtheory.‘Thestakeholderconcept’wroteFreemanin1984,
‘providesanewwayofthinkingaboutstrategicmanagement—thatis,howacorporationcanandshouldsetand
implementdirection.Bypayingattentiontostrategicmanagementexecutivescanbegintoputacorporationback
ontheroadtosuccess.’(p.vi).However,itisalsoanormativetheorywhichrequiresmanagementtohaveamoral
dutytoprotectthecorporationasawholeand,connectedwiththisaim,thelegitimateinterestsofallstakeholders.
InEvanandFreeman'swords:‘management,especiallytopmanagement,mustlookafterthehealthofthe
corporation,andthisinvolvesbalancingthemultipleclaimsofconflictingstakeholders’(1988:p.151).
Inthestakeholdertheory,thecorporationoughttobemanagedforthebenefitofitsstakeholders:itscustomers,
suppliers,owners,employees,andlocalcommunities,andtomaintainthesurvivalofthefirm(EvanandFreeman,
1988)Thedecision‐makingstructureisbasedonthediscretionoftopmanagementandcorporategovernance,
andfrequentlyitisstatedthatsuchgovernanceshouldincorporatestakeholderrepresentatives.
Inspiteofthesearguments,ifwetakeCSRinabroadsense,thenstakeholdertheorycanbeconsideredaCSR
theory,becauseitprovidesanormativeframeworkforresponsiblebusinesstowardssociety.
HistoricalBackground
Theword‘stakeholder’wasusedforthefirsttimein1963inaninternalmemorandumattheStanfordResearch
Institute,althoughtheconceptofconstituenciesofacompanyhadexistedbefore(Freeman,1984;Prestonand
Sapienza,1990).In1983,FreemanandReedcontrastedthenotionsof‘stockholder’and‘stakeholder’inthe
contextofcorporategovernance.In1984,R.EdwardFreemanpublishedthelandmarkbookStrategic
Management:AStakeholderApproachasanewconceptualframeworkformanagement.Fouryearslater,Evan
andFreemanpresentedanormativestakeholdertheorybasedonaKantianapproach.In1995,Donaldsonand
Prestonexaminedindepththefoundationsofthenormativestakeholdertheory.Sincethen,thismodelhasspread
considerablyandFreeman,aloneorwithcollaborators,hasdeepenedhisinitialwork,enlargingit,clarifyingsome
aspects,andintroducingsomemodifications(FreemanandEvan,1990;FreemanandLiedtka,1991;Freemanand
Gilbert,1988;Wicksetal.,1994;Freeman,1994,1995,1997,1999;FreemanandPhillips,2002;Phillipsetal.,
2003;Freemanetal.,2004;Dunhametal.,2006;FreemanandVelamuri,2006;amongothers).Otherauthors
havealsomadefurtherdevelopments.Phillips(2003a)echoedsomeoftheseworks.
ConceptualBases
Theterm‘stakeholder’,closelyrelatedto‘stockholder’,wasmeantbyFreeman‘togeneralizethenotionof
stockholderastheonlygrouptowhommanagementneedstoberesponsible’(1984:31).‘Stakeholder’canbe
takenintwosenses:inanarrowsense,thetermstockholderincludesthosegroupswhoarevitaltothesurvival
andsuccessofthecorporation;inawidesensethisincludesanygrouporindividualwhocanaffectorisaffected
bythecorporation(FreemanandReed,1983;Freeman,1984).Thus,‘stakeholdersareidentifiedbytheirinterests
intheaffairsofthecorporation’anditisassumedthat‘theinterestsofallstakeholdershaveintrinsicvalue’
(DonaldsonandPreston,1995:81).
Thestakeholdertheorybasicallysharesthesameconvictionsastheshareholdertheoryregardingdemocracyand
marketeconomyprinciples.However,onotherpointstheyarequitedivergent.Thefirmisseenasan‘abstract
entity’whereavarietyofinterestsconvergeratherthanasa‘setofcontracts’.Thepurposeofthefirmisrelatedto
theinterestsofdifferentindividualsorgroupswhoaffectorareaffectedbytheactivitiesofthefirm.Inotherwords,
thepurposeofthefirmis‘toserveasavehicleforcoordinatingstakeholderinterests’(EvanandFreeman,1988:
151).
EvanandFreemanbasethelegitimacyofthestakeholdertheoryontwoethicalprinciples,respectivelycalledby
theseauthors:‘PrincipleofCorporateRights’and‘PrincipleofCorporateEffects’.Bothprinciplestakeintoaccount
Kant'sdictumofrespectforpersons.Theformerestablishesthat‘thecorporationanditsmanagersmaynotviolate
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thelegitimaterightsofotherstodeterminetheirfuture’.Thelatterfocusesontheresponsibilityforconsequences
bystatingthat‘thecorporationanditsmanagersareresponsiblefortheeffectsoftheiractionsonothers’.
Twomoreprinciplescometoguidemanagerialdecision‐makingknownasP1andP2‘StakeholderManagement
Principles’(EvanandFreeman,1988):
P1:Thecorporationoughttobemanagedforthebenefitofitsstakeholders:itscustomers,suppliers,
owners,employeesandlocalcommunities.Therightsofthesegroupsmustbeensured,and,furtherthe
groupsmustparticipate,insomesense,indecisionsthatsubstantiallyaffecttheirwelfare.
P2:Managementbearsafiduciaryrelationshiptostakeholdersandtothecorporationasanabstractentity.
Itmustactintheinterestsofthestakeholdersastheiragent,anditmustactintheinterestofthe
corporationtoensurethesurvivalofthefirm,safeguardingthelong‐termstakesofeachgroup.
DonaldsonandPreston(1995)arguethatpropertyrightsmustbebaseduponanunderlyingprincipleofdistributive
justice.Theyalsocontendthatallthecritical(p.65) characteristicsunderlyingtheclassicaltheoriesof
distributivejusticearepresentinstakeholdertheories.Theyconcludethatthenormativeprincipleswhichsupport
thecontemporarypluralistictheoryofpropertyrightsprovidethefoundationforstakeholdertheory.
Severalauthors,acceptingthebasicstakeholderframework,haveuseddifferentethicaltheoriestoelaborate
differentapproachestothestakeholdertheory,amongothers,FeministEthics(Wicks,Gilbert,andFreeman,1994;
BurtonandDunn,1996),theCommonGoodTheory(Argandoña,1998),theIntegrativeSocialContractsTheory
(DonaldsonandDunfee,1999),andthePrincipleofFairness(Phillips,1997).Freemanacceptedapluralisticethical
approachbypresentingthestakeholdermodelasametaphorwheredifferentethicaltheoriesfindroom(Freeman,
1994).Balancingstakeholders'interestscouldbequitecomplex.Carson(1993:174)madeaninteresting
distinctionwhichhelpsustodealwiththosedifferentinterest:
Businessexecutiveshavepositivedutiestopromotetheinterestsofallstakeholders.(Theseareprima
facieduties.)Butthedutiestosomestakeholdersaremoreimportantthanthedutiestootherstakeholders.
Thus,sometimeslesserinterestsofmoreimportantstakeholderstakeprecedenceoverthegreater
interestsoflessimportantstakeholders.Positivedutiestostakeholdersareconstrainedbynegativesduties
nottolieorbreakthelaw,etc.
Inordertomakethistheorypractical,sevenPrinciplesofStakeholderManagementhavebeenproposedbyThe
ClarksonCenterforBusinessEthics(1999):
Principle1:Managersshouldacknowledgeandactivelymonitortheconcernsofalllegitimate
stakeholders,andshouldtaketheirinterestsappropriatelyintoaccountindecision‐makingandoperations.
Principle2:Managersshouldlistentoandopenlycommunicatewithstakeholdersabouttheirrespective
concernsandcontributions,andabouttherisksthattheyassumebecauseoftheirinvolvementwiththe
corporation.
Principle3:Managersshouldadoptprocessesandmodesofbehaviorthataresensitivetotheconcerns
andcapabilitiesofeachstakeholderconstituency.
Principle4:Managersshouldrecognizetheinterdependenceofeffortsandrewardsamongstakeholders,
andshouldattempttoachieveafairdistributionofthebenefitsandburdensofcorporateactivityamong
them,takingintoaccounttheirrespectiverisksandvulnerabilities.
Principle5:Managersshouldworkcooperativelywithotherentities,bothpublicandprivate,toinsurethat
risksandharmsarisingfromcorporateactivitiesareminimizedand,wheretheycannotbeavoided,
appropriatelycompensated.
Principle6:Managersshouldavoidaltogetheractivitiesthatmightjeopardizeinalienablehumanrights
(e.g.therighttolife)orgiverisetoriskswhich,ifclearlyunderstood,wouldbepatentlyunacceptableto
relevantstakeholders.
Principle7:Managersshouldacknowledgethepotentialconflictsbetween(a)theirownroleascorporate
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stakeholders,and(b)theirlegalandmoralresponsibilitiesfortheinterestsofall(p.66) stakeholders,and
shouldaddresssuchconflictsthroughopencommunication,appropriatereportingandincentivesystems
and,wherenecessary,thirdpartyreview.
Theseprinciplesproposeanormativemodelformanagement.Itisnotarigidcodetobeappliedbutasetof
guidelinesrespectingstakeholders'legitimateinterestsandrights.Theycombineboththeabove‐mentioned
philosophicalprinciplesandsome‘bestmanagerialpractices’.
StrengthsandWeaknesses
Severalstrengthscanbementionedregardingstakeholdertheory.First,thistheoryseemsethicallysuperiorto
maximizingshareholdervaluebecauseittakesintoconsiderationstakeholderrightsandtheirlegitimateinterests,
andnotonlywhatisstrictlyrequiredbylawinmanager—stakeholderrelations.Consequently,managerialduties
arewiderthanmanagementfiduciarydutiestotheshareholders.Inaddition,theconsiderationofpropertyrightsfit
betterwithjusticerequirementsthantheShareholderValueTheory.Finally,thistheory,atleastinitsoriginal
formulation,ismorerespectfulofhumandignityandrights.
Italsocontributestoapedagogicallanguagemoreinaccordancewithrecognizingsuchdignitythanotherkindsof
businesslanguagewhichtendtosuggestpeoplearemerehumanresourcesandacorporationsimplyamatterof
ownership,whichisboughtandsold,sometimeswithoutconsideringthatthecorporationisbasicallyformedby
persons.ItisinlinewithHandy'sargumentthat‘thelanguageandthemeasuresofbusinessneedtobereversed.
Agoodbusinessisacommunitywithpurpose,andacommunityisnotsomethingtobe“owned”.Acommunityhas
members,andthosemembershaverights,includingtherighttovoteorexpresstheirviewsonmajorissues’
(Handy,2002:52).
Asecondstrength,isthatthestakeholdertheorysupersededtheconceptualvaguenessofCSRbyaddressing
concreteinterestsandpracticesandvisualizingspecificresponsibilitiestospecificgroupsofpeopleaffectedby
businessactivity(Blair,1995;Clarkson,1995).
Asathirdstrength,itcanbepointedoutthatthisisnotamereethicaltheorydisconnectedfrombusiness
management,butamanagerialtheoryrelatedtobusinesssuccess.Thenormativeapproachcomeslaterandis
closelyconnectedwithmanagerialdecision‐making.Stakeholdermanagementiswellacceptedinmanycompanies
andprovidesaguidelinewhichcanleadtobusinesssuccessinthelongterm(e.g.seeRoyalSocietyofArts,
1995;CollinsandPorras,1994),althoughtoestablishsoundconclusionsontherelationshipbetweenstakeholder
theoryandfinancialperformancerequiresfurtherresearch(Bermanetal.,1999).
Alongwiththesestrengths,thistheoryalsohasweaknesses,oratleast,somecritics.Criticisms,sometimestake
theformofcriticaldistortions,andatothertimesoffriendlymisinterpretations(Phillipsetal.,2003).Amongthe
latterarethosewho(p.67) considerthatthestakeholdertheoryissocialismandreferstotheentireeconomyor
interpretitasacomprehensivemoraldoctrine.Itisalsoamisinterpretationtoapplystakeholdertheoryonlyto
corporationsandtothinkthatthistheoryrequireslegalchanges.
Somecriticsofstakeholdertheoryarguethatitcannotprovideasufficientlyspecificobjectivefunctionforthe
corporation,sincethebalancingofstakeholderinterestsabandonsanobjectivebasisforevaluatingbusiness
actions(Jensen,2000;SundaramandInkpen,2004).Thisdoesnotseemastrongobjectionsinceobjective
functions,algorithms,andmathematics,thoughusefulinsomerespects,arenotsufficientasaguideforhuman
life,includingbusiness.Inaddition,stakeholdermanagementisnotnecessarilyagainstshareholders.AsFreeman
etal.(2004)note:(i)thegoalofcreatingvalueforstakeholdersisdecidedlypro‐shareholder,(ii)creatingvalue
forstakeholderscreatesappropriateincentivesformanagerstoassumeentrepreneurialrisks,(iii)havingone
objectivefunctionwillmakegovernanceandmanagementdifficult,ifnotimpossible,(iv)itiseasiertomake
stakeholdersoutofshareholdersratherthanviceversa,and(v)intheeventofabreachofcontractortrust,
shareholders,comparedwithstakeholders,haveprotection(orcanseekremedies)throughmechanismssuchas
themarketpricepershare.
Stakeholdertheoryhasalsobeenaccusedofbeinganexcuseformanagerialopportunism(Jensen,2000;
Marcoux,2000;andSternberg,2000).Amanagerisabletojustifyself‐servingbehaviorbyappealingtothe
interestsofthosestakeholderswhobenefit.Hencethestakeholdertheory,statesSternberg,‘effectivelydestroys
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businessaccountability…becauseabusinessthatisaccountabletoall,isactuallyaccountabletonone’(2000:
51.f)Phillipsetal.(2003)replythatmanagerialopportunismisaproblem,butitisnomoreaproblemfor
stakeholdertheorythanthealternatives.Furthermore,becauseamanagercanattempttojustifyself‐serving
behaviorbyreferencetosomestakeholdergroupdoesnotmeanthatthejustificationisapersuasiveorviable
one.Theyalsoarguethatstakeholdergroups,incertainconditions,willmaintainmanagerialaccountability.
Anothercriticismisthatstakeholdertheoryseemstobeprimarilyconcernedwiththedistributionoffinaloutputs
(Marcoux,2000).However,thisismorethanquestionable.Actually,‘stakeholdertheoryisconcernedwithwhohas
inputindecision‐makingaswellaswithwhobenefitsfromtheoutcomesofsuchdecisions.Procedureisas
importanttostakeholdertheoryasthefinaldistribution’(Phillipsetal.,2003:487).
Severalcriticismscomefromacceptingthatmanagersbearafiduciarydutytoallstakeholdersandthatallofthem
oughttobetreatedequally,balancingtheirinterests(Marcoux,2000,2003;Sternberg2000).Marcoux(2003)
arguesthatstakeholder—managerrelationscontemplatedbystakeholdertheoristsarenecessarilynon‐fiduciary,
whileshareholder—managerrelationspossessthefeaturesthatmakefiduciarydutiesmorallynecessarytothose
relations.Heconcludesthatstakeholdertheoryismorallylackingbecause(i)itfailstoaccountforshareholders
being(p.68) owedfiduciaryduties,and(ii)ittreatsallstakeholders'interestsequallydespiteshareholders'
legitimateclaimtomanagerialpartialityasrequiredbythefiduciarydutiesowedtothem.Heretherecouldbesome
misunderstandingregardinglegitimacy(Phillips,2003b).Onlylegitimateinterestsshouldbeconsideredin
stakeholdertheory.Gioia(1999)addsthatmanagersdonotfindcredibleanormativetheorybasedonvoices
shoutingfromthesidelinesthatorganizationaldecision‐makersshoulddotherightthing.Hebelievesthat
stakeholdersdonotadequatelyrepresentthecomplexsocial,economic,andorganizationalrealitiesmanagers
face.
Ithasalsobeenobjectedthatstakeholdertheoryadmitsapluralisticsetofinterpretations(e.g.feminist,ecological,
faircontracts,etc.).Hummels(1998)arguesthat‘eachinterpretationprovidesuswithadifferentsetof
stakeholdersandstressestheimportanceofspecificvalues,rightsandinterests.Hence,differentstakeholder
interpretationsleadtodifferentdistributionofbenefitsandburden,ofpleasuresandpain,ofvalues,rightsand
interests’(p.1404).Thiscouldbeamoreseriousproblemifstakeholdertheorydoesnotadoptasoundethical
theoryandifthemanagerdoesnotactproperly.
Anotherweaknessofthistheoryconcernsstakeholderrepresentationincorporatedecision‐making.Thispointhas
difficultiesinbothjustificationandimplementation.Etzioni(1998)arguesthatalthoughthetheorycanjustify
stakeholderstakingpartincorporategovernance,itcannotbeimplementedwithoutaffectingthecommongood:
‘whileallstakeholdersandnotonlyshareholdershavefairclaimstoavoiceincorporategovernance,recognizing
suchclaimsmaybedamagingtothewell‐beingoftheeconomy,andhenceinjurioustothecommongood.Itmight
befurthermaintainedthatsuchconsiderationshouldoutweighthefairnessclaim’(Etzioni,1998:688).
Tosumup,thenormative‘stakeholdertheory’or‘companystakeholderresponsibility’needssomeimprovements,
butitseemsapowerfultheoryofthebusiness‐societyrelationship.
CorporateCitizenship
Overview
Fordecades,businessleadershavebeeninvolvingtheircompaniesinphilanthropicactivitiesanddonationstothe
communitywherebusinessesoperated.Thishasbeenunderstoodasanexpressionofgoodcorporatecitizenship.
Thismeaningisstillacceptedbysomepeople.Thus,forCarroll,‘beagoodcorporatecitizen’includes‘actively
engaginginactsorprogramstopromotehumanwelfareorgoodwill’(1991:42)and‘beagoodglobalcorporate
citizen’isrelatedtophilanthropic(p.69) responsibility,which‘reflectsglobalsociety'sexpectationsthatbusiness
willengageinsocialactivitiesthatarenotmandatedbylawnorgenerallyexpectedofbusinessinanethical
sense’(2004:118).However,sincethe1990sandevenearlierthisconcepthasexpandedfromitstraditional
meaning,andthelanguageofcorporatecitizenship(CC)hasfrequentlybeenusedasequivalenttoCSR(Wood
andLogsdon,2002,andMattenetal.,2003,amongothers).Butbeyondthesetwomeanings,inthelastfewyears,
somescholarshavesuggestedthatthenotionofcorporatecitizenshipisactuallyadifferentwayofunderstanding
theroleofbusinessinsociety.Thus,Birch(2001)seesCCasaninnovation.WhileCSRismoreconcernedwith
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socialresponsibilitiesasanexternalaffair,CCsuggeststhatbusinessisapartofthesociety.LogsdonandWood
believethat‘thislinguisticchange[fromcorporatesocialresponsibilitytocorporatecitizenship]containsa
profoundchangeinnormativeunderstandingofhowbusinessorganizationshouldactinrespecttostakeholders’
(2002:155).Similarly,Windsorthinksof‘corporatecitizenshipasamanagerialmovementthateffectively
substitutesadifferentconception,aswellaslanguage,forresponsibility’(2001b:239).Fortheirpart,Moonetal.
(2005)suggestthatcorporatecitizenshipisametaphorforbusinessparticipationinsociety.
HistoricalBackground
Theterm‘corporatecitizenship’wasintroducedinthe1980sintothebusinessandsocietyrelationshipmainly
throughpractitioners(AltmanandVidaver‐Cohen,2000;Windsor,2001a).However,theideaofthefirmascitizen
hadalreadybeenfloatedbyseveralpioneersintheCSRfield,includingMcGuire(1963)andDavis(1973).The
latter,forinstance,wrotethat‘socialresponsibilitybeginswherethelawends.Afirmisnotsociallyresponsibleifit
merelycomplieswiththeminimumrequiredofthelaw,becausethisiswhatagoodcitizenwoulddo’(1973:313).
EilbirtandParket,inthe1970s,soughtabetterunderstandingofwhatsocialresponsibilityreallymeant,usingthe
expression‘goodneighborliness’,whichisnottoofarfrombeinga‘goodcitizen’.EilbirtandParketexplainedthat
‘goodneighborliness’entailstwomeanings.First,‘notdoingthingsthatspoiltheneighborhood’and,second,‘the
commitmentofbusiness,orBusiness,ingeneral,toanactiveroleinthesolutionofboardsocialproblems,suchas
racialdiscrimination,pollution,transportation,orurbandecay’(1973:7).
Inthelate1980s,arespectedscholarinthebusinessandsocietyfieldexplainedthat‘good(corporate)
citizenship…asreflectedincompanyassistancetocommunitywell‐beingthroughitsfinancialandnon‐monetary
contributionwasdeemedformanyyearstobethequintessenceofsociallyresponsiblebusinessbehavior’
(Epstein,1989:586).
Inthe1990stheconceptof‘corporatecitizenship’attractedpositivebusinessattention(e.g.Alperson,1995;
McIntoshetal.,1998).Theincreasingpopularity(p.70) ofthecorporatecitizenshipconcepthasbeendue,at
leastinpart,tocertainfactorsthathavehadanimpactonthebusinessandsocietyrelationship,suchas
globalization,thecrisisofthewelfarestate,andthepoweroflargemultinationalcompanies.
Concernforcommunitieswherecompaniesoperatehasextendedprogressivelytoaglobalconcernduetointense
protestsagainstglobalization,mainlysincetheendofthe1990s.Facingthischallenge,34CEOsoftheworld's
largestmultinationalcorporationssignedadocumentduringtheWorldEconomicForuminNewYorkin2002:
GlobalCorporateCitizenship:TheLeadershipChallengeforCEOsandBoards.FortheWorldEconomicForum,
‘Corporatecitizenshipisaboutthecontributionacompanymakestosocietythroughitscorebusinessactivities,
itssocialinvestmentandphilanthropyprogrammes,anditsengagementinpublicpolicy’.1
Academicworkoncorporatecitizenship,bothempiricalandconceptual,beganinthelate1990s(Tichyetal.,
1997;McIntoshetal.,1998:AndriofandMcIntosh,2001;WoodandLogsdon,2001).
Inthelastfewyears,somescholarshaveundertakenthetaskofdevelopingnormativetheoriesofcorporate
citizenshiporsimilarconcepts.Althoughafulltheoryof‘corporatecitizenship’isnotyetavailable,somevaluable
academicworkhasbeendone,amongothers,byWood,Logsdon,andco‐authors(WoodandLogsdon,2001;
LogsdonandWood,2002,Woodetal.,2006,amongotherarticles)whohavedevelopedtheconceptof‘Global
BusinessCitizenship’andbyMatten,Crane,andMoon(Mattenetal.,2003;MattenandCrane,2005;Craneand
Matten,2005,andMoonetal.,2005).Mattenetal.(2003)havepresentedanextendedviewofcorporate
citizenshipderivedfromthefactthat,insomeplaces,corporationsenterthearenaofcitizenshipatthepointof
governmentfailuretoprotectcitizenship.Then,businessfulfillsarolesimilartothatofgovernmentinsolvingsocial
problems.
ConceptualBases
Theterm‘citizenship’,takenfrompoliticalscience,isatthecoreofthe‘corporatecitizenship’notion.Thenotionof
citizenevokesindividualdutiesandrightswithinapoliticalcommunity.However,italsocontainsthemoregeneral
ideaofbeingpartofacommunity.IntheAristoteliantradition,businessfirmsareseenasanintegralpartofsociety
andforthisreasontheyoughttocontributetothecommongoodofsociety,firstofalltothecommunitywhere
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companiesareoperating,asgoodcitizenship.Inthistradition,thekeyconceptofcitizenis‘participation’rather
thanindividualrights,asoccursinthecurrentliberalstate.
ForAristotle,beingacitizenisbasicallytohave‘therighttoparticipateinthepubliclifeofthesate,whichwas
moreinthelineofadutyandaresponsibility(p.71) tolookaftertheinterestofthecommunity’(Erisksenand
Weigård,2000:15).Whetherornotthisviewisaccepted,theoriesonandapproachesto‘corporatecitizenship’
arefocusedonrights,butevenmoreonduties,responsibilities,andpossiblepartnershipsofbusinesswithsocietal
groupsandinstitutions.
Although,corporatecitizenshipissometimesrelatedtosocialexpectation,itismostlyadoptedfromanethical
perspective.Thus,Solomonstates:
Thefirstprincipleofbusinessethicsisthatthecorporationitselfisacitizen,amemberofthelarger
communityandinconceivablewithoutit…Corporationslikeindividualsarepartandparcelofthe
communitiesthatcreatedthem,andtheresponsibilitiestheybeararenottheproductsofargumentor
implicitcontracts,butintrinsictotheirveryexistenceassocialentities(1992:184).
SolomoncontraststhisperspectivewithcurrentmodelsofCSRwhichfrequentlyimplicitlyconcurwiththe
Friedmanianassumptionthatcorporationsareautonomous,independententitiesalthoughtheyconsidertheir
obligationstothesurroundingcommunity(Solomon,1992:184).
ForWaddockandSmith(2000),‘citizenship,fundamentally,isabouttherelationshipsthatacompanydevelops
withitsstakeholders’(p.48).Theyunderstandthatbeingagoodcorporateglobalcitizen,basically,isrespectfor
others.Atthesametime,this‘involvesbuildinggoodrelationshipswithstakeholdersandthatsuchcitizenshipis
theverysamethingasdoingbusinesswell’(p.59).
Proponentsofcorporatecitizentheoryinsistthatapplicationoftheconceptofcitizenshiptobusinessshouldbe
undertakencautiously,sincecitizenshipprimarilyreferstoindividuals.Thus,LogsdonandWood,themain
proponentsof‘GlobalBusinessCitizenship’(GBC),startedtheirtheorybyanalyzingtheconceptof‘citizen’and
thenconsideringpossiblemeaningof‘corporatecitizen’andthen‘businesscitizenship’.Forthem‘business
citizenshipcannotbedeemedequivalenttoindividualcitizenship—insteaditderivesfromandissecondaryto
individualcitizenship’(2002:86).
WoodandLogsdon(2002)foundespeciallyusefulthedistinctionintroducedbyParry(1991)betweenthreeviews
of‘citizenship’:minimalist,communitarian,anduniversalrights.Intheminimalistviewofcitizenship,citizensare
merelyresidentsofacommonjurisdictionwhorecognizecertaindutiesandrights.Thecommunitarianview
embedscitizensinaparticularsocialcontext,wheretherules,traditions,andcultureofowncommunityarehighly
significant,alongwiththeparticipationinsuchacommunity.Theuniversalhumanrightsperspectiveofcitizenship
isbasedonthemoralassumptionofrightsasnecessaryfortherecognitionofhumandignityandforthe
achievementofhumanagency.WoodandLogsdon(2002,andinothercitedworks)thinkthat,althoughbusiness
organizationscanbeseenfromanyoftheseperspectives,onlythelastseemstothemsuitableforbusiness
operatinginaglobalarena.Thus,basedonuniversalhumanrightsandonthe‘integrativesocialcontractstheory’
(DonaldsonandDunfee,1994,1999),(p.72) Logsdon,Wood,andothershavedevelopedaninnovativetheory
ofbusinessandsocietyrelationship,calledGlobalBusinessCitizenship(GBC).
InGBCtheory,businessorganizationsarevehiclesformanifestinghumancreativity.Theypermitthecreationof
surplusvalue,allowingpeopleandsocietiestodomorewithresources.Theinterestsofthefirmandtheiractions
spanmultiplelocalesandcannotbecompletelycapturedincontracts.Eachfirmisseenasaparticipantina
networkofstakeholderrelationships.Becausefirmscanbeconsideredascitizens,althoughwithasecondary
statustoindividuals,theyhavederivativeorweakerrightsandduties.
Tosumup,GlobalBusinessCitizenshipcanbedescribedas‘asetofpoliciesandpracticesthatallowabusiness
organizationtoabidebyalimitednumberofuniversalethicalstandards(calledhypernorms),torespectlocal
culturalvariationsthatareconsistentwithhypernorms,toexperimentwithwaystoreconciliatelocalpracticewith
hypernormswhentheyarenotconsistent,andtoimplementsystematiclearningprocessesforthebenefitofthe
organization,localstakeholders,andthelargerglobalcommunity’(LogsdonandWood,2005b).Thinking
specificallyaboutmultinationalcompanies,LogsdonandWoodexplainthat‘aglobalbusinesscitizenisa
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Corporate Social Responsibility Theories
multinationalenterprisethatresponsiblyimplementsdutiestoindividualsandtosocietieswithinandacrossnational
andculturalborders’(WoodandLogsdon,2002:82).
TheGBCprocessrequires(1)asetoffundamentalvaluesembeddedinthecorporatecodeofconductandin
corporatepoliciesthatreflectuniversalethicalstandards;(2)implementationthroughouttheorganizationwith
thoughtfulawarenessofwherethecodeandpoliciesfitwellandwheretheymightnotfitstakeholderexpectations;
(3)analysisandexperimentationtodealwithproblemcases;and(4)systematiclearningprocessesto
communicatetheresultsofimplementationandexperimentsinternallyandexternally(LogsdonandWood,2005a).
MattenandCrane(2005)presentsadifferentperspective,whichtheycall‘extendedtheoreticalconceptualization
ofCorporateCitizenship’.Theystarttoexaminethenotionofcitizenshipfromtheperspectiveofitsoriginalpolitical
theoryandsomesignificantrecentdevelopmentsinpoliticalstudies.Theyalsoconsiderthatforcesofglobalization
havechangedtherelativerolesofgovernmentsandcorporationsinadministeringcitizenshiprights,with
corporationsassumingthisrole:‘(1)wheregovernmentceasestoadministercitizenshiprights,(2)where
governmenthasnotyetadministeredcitizenshiprights,and(3)wheretheadministrationofcitizenshiprightsmay
bebeyondthereachofthenation‐stategovernment’(2005:172).
MattenandCranestatethatcorporationsare‘activeincitizenshipandexhibitcitizenshipbehavior’(2005:175),
butthecorporationisneitheracitizenitself(asindividualsare)nordoesithavecitizenship.ThusMattenand
CranedescribeCCas‘theroleofthecorporationinadministeringcitizenshiprightsforindividuals’(2005:173).
Thisleads‘towardstheacknowledgementthatthecorporation(p.73) administerscertainaspectsofcitizenship
forotherconstituencies.Theseincludetraditionalstakeholders,suchasemployees,customers,orshareholders,
butalsoincludewiderconstituencieswithnodirecttransactionalrelationshipstothecompany’(p.173).
Inexplaininghowthecorporationadministerscitizenshiprights,especiallyincountrieswheregovernmentsfailin
theirresponsibilities,MattenandCranedistinguishatriplesocialrolebyconsideringthreetypesofrights(social,
civil,andpolitical)recognizedindemocraticsocieties.First,thecorporationsisaproviderofsocialrights(by
supplyingornotsupplyingindividualswithsocialserviceswhichprovidetheindividualwiththefreedomto
participateinsociety,suchaseducation,healthcare,andotheraspectsofthewelfare).Second,thecorporationis
anenablerofcivilrights(enablingorconstrainingcitizens'civilrights,whichprovidefreedomfromabusesand
interferencebythirdparties).Third,thecorporationisachannelforpoliticalrights(beinganadditionalconduitfor
theexerciseofindividual’politicalrights,whichpermitactiveparticipationinsociety).
TheproposalofMattenandCraneisdescriptive,notnormative.Infact,theyquestionwhetherthistripleroleof
corporationsisacceptable,sincetheadministrationoftheserightsisanon‐mandatoryaspectofmanagerial
discretion.IfcorporationsactasCCinthewaydescribed,therearisesthequestionofcorporateaccountability
towardssociety.However,thisisalsoproblematic.‘Governmentsareaccountabletotheircitizensand,in
principle,couldbeapprovedordischargeoftheirresponsibilitiesthroughanelectoralprocess.Similar
mechanisms,however,donotexistwithregardtocorporations’(MattenandCrane,2005:176).
StrengthsandWeaknesses
Afirststrengthofthecorporatecitizenshipandglobalbusinesscitizenshipconceptsisprobablythenameitself.
Whilesomepractitionerscanseeconceptssuchas‘businessethics’and‘socialresponsibilities’asopposedto
business,corporatecitizenship‘canbesaidtohighlightthefactthatthecorporationsees—orrecaptures—its
rightfulplaceinsociety,nexttoother‘citizens’withwhomthecorporationformsacommunity’(Mattenetal.,2003:
111).
Asecondpointisinovercomingthenarrowfunctionalistvisionofbusinesswhichreducesittoaneconomic
purpose.Withoutforgettingthebasiceconomicresponsibilityofbusiness,thenotionofcorporatecitizenship
emphasizesthesocialandethicaldimensionsofbusinessanditsroleinrespectinganddefendinghumanrights
andincontributingtosocialwelfareandhumandevelopmentwithinsociety.
Athirdgoodqualityisitsglobalscope,whichseemsespeciallyappropriateinthecurrentbusinessglobalization.
Fromaneconomicperspective,itisemphasizedthatcitizenshipactivitiesavoidrisks,enhancecorporate
reputation,andhencelong‐termfinancialperformance(Vidal,1999).GardbergandFombrun(2006)arguethat(p.
74) citizenshipprogramsarestrategicinvestmentscomparabletoR&Dandadvertising.Incertainconditions,they
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Corporate Social Responsibility Theories
canhelpglobalizingcompaniesneutralizetheiralienfuturesbystrengtheningcommunitytiesandbyenhancing
theirreputationamongpotentiallocalemployees,customers,andregulators.
Ageneralcriticismofthenotionofcorporatecitizenshipnotionisthatitisadiffuseconcept,whichincludesmany
differenttopics:public‐privatepartnership,corporatecontributions,corporateethicalpractices,corporate
communityeconomicdevelopment,corporatevoluntarism,corporatecommunityinvolvementandcorporate
brand,imageandreputationmanagement(Windsor,2001a:39and41).Probablyafurthertheoreticaldevelopment
wouldgiveunityandcoherencetoseveralpracticesnowpresentedundertheumbrellaof‘corporatecitizenship’.
Thesetwoparticularapproachespresentedabove,theGBCandtheextendedtheoryofcorporatecitizenship,
havereceivedcriticismsintheirspecificapproaches.Moonetal.(2005)recognizethattheworkofLogsdonand
Woodmarksamajorturningpointinthecorporatecitizenshipliterature;nevertheless,theyarguethattheir
approachseverelylimitsthisimportantnewpotential.First,theyarguethatLogsdonandWoodfailtoadequately
examinetheunderlyingmetaphoricalnatureoftheapplicationofCitizenshipCorporation.Second,theyrelyon
fairlysimplisticanddatednotionsofcitizenshipthatdonotallowthemtoexplorethenormativeandconceptual
potentialoftheterm.Third,LogsdonandWood'sapproachdoesn'taddanythingtoourunderstandingofbusiness‐
societyrelations.Fourth,theydonotofferanynewnormativebaseforthesocialroleofcorporations,being
essentiallyvoluntaristic.Fifth,becauseoftheirnarrowview,thescopeofcorporateactivitiesissubstantially
limited.Morespecifically,theLogsdonandWood'modelisnotabletoexamineactionssuchascorporatepolitical
donations,lobbying,andinvolvementinrule‐making.Finally,Moonandco‐authorsarguethattheapplicationof
notionsofcitizentocorporationsalsorequiresaclearerelucidationofthespecificconditionsunderwhichthe
statusofcitizenshipcouldbereasonablyextendedtocorporatebodies.
Theextendedtheoryofcorporatecitizenshiphasalsobeencriticized(VanOosterhout,2005)becauseMattenand
Crane'sconceptualizationofCCisconsideredhighlyspeculativewithlittleempiricalsupportandbecausetheir
approachfailstodiscusscorporaterightsalongwithresponsibilities.Inaddition,itisnotclearwhyandhowCCcan
emergeandbesustainedandwhatcorporationsmaywantinreturnforassumingtheresponsibilitiesincludedin
theconceptofCC.CraneandMatten(2005)haverespondedtothesecriticismsbyclarifyingsomepointsand
givingfurtherexplanations.
AnotherconcernaboutCCisitsdependencyonmanagerialdiscretionandthephilanthropicideologyofthis
approach(Windsor,2001a,2001b).Windsorbelievesthatthosewhousethisconceptaretakingadvantageof
risingsocialexpectationsofcorporatebenefitsinanageofgovernmentcutbacksandofastrategicmanagement
aimedatvaluecreationinallfunctionsandactivitiesofafirm.Theaccusation(p.75) ofCCasaphilanthropic
ideologyisspoiledbyconsideringabroardervisionofbusinessasamemberofthesocietyandtheabove‐
mentioneddefinitionofbusinesscitizenshiporglobalbusinesscitizenship,moredoselyrelatedtomoralduties.
Furthermore,evenwhensomespecificprogramsofcorporatecitizenshiphavetodowithphilanthropythiscan
havebeneficialeffectsandcanevenbringaboutvaluecreationinthelongterm.Inaddition,GBCisnot,inthefirst
place,aboutphilanthropybutaboutuniversalhumanrights.
Regardingitsmanagerialideology,corporatecitizenshipiscertainly,managerial‐centered,butthisisnot
necessarilyanegativecharacteristic,andtoavoidabusessomeeffectiveaccountabilityandsocialcontrolsmay
beestablished,althoughthisisnotaneasytask,especiallyinaglobalcontext.Thispointdealswiththeconcern
expressedbyMattenandCrane(2005)abouthowtomakecorporateaccountabilityeffective.
Anotherpointwhichcouldbeconsideredaweakness,oratleastanunsolvedquestion,inthistheory,isthelackof
clarityaboutwhoisresponsibleforcreatingthestandardsforglobalcitizenship(Munshi,2004).However,thispoint
canbeaddressedifoneconsidersthatsetsofuniversalstandardsandprinciplesalreadyexist,suchustheUN
UniversalDeclarationofHumanRights,theUNGlobalCompact,theRoundtablePrinciples,andsoforth.
Furthermore,thereisalsoanincreasinginterestindiscoveringcommongroundsinreligionsandwisdomtraditions,
andsomehaveindeedbeenfound(Lewis,1987,appendix;Moses,2001;seealsoMelé,2006).
Afinalweaknessisthat,althoughuniversalhumanrightscanbeafirststeptowardsacorporatecitizenshipnotion
basedonrelationalstakeholdernetworks,onecanobjectthatthisapproachisminimalist.Asoundrelationshipwith
stakeholdersshouldrequiresolidaritywiththem,whichismorethanrespectforotherpeople'srights.Manywould
agreethatagoodsocietymustberespectfulofhumanrights,butthisisprobablynotsufficienttobuildupagood
society.Onthispointfurtherdevelopmentswillbenecessary.
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Tosummarize,‘corporatecitizenship’andtherelatednotionof‘globalbusinesscitizenship’arepowerfulnotions
forbusinessandsocietyrelationships,buttheyneedfurtherdevelopmenttobecomemorerobustandovercome
somecurrentconcernsandcriticisms.
Conclusion
Afterreviewingthesefourtheories,onemaywonderwhichtheoryisthebest.Thefirstansweris:itdependson
whatyouarelookingfor.Allthesetheoriescanbeusedtoexplainwhatcompaniesareactuallydoing.But,mostof
themcan(p.76) alsobeunderstoodasnormativetheoriesshowingwhatcompaniesshoulddotomaintain
appropriatebehaviorinsociety.Fromthislatterperspective,theoriesgiveusreasonswhyfirmsoughttoassume,
andprinciplesforimplementingcertainresponsibilitiestowardsociety.
Itgoeswithoutsayingthatnotalltheorieswhichcanbeproposedareequallyacceptable.Whileadescriptive
theoryisestablishedasvalidafterasignificantnumberoftests,anormativetheoryisacceptedasaconsequence
ofitsrationalityandinternalconsistency.Inpractice,manycompanies,especiallyintheUSA,areprobablybetter
describedasfollowingtheshareholdermodel,whileinothercountries(Japan,Europe)thesocialbehaviorofmany
companiesisclosertothestakeholdermodel.However,onecanalsofindanywheresomecompanieswhich
respondtothecorporatesocialperformancemodel.Furthermore,anincreasingnumbermayadoptthecorporate
citizenshipmodel,particularlyamongtransnationalcompanies.
Ifweconsiderthesetheoriesasnormative,theanswertowhatisthebestisnoteasy.Wehavediscussedsome
strengthsandweaknessineachofthem,andwehavefoundreasonsinfavorofandagainsteachone.Afirst
problemisthateverytheorycomesfromadifferentfieldofknowledge,withtheircorrespondingpremises.
CorporateSocialPerformanceisrelatedtosociology,ShareholderTheorytoeconomictheory,StakeholderTheory
isrootedinseveralethicaltheories,andCorporateCitizenshipcomesfromthepoliticalconceptofcitizen.
Agoodnormativetheoryneedsagoodphilosophicalfoundation,whichhastoincludeacorrectviewofhuman
nature,business,andsociety,andtherelationshipbetweenbusinessandsociety.Infutureonemayhopefor
furtherphilosophicaldevelopmentsinordertoreachamoreconvincingnormativetheoryofbusinessandsociety
relations.
Bibliography
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DomènecMelé
DomènecMeléisProfessorofBusinessEthicsandholdstheChairofEconomicsandEthicsatIESEBusinessSchool,Universityof
Navarra,Spain.HeholdsaDoctorateinIndustrialEngineering(PolytechnicUniversityofCatalonia,Spain)andinTheology
(UniversityofNavarra,Spain).HeistheauthororeditorofseveralbooksonBusinessEthicsandrelatedtopics,apartfrom
numerousarticlesandcontributionstobooks.CurrentlyheisworkingonabookonBusinessEthicsfromahumanvalues
perspective.
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