Course Title:- Business ethics and Corporate Social Responsibility

Module Code:- MGMT 4321

Credit hours:- 2hrs per week

Chapter One

1. Business ethics and Corporate Social Responsibility

1.1. What is Business Ethics?
It is the study of appropriate business policies and practices regarding controversial subjects
including corporate governance, insider trading, bribery, discrimination, CSR and fiduciary
responsibilities. Or it is a set of moral principles that guides a company’s conduct. Therefore, a
business ethics provide a basic guideline that businesses can choose to follow to gain public
approval.

The benefits of business ethics

Properly understanding the concept of business ethics can bring several benefits for business
companies in many ways, such as

 Make the company to operate its business according to all applicable laws of the country
and global context
 Bring long last implications on the business company
 Help to attract very qualified employees to the business
 Increase investor awareness on the business
 Give guarantee for the wellbeing and interests of both employees and customers
 Develop better awareness on environmental. Social. Economic, governance, legal issues,
human rights etc.

Ethical Practice
Top ethical practices are
1. Develop ethical standards
2. Ensure leaders exhibit proper behavior
3. Being diligent about enforcing policies
4. Praise positive behavior and
5. Promote community involvement
1.2. Definition of Corporate Social Responsibility
CSR has been defined as the core responsibility of enterprises for their impacts on the society to
integrate social, environmental, ethical, human rights and consumer concerns in to their business
operations and main strategy in collaboration with their stakeholders..

Or it is a process that is concerned with treating the stakeholders of a company or institution

ethically or in a responsible way/ manner. Ethically or responsible means, treating key
stakeholders in a manner deemed acceptable according to international business norms.

Generally, CSR is understood as being the way through which a company achieves a balance of
economic, environmental and social imperatives. Furthermore, CSR can be a best strategic
business management concept, charity, sponsorship or philanthropy.

The Key issues of CSR

 Environmental management
 Responsible sourcing
 Stakeholder engagement
 Labor standards
 Working conditions
 Employees and community relations
 Social equity, justice
 Gender balance
 Human rights Good governance
 Anti-corruption measures

CSR strategy
 It is the total plan a business has to build, execute and optimize its responsibility initiatives.

The four major areas of CSR

Corporate social responsibility is the concept of incorporating philanthropy, ethics, and activism
into business practices to benefit both the society and the business company itself. Adopting a
CSR strategy also helps corporations build closer relationships with their employees and
customers.
 A. Environmental Responsibility

The environmental responsibility encompasses a company’s efforts to reduce its impact on the
environment such as ending investment in fossil fuels.

B. Ethical Responsibility

Ethical considerations involve measures a company takes to ensure that its business practices are
fair. Refusing to purchase materials produced by child labor is an example of an ethical CSR
response.

C. Philanthropic Responsibility

Philanthropy represents a company’s efforts to give back through charitable donations,

fundraising events, and more. An example of philanthropic CSR would be organizing a
fundraiser for a charity.

D. Economic Responsibility

This type of CSR involves financial sacrifices a company makes to ensure things like fair pay
and sustainable business practices. Executives who divert a part of their salary into profit-sharing
are practicing economic CSR.

In other words, businesses can no longer be just about business. They must also take on a certain
level of social responsibility because it matters to their customer base, employees, and the
community.

1.3. Corporate Citizenship

It is how a company exercises its rights, obligations, privileges and overall corporate
responsibility within our local and global environments. There are some common examples of
CSR:-

 Reducing carbon footprints

 Improving labor policies and working conditions
 Diversity, equity and inclusion
 Participating in fair trade
 Charitable global giving
 Community and virtual volunteering
 Corporate Policies that benefit the environment
 Socially and environmentally conscious investments
 Reduce environmental hazards
 Enable the local community to create sense of belongingness

1.4. Social responsiveness and performance of CSR

It is the idea a company should play a positive role in the community and the environmental’
and social impact of business decision. It is closely linked to sustainability, creating economic,
social and environmental value.

Thus, CSR can involve a broad scope of approaches and initiatives- everything from sustainable
practices to community involvement. Currently, all business customers expect responsible

Benefits of CSR
CSR has several benefits for business companies in different ways. These are

 Ensure the business company to be effective and efficient

 Enable the business to remain global driven
 Help to identify the success of the business
 Help to stick with your business plan
 Affect positively the business in many ways
 Increase investor appeal
 Solidify your business’s brand and reputation
 Enable business companies to practice their business in an ethical ways
 Attract investors to the business
 Develop the cultures of accountability and transparency
 Help the young generations to be socially aware
 Promote business customers and stakeholders concerns and interests
 Increase the quality of employees workplace and productivity
 Strengthen and extend the insights, skills and strategies of your employees
 Increase market competitiveness of the business company
Chapter Two

2. Management of Stakeholders

2.1. Definition of stakeholders

What Is a Stakeholder?

A stakeholder is a party that has an interest in a company and can either affect or be affected by
the business. The primary stakeholders in a typical corporation are its investors, employees,
customers, and suppliers.

However, with the increasing attention on corporate social responsibility, the concept has been
extended to include communities, governments, and trade associations.

Notice;-

 A stakeholder has a vested interest in a company and can either affect or be affected by a
business' operations and performance.
 Typical stakeholders are investors, employees, customers, suppliers, communities,
governments, or trade associations.
 An entity's stakeholders can be both internal and external to the organization.
 Shareholders are only one type of stakeholder that firms need to be cognizant of.
 The public may also be construed as a stakeholder in some cases.

Understanding Stakeholders

Stakeholders can be either internal or external to an organization. Internal stakeholders are

people whose interest in a company comes through a direct relationship, such as employment,
ownership, or investment.

External stakeholders are those who do not directly work with a company but are affected
somehow by the actions and outcomes of the business. Suppliers, creditors, and public groups
are all considered external stakeholders.

Stakeholder capitalism is a system in which corporations are oriented to serve the interests of all
of their stakeholders.
Example of an Internal Stakeholder

Investors are internal stakeholders who are significantly impacted by the associated concern and
its performance. If, for example, a venture capital firm decides to invest $5 million in a
technology startup in return for 10% equity and significant influence, the firm becomes an
internal stakeholder of the startup.

The return on the venture capitalist firm's investment hinges on the startup's success or failure,
meaning that the firm has a vested interest.

Example of an External Stakeholder

External stakeholders, unlike internal stakeholders, do not have a direct relationship with the
company. Instead, an external stakeholder is normally a person or organization affected by the
operations of the business. When a company goes over the allowable limit of carbon emissions,
for example, the town in which the company is located is considered an external stakeholder
because it is affected by the increased pollution.

Conversely, external stakeholders may also sometimes have a direct effect on a company without
a clear link to it. The government, for example, is an external stakeholder. When the government
initiates policy changes on carbon emissions, the decision affects the business operations of any
entity with increased levels of carbon.

Issues Concerning Stakeholders

A common problem that arises for companies with numerous stakeholders is that the various
stakeholder interests may not align. In fact, the interests may be in direct conflict. For example,
the primary goal of a corporation, from the perspective of its shareholders, is often thought to be
to maximize profits and enhance shareholder value.

Since labor costs are unavoidable for most companies, a company may seek to keep these costs
under tight control. This is likely to upset another group of stakeholders, its employees. The most
efficient companies successfully manage the interests and expectations of all their stakeholders.

It is a widely-held myth that public corporations have a legal mandate to maximize shareholder
wealth. In fact, there have been several legal rulings, including by the Supreme Court, brought
on by other stakeholders, clearly stating that U.S. companies need not adhere to shareholder
value maximization.1
Stakeholders vs. Shareholders

Shareholders are only one type of stakeholder. All stakeholders are bound to a company by some
type of vested interest, usually for the long term and for reasons of need. A shareholder has a
financial interest, but a shareholder can also sell their stock in the company; they do not
necessarily have a long-term need for the company and can usually get out at any time.

For example, if a company is performing poorly financially, the vendors in that company's
supply chain might suffer if the company limits production and no longer uses its services.
Similarly, employees of the company might lose their jobs. However, shareholders of the
company can sell their stock and limit their losses.

What Are the Different Types of Stakeholders?

Examples of important stakeholders for a business include its shareholders, customers, suppliers,
and employees. Some of these stakeholders, such as the shareholders and the employees, are
internal to the business. Others, such as the business’s customers and suppliers, are external to
the business but are nevertheless affected by the business’s actions. These days, it has become
more common to talk about a broader range of external stakeholders, such as the government of
the countries in which the business operates, or even the public at large.

What Is an Example of a Stakeholder?

In the event that a business fails and goes bankrupt, there is a pecking order among various
stakeholders in who gets repaid on their capital investment. Secured creditors are first in line,
followed by unsecured creditors, preferred shareholders, and finally owners of common stock
(who may receive pennies on the dollar, if anything at all). This example illustrates that not all
stakeholders have the same status or privileges. For instance, workers in the bankrupt company
may be laid off without any severance.

What Are the Stakeholders in a Business?

Stakeholders in a business include any entity that is directly or indirectly related to how a
company operates, whether it succeeds, or if it fails. First the owners of the business. These can
include actively-involved owners as well investors who have passive ownership. If the business
has loans or debts outstanding, then creditors (e.g., banks or bondholders) will be the second set
of stakeholders in the business. The employees of the company are a third set of stakeholders,
along with the suppliers who rely on the business for its own income. Customers, too, are
stakeholders who purchase and use the goods or services the business provides.
Why Are Stakeholders Important?

Stakeholders are important for a number of reasons. For internal stakeholders, they are important
because the business’s operations rely on their ability to work together toward the business’s
goals. External stakeholders on the other hand can affect the business indirectly.

For instance, customers can change their buying habits, suppliers can change their manufacturing
and distribution practices, and governments can modify laws and regulations. Ultimately,
managing relationships with internal and external stakeholders is key to a business’s long-term
success.

Are Stakeholders and Shareholders the Same?

Although shareholders are an important type of stakeholder, they are not the only stakeholders.
Examples of other stakeholders include employees, customers, suppliers, governments, and the
public at large. In recent years, there has been a trend toward thinking more broadly about who
constitutes the stakeholders of a business.

2.2. Stakeholder Management

Stakeholder management is the processes required to identify the people, groups, or. Organizations that
could impact or be impacted by the project. Analyze stakeholder. Expectations and their impact on the
project. Develop appropriate management strategies.

Or stakeholder management is the process by which you organize, monitor and improve your
relationships with your stakeholders.

It involves systematically identifying stakeholders; analyzing their needs and expectations; and
planning and implementing various tasks to engage with them. A good stakeholder management
process will be the means through which you are able to coordinate your interactions and asses
the status and quality of your relationship with various stakeholders.

Most definitions of stakeholder management tend to focus around the idea that you can “manage
your stakeholders (in order to get them to do what you want)”. The emphasis is placed on
creating a stakeholder management plan that maps the level of interest and influence of
stakeholders and list various levels of engagement for the different groups. A plan that is usually
created at the start of the project and then filed away to gather dust.

Stakeholder management activity should take in to account the following major phases. These are

 Stakeholders identification
 Stakeholder analysis
  Stakeholder communication and
 Stakeholder engagement

What is stakeholders’ engagement?

It is the systematic identification, analysis, planning and implementation of actions designed to influence
stakeholders. A stakeholder engagement strategy identifies the needs of key groups and the sponsor
plays a vital role in ensuring those business needs are met.

Why is stakeholder engagement Important?

Stakeholder engagement is a process that organizations can follow in order to listen to,
collaborate with, or inform (or a combination of all three) their existing stakeholders. This
process entails identifying, mapping and prioritizing stakeholders to determine the best tactics
for effective communication while making the best use of available resources.

Stakeholder engagement helps organizations to proactively consider the needs and desires of
anyone who has a stake in their organization, which can foster connections, trust, confidence,
and buy-in for your organization’s key initiatives. When done well, stakeholder engagement can
mitigate potential risks and conflicts with stakeholder groups, including uncertainty,
dissatisfaction, misalignment, disengagement, and resistance to change.

Five strategies for effective stakeholder management

In the age of social media activism and online media, effective stakeholder management is more
important than ever. The influence of stakeholders on your business can be immense, and if not
managed correctly, could lead to project delays, resource drain, political intervention or project
termination. Effective identification, understanding and management of your stakeholders, their
triggers and their expectations will improve your ability to reduce risk, tailor mitigation measures
and deliver a successful project. Five strategies that will help you manage your project’s
stakeholders are.

1. Stakeholder mapping

Early in the project, conduct a thorough stakeholder analysis to identify your

stakeholders. Identify and examine key factors including proximity to your project,
demographics, interest in the project, needs and concerns, expectations of your project and any
previous public statements. Also important is gaining an understanding of your internal
stakeholders, such as immediate staff, suppliers and contractors, broader companies or alliances
and shareholders. Mapping your internal stakeholders will allow you to investigate whether you
have the right resources and whether your team will function effectively.
2. Influence is Key

Understanding levels of influence will allow you to predict how a particular stakeholder may
interact directly with your project team or with others.

The range of possible influence is broad, from positive sentiment and support through to
activism and engagement of other community members against your project. To measure the
possible influence of your stakeholders, identify their level on a scale ranging from high,
medium to low:

 High: indicates a stakeholder who has significant power to impact decisions, timeframes, or
outcomes.
 Medium: indicates a stakeholder with a significant interest in the project, however with a
lower level of power to effect project change.
 Low: indicates a stakeholder with little ability to change business outcomes.

3. Identify the triggers

Stakeholders will react in different ways to different business actions, however by identifying
triggers and mitigation measures, you can avoid preventable complaints. Often, it is when
stakeholders experience changes to their environment or expectations of a business and its
behavior that may cause a reaction. Correlate your stakeholder list with potential known triggers,
such as loud or dusty construction works, visual amenity impacts or disruptions to their normal
patterns. Estimate the impact that these reactions may have to your project or strategies and
identify whether targeted communication, mitigation or an alternative solution is required.

4. Look for opportunities

From a risk management perspective, it is tempting to focus on those stakeholders most likely to
cause disruption to the project. Equally important are those stakeholders who view your project
favorably or may benefit from it. Identify these stakeholders and investigate opportunities to
leverage their positive perception as project advocates.

5. Proactive mitigation

With a solid understanding of your stakeholders, their influence and triggers, the next step is to
develop a mitigation plan. This step details the risks you are prepared to accept, share or avoid
and outlines how you can reduce their impact. Identify early what are your negotiable and
non/negotiable. This may include minor changes to alignment, preferred noise mitigation
measures, differing construction techniques or haulage routes. Working with your stakeholders
through this process will also improve project buy-in, credibility and ownership of the mitigation
measure.
Common Challenges of stakeholders engagement

 Trying to align many different stakeholders. ...

 Competing priorities between stakeholders. ...
 Resource constraints. ...
 Breakdowns in communication. ...
 Stakeholders resistant to share information. ...
 Stakeholder analysis. ...
 Create a communication plan

2.3. Implication for CSR

Companies' strategies and values must be in accordance to stakeholders' expectations and needs
because their role and influences on companies' activity are decisive for companies future
development. Corporate Social Responsibility is a meaningful way through which companies can
pursue sustainable development by having a coherent economic, social and environmental
perspective on how the business should be managed.

CSR must become an integral part of corporate management system, because it has a major role
in distressing the relation between company and major stakeholders, both internally and
externally. CSR is a global phenomenon, which draws the attention of a growing number of
partisans, from public private and social sector. To demonstrate the applicability of the
theoretical approaches deduced from the existing literature, the authors recourse to an empirical
qualitative research, conducted through a questionnaire implemented to top managers, HR
managers and heads of CSR departments within large companies that operate in many countries
around the world. The research is based on the analysis of a number of 87 questionnaires and
aims to highlight major stakeholders and finding how companies' responsible activities can
influence stakeholders.

Therefore, this course is designed to highlight how prioritization of stakeholders influences CSR
initiatives within large companies that operate in several countries and to present a perspective of
company's approach towards shared value influence major stakeholders. The conclusions drawn
have a greater relevance both theoretically and especially practically because provides insights
on how large companies perceive CSR and how stakeholders influence responsible initiatives in
emergent in various countries in the world.
Chapter Three
3. Theories of Ethics

3.1. Introduction of Ethics

Ethical theories are attempts to provide a clear, unified account of what our ethical obligations
are. They are attempts, in other words, to tell a single “story” about what we are obligated to do,
without referring directly to specific examples. It is common in discussions of business ethics to
appeal to one or more ethical theories in an attempt to clarify what it is right or wrong to do in
particular situations. Some of the philosophical ethical theories commonly appealed to include:

 Utilitarianism, which says that the right thing to do in any situation is whatever will “do the
most good” (that is, produce the best outcomes) taking into consideration the interests of all
concerned parties;
 Kantianism (or Deontology more generally), which says that—as a matter of respect—there
are certain absolute (or nearly absolute) rules that must be followed (for example, the rule
that we must respect people’s privacy, or respect other people’s right to make decisions about
their own lives);
 Social Contract Theory (or “contractarianism”), which says that, in order to figure out what
ethical rules to follow, we ought to imagine what rules rational beings would agree to in an
“ideal” decision-making context;
 Virtue Theory, which says that we ought to focus not on what rules to follow, but on what
kinds of people (or organizations!) we want to be, and what kinds of ethical examples we
ought to follow;
 Feminist Ethics, which is a complex, set of interrelated perspectives that emphasize
interpersonal concerns such as caring, interdependence, and the ethical requirements of
particular relationships. Such concerns are traditionally identified with women, but Feminist
Ethics should not be thought of as a theory only for women.

In some cases, scholars attempt to use a single ethical theory to shed light on a topic or range of
topics. (A good example would be Norman Bowie’s book, Business Ethics: A Kantian
Perspective.) A more typical approach—one taken by many business ethics textbooks today—is
to attempt to use insights from various ethical theories to shed light on different aspects of a
particular problem. Such an approach might involve, for example, asking which decision in a
particular situation would result in the best consequences (a Utilitarian consideration) but then
asking whether acting that way would violate any Kantian rules or whether a person acting that
way would be exhibiting the kinds of virtues that a good person would exhibit.

The role of ethical theory in business ethics is somewhat controversial, in part because Business
Ethics is seen as a branch of “applied ethics.”
Some regard applied ethics (and hence Business Ethics, along with bioethics, environmental
ethics, etc.) as a field that takes “standard” ethical theories and applies them to practical
problems. Such an approach might involve asking, for example, “What would Kant say about
privacy in the workplace?” Others regard applied ethics as an attempt to gain theoretical
insight (or to “build” better ethical theories) by testing them against real-life problems

What is egoism Mean?

 The fact of thinking that you are far better or more important than anyone else.

Ethical egoism is the view that people ought to pursue their own self-interest, and no one has any
obligation to promote anyone else’s interests. Ethical egoism is the prescriptive doctrine that all
persons ought to act from their own self-interest.

It is thus a normative or prescriptive theory: it is concerned with how people ought to behave. In
this respect, ethical egoism is quite different from psychological egoism, the theory that all our
actions are ultimately self-interested. Psychological egoism is a purely descriptive theory that
purports to describe a basic fact about human nature.

Ethical egoism is not a very popular moral philosophy. This is because it goes against certain
basic assumptions that most people have regarding what ethics involves. Two objections seem
especially powerful.

Ethical egoism has no solutions to offer when a problem arises involving conflicts of interest.
Many ethical issues are of this sort. For example, a company wants to empty waste into a river;
the people living downstream object. Ethical egoism advises that both parties actively pursue
what they want. It doesn’t suggest any sort of resolution or commonsense compromise.

Ethical egoism goes against the principle of impartiality. A basic assumption made by many
moral philosophers—and many other people, for that matter—is that we should not discriminate
against people on arbitrary grounds such as race, religion, sex, sexual orientation or ethnic origin.
But ethical egoism holds that we should not even try to be impartial. Rather, we should
distinguish between ourselves and everyone else, and give ourselves preferential treatment.

3.2. Ethical Egoism and Subjectivism

3.2.1. The Difference between Ethical Egoism & Ethical Subjectivism

Although ethical egoism and ethical subjectivism differ in many respects, they are both ethical
theories. The purpose of ethical theories is to put in place a system of principles individuals use
to make moral choices and to justify those choices. By doing this, the ultimate goal is to help
people lead the best life possible for themselves and for society. Ethical egoism and ethical
subjectivism approach these goals in different ways.
3.2.1.1. Ethical Egoism Explained
Ethical egoism contends each person has a duty to act in ways that promote his or her self-
interest above the interests of all others. When a moral decision must be made, the person should
exclusively consider how the results will benefit him or her. This differs from other types of
ethical theories which give weight to how the choice will affect others as well.

3.2.1.2. Ethical Subjectivism Explained

What is subjectivism theory?

The theory that all knowledge and moral values are subjective rather than based on truth that
actually exists in the real world. Subjective means ideas, feelings or experiences that exist in
somebody’s mind rather in the real world.

Ethical subjectivism argues that no ethical theory is objectively true. Statements contained in
those theories, such as the duty to act in one’s self-interest, are only true as long as they are
believed by the person holding the theory. Ethical subjectivism contends that objective concepts
of good and evil or right and wrong do not exist. Therefore, ethics becomes less a matter of what
is objectively true and more a matter of individual perception.
Chapter Four

Ethics of Business: - Management and Leadership

What is Business Ethics?

Sources of Business Ethics

Definition: The Business Ethics refers to the system wherein what is right and wrong, just and
unjust, good or evil is studied about the actions of the businessmen. In general, the “ethics”
means a sense of what is fair and acceptable to the society; the same moral principles apply to
the business ethics as well.

Sources of Business Ethics

1. Religion: There are numerous religions followed by people and each religion talk about the
nature of right and wrong in business as well as in each walk of life. Religion is the basis of
an individual that he follows from his childhood and is deeply rooted in his behaviors. He
understands about the fair and unfair, badness and goodness of actions and the consequences
of these actions.

The Principle of Reciprocity, i.e., exchanging things with others for mutual benefits, is seen in
all the religions such as Judaism, Hinduism, Buddhism, Christianity, Islam, etc.

2. Culture: The other source of business ethics is the culture that an individual has to follow
pertaining to certain guidelines prevalent in the society to which he belongs to. The culture
implies the rules, standard, values that are transmitted from generations to generations.

These are the standard code of conduct to be followed by an individual that is permissible and
acceptable to the community to which he belongs to from his childhood. The human civilization
is cumulative of cultural experience that an individual passes through during his lifetime.

3. Law or The Legal System: Law is the code of conduct formulated by the legal system of
the state and is to be followed by an individual to respect the societal interest. These are the
strict rules and procedures that every business should abide by to conform to the ethical
behavior of each. Although, the Law is reactive in nature and cannot cover all the cultural
ethics as the law is created when the new evil emerges.

Thus, the Business Ethics are greatly influenced by these sources which vary from company to
company and country to country, and this is the reason why these differ across the globe.

4.1. Statement of value

The statement of value highlights an organization’s core principles and philosophical ideals. It is
used to both inform and guide the decisions and behaviors of the people inside the organization
and signal to external stakeholders what’s important to the company. An organization’s core
values shape daily culture and establish standards of conduct against which actions and decisions
can be assessed.

A statement of value should be memorable, actionable and timeless. The format of the values
statement depends on the organizations; some organizations use one, two or three words to
describe their core values while others provide a short phrase.

Each statement may be part of the strategic planning process but have a different objective.
These statements may be written for organizations or for individual departments.
A mission statement is a concise explanation of the organization's reason for existence. It
describes the organization's purpose and its overall intention. The mission statement supports the
vision and serves to communicate purpose and direction to employees, customers, vendors and
other stakeholders. For instance, a Company’s Mission Statement Examples for a variety of
samples. Questions to consider when drafting mission statements could include:

 What is our organization's purpose?

 Why does our organization exist?

A vision statement looks forward and creates a mental image of the ideal state that the
organization wishes to achieve. It is inspirational and aspirational and should challenge
employees. Questions to consider when drafting vision statements might include:

 What problem are we seeking to solve?

 Where are we headed?
 If we achieved all strategic goals, what would we look like 10 years from now?

A values statement lists the core principles that guide and direct the organization and its culture.
In a values-led organization, the values create a moral compass for the organization and its
employees.

It guides decision-making and establishes a standard against which actions can be assessed.
These core values are an internalized framework that is shared and acted on by leadership. When
drafting values statements, questions to consider might include:

 What values are unique to our organization?

 What values should guide the operations of our company?
 What conduct should our employees uphold?

In conjunction with a values statement, a code of ethics puts those values into practice. It
outlines the procedures in place to ensure the organization's values are upheld. Questions to
consider when creating codes of ethics might include:

 What are common ethical issues in our industry?

 What should someone do if he or she sees a violation of our values?

Management cannot create a new values statement or ethics code and expect immediate change.
For an organization to have an effective values statement, it must fully embrace its values and
ethics at all levels of the company and use them daily to guide its attitudes, actions and decision-
making.
4.2. Codes of conducts and ethics

Code of Business Conduct: Ethics, Standards & Examples

All businesses should carry themselves legally and ethically, which is often done with the aid of
a code of conduct. Learn to define a code of conduct and ethics and give examples of business
codes, common topics, and codes of conduct.

Definition of Code of Conduct

A code of conduct is a set of organizational rules or standards regarding organizational values,
beliefs, and ethics, as well as matters of legal compliance that govern the conduct of the
organization and its members. Organizational members are responsible for adhering to the code
of conduct and will be held accountable for failure to do so. Most large businesses will have a
code of conduct, which are often developed in response to legislation regulating business
activities and behavior or some sort of ethical scandal.

What Are Ethics?

Ethics refers to a system of belief regarding right courses of action or conduct. Ethical conduct is
often viewed as conduct that is good for individuals or society as a whole. Ethics establish
obligations and duties that people owe to others and society. Ethical standards are rules or
principles established either by authority, such as a government, professional association, or
employer, or a custom.

It is important to understand that ethics is a philosophical endeavor and not a legal one. Laws can
coincide with a particular standard of ethics, deviate from it, or be neutral. What some people
may view as ethical conduct may be illegal, and what some people view as unethical conduct
may be perfectly legal. In any event, it is important that any business code of conduct requires
compliance with the law.

Types of Business Codes

You can actually break business ethical codes into three broad categories that are based upon the
approach each takes in maintaining ethical and legal compliance. Let's take a short look at each.

Codes of conduct typically prohibit behavior and inform employees what is expected of them.
Codes of conduct often outline penalties for failure to comply with the code. Common topics
include conflicts of interest, political contributions, and acceptance of gifts.
Codes of practice attempt to explain and illustrate the values and principles of the business.
Instead of providing strict rules to follow, codes of practice educate employees on how things are
done in the business. These codes attempt to empower the employee by making the employee an
ethical decision maker.

Codes of ethics codify the values and principles of the company and define the responsibilities,
duties, and obligations organizational members have to the organization and its stakeholders.

Common Topics in Business Codes

While the content of codes will vary from organization to organization, many will address
common topics, including:

 Conflicts of interests
 Confidential information
 Employment discrimination
 Use of the organization's property
 Financial reporting and accounting
 Health and safety issues
 Political contributions and campaigning in the office
 Legal compliance issues relevant to the organization

Why Do Organizations Have a Code of Ethics?

Business ethics are the guidelines a company has in place to follow when interacting with
internal and external sources, with the purpose being to impact the way in which they do
business. It also means that all professionals will be held to the same standard, as it’s something
the organization’s core values and principles are based on. It is beneficial to ensure that everyone
involved are treated with respect, and to create a working environment that’s as positive as
possible. By having a code of ethics, a business is presenting themselves as having a unified
attitude and would be seen as behaving with integrity.

Businesses adopting a code of ethics will create a stronger environment of trust and integrity
within the workplace. It is helpful when all employees, including management, are following the
same rules and behaving in a certain way because it means most conflicts will be removed from
the workplace, therefore allowing productivity to increase. With this kind of work environment,
individual employees will feel more able to share their opinions and contribute fully to the wider
team. Employees will also feel less confused, as they will be following clear practices and
confidence will grow as a result. Employees will be of a more caring nature and will promote
constructive social change because of the positive way they behave at work, which will continue
to benefit the community they are part of. If all employees are treated with a high level of
respect, potential employees will feel it is an attractive workplace and confident they won’t face
discrimination, intimidation, bullying, or harassment.
This means when a job is advertised at the company, there will be many applicants to select
from, so the new chosen employee will be of a high standard. The reputation of a company is
important to customers, and it will be more appealing if they feel one is trustworthy with a strong
code of ethics. This will also enhance the relationship with external partners and suppliers, as
they will be more comfortable working with a business with a great reputation because it reduces
the risk that something might go wrong.

A code of ethics can first be developed with management thinking about the personal values they
hold, and the way in which they treat others and like to be treated themselves. It could be useful
for a group of employees to also do this, whilst considering what the company values are. They
could think about problems which have occurred in the past, and the way in which they were
dealt with to evaluate how they’d like to treat people. It is also important to determine the areas
that the code needs to include to be most useful and relevant to that particular organization. It
would be helpful to view examples of codes of practice from a few other companies, particularly
similar ones, to get an idea of the content and language used. The code can then be written based
on the collective ideas, which also needs to include any penalties for violations. Employees can
then sign to confirm they agree to it and this can be made available as part of the employment
contact. The code should be reviewed at regular intervals to ensure it is still relevant and is being
the most beneficial that it can be.

A code of ethics is not able to prevent unethical behavior by employees, but it will impact the
decisions they make. They will be aware that if they take a particular course of action when
carrying out their work, it will lead to a violation which carries a punishment. It is then up to
them to decide whether they still want to proceed or not. In many situations, it would be unlikely
that an employee would risk being reprimanded, so having a code of ethics in place acts as a
deterrent. Based on this, it can positively influence behavior and make the employee behave in a
way which is compliant to the rules of the company. Following ethics means that everyone
within the company knows what they should be doing within their roles for the work they are
carrying out, and the processes they must follow at all levels of the business.

In terms of the impact ethical codes have on professional practice, employees who are ethical are
trustworthy, respectful and take responsibility for their actions in their working practice. A
company could assess the ethics of potential new staff members by asking behavioral based
questions in the interview, which would give interviewers more of an idea of their character. Not
only will professional practice benefit from having a set of ethics in place, but employees will act
as ambassadors for the company outside of work and in the local area. They will also keep
confidential information private and will protect the company as much as possible. A team of
staff who have a strong code of ethics will help to build a stronger, more productive team, and
the workplace will be happier overall.

Ethical codes can only be effective if they are visible enough within the company for employees
to have them mind in their day to day work.
Training should also be provided to ensure everybody knows the procedures they must follow,
and to also help with understanding the seriousness of ethics to help them become engrained in
the culture of the business. To give ethical codes meaning, a company must be willing to enforce
it and therefore reprimand staff who breaches it.

4.2. Ethics training programs

Definition (1):

Ethics training programs refer to the programs which are designed by a firm to promote ethical
behavior. An ethics training program provides employees with instructions on how to deal
with ethical dilemmas when they occur and improve their overall ethical conduct.

Definition (2):

“Ethics training programs are designed to help everyone understand where the line is drawn
between acceptable and unacceptable workplace behavior.” Nowadays consumers have become
more aware of ethical business practices than before. Because they can easily access information
about businesses and the way they perform business. Consumers are immensely conscious of this
information and they decide to invest their money accordingly.

Because of this easy access to information, individuals have become very conscious of ethical
businesses and their impact. Staying away from unethical business practices not only helps to
develop a good reputation but also keeps the business safe from lawsuits or litigation.

Unethical business practices and money scandals can result in a huge loss in profit leading to a
decrease in employee motivation and ultimately bankruptcy. Fulfilling and maintaining
productivity and quality can develop a suitable reputation and keep a healthy code of ethics for
the business. For all these reasons ethics training programs are essential for a successful
business.

Ethics Training and Communications

Training employees, officers, and directors of a company’s Code of Ethics and policies is critical
to establishing an effective compliance and ethics program.

The attorneys and advisors at MDO Partners have significant experience in drafting training
modules and conducting live training for various companies on a wide array of topics, including
Anti-Corruption, Antitrust, Insider Trading, Conflicts of Interest, etc. It’s also important to issue
periodic communications throughout the company on the Code, policies and related matters,
which MDO Partners can help draft.
7 Effective ways of Ethics Training for Employees

Why is Ethics Training important to your company?

Are the concepts of honesty, respect, integrity, diversity, and fairness present within your
organization? Does your business cut corners to get tasks done, rather than carrying them out in
a manner that is most beneficial to customers? Are employees treated in a manner that could
make them feel uncomfortable or unsafe? If you answered yes to either of these questions, your
company can one day implode, experiencing high turn-over and eventually failing to reach its
goals.

Ethics training for employees is vital to ensure the most successful working environment.
Businesses that engage in unethical behavior will realize quickly that these practices are bad for
business. Such companies risk incurring millions of dollars in fines, in addition to losing
customers and lowering the value of the company. More than 50% of the largest
bankruptcies in the corporate world have occurred due to unethical practices.

Carrying out an ethics training program is also vital for the purpose of establishing what personal
behavior is acceptable. Is harassing or bullying taking place in your company? Are conflicts
being resolved in a productive manner? Are employees conducting themselves as professionally
as possible? Ethics training for employees is key to quell bad habits or conduct before they fester
into more severe situations, affecting morale and motivation.

What makes Ethics Training programs effective?

So what are the best practices a company must carry out in order to ensure maximum retention of
an ethics training program? As the old saying goes, you can lead a horse to water, but you can’t
make him drink. It is not only beneficial, but absolutely vital to your company to take whatever
steps possible to assist employees in internalizing lessons learned. Here are some tips to create
an effective ethics training program:

1. Establish a solid foundation

First off, you must create a solid foundation of values in your company in order to successfully
articulate your company ethics. There are no shortcuts here. What is the culture of your
company? Is it communicated clearly in a code of conduct?

It is easy to assume that senior employees are aware of the values you are trying to impart, but
are they? If senior employees have trouble communicating it clearly, how can you expect new
hires to fully grasp it.
2. Pinpoint the types of ethics training necessary

It is necessary for senior management to define which ethics should be instilled and which must
be. Some ethics considerations related to company culture, ethical conduct, both in and out of
the office, and ethics trainings related to diversity are vital to maintain a positive company
cohesion.

On the other hand, ethics related to regulatory and compliance training, data protection, and
customer privacy must be maintained or companies risk facing extensive fines and losing
customers.

3. Train employees where they are located

Now that you have defined what kind of ethics training needs to be implemented, you can begin
to coordinate the actual training sessions. The amount of money spent on compliance training in
the US totalled roughly $90 billion in 2018. Outrageous, right? Flying employees from all over
the world to one place costs a tremendous amount of money, in addition to having to pay for
food, lodging, and a large auditorium to train all the employees. Skip it if possible!

Nowadays with video conferencing software or online virtual classroom platforms, you can
communicate the various requirements of your ethics training for employees simply over the
internet. An instructor can conduct a full webinar that communicates vital information most
effectively and ultimately save time in the process by reaching a large audience at once.

4. Ensure compliance, proof of presence, and proof of focus

It is not enough to inform employees of the guidelines of compliance. You must also ensure that
employees have fully absorbed all the information. When moderating a remote session, it can
difficult understanding how focused your participants are. Reporting on the success of your
ethics training program or compliance requirements may require additional reporting beyond an
attendance metric.

Some online virtual platforms offer a browser focus alert feature that sends an instructor a
notification if their employees failed to stay focused on the main browser window by clicking
away. Afterwards, instructors can access detailed session stats that summarizes total focus. You
can also assess learner understanding in real time by building multimedia, online quizzes to
measure learner success and gauge the overall effectiveness of the course. This ability to get live
feedback is invaluable to make sure all employees are on the same page.

5. Encourage Group Activity

You will obtain quality results if you make your session as dynamic as possible. Think of the
last time you were in a training session in a physical location. Perhaps you were sitting in a large
auditorium, being lectured to by a moderator.
How many times did you take out your phone to pass the time? Let’s face it, training sessions
can be quite boring if you are a passive audience member sitting in the back row.

Conducting an online training session can help increase interactivity to keep employees more
engaged. When employees are beginning to lose focus, encourage group collaboration by
splitting your participants into breakout rooms to talk, share and work together.

6. Role Play

It is easy for an employee to simply explain what behavior is considered good or bad, or to spell
out exactly how to fix a problem. But most real life issues that arise are nestled in an unclear,
gray area. Role playing a scenario allows participants to work through ethical dilemmas that
might arise in the workplace, debating the variables of the situation and best practices in
handling it.

The facilitator might ask each group to present their conclusions to the larger group, allowing
feedback and a larger discussion to form. The facilitator can then focus on the pros and cons of
the various decisions. By fleshing out the discussion in this manner, employees will better
internalize the lessons learned.

7. Balance the fun/seriousness

Gamification and role-playing can help keep the vibe of the session light, which in turn might
make it easier for the participants to walk away with the required knowledge.

Remember, there is no reason an ethics training program cannot be enjoyable for your
employees. Just make sure to take the details in planning seriously, setting aside enough time,
resources, and consideration to make sure the ethics training program checks off all the
necessary boxes in terms of reaching compliance.

Ethics training is essential for your company and employees to successfully communicate and
carry out its main goals. Effective ethics training for employees ensures your company is situated
for success and that individuals within the company will stay committed to their tasks at hand in
the best and most comfortable manner

4.2.2. Ethics auditing

There are many types of audits used by and for organizations, such as financial audits, quality
audits, project audits, operational audits, performance audits, and ethics audits. An ethics audit is
the systematic, independent, and objective examination and evaluation of the ethical content of
the object of the audit.
An audit is systematic when it entails typical steps like planning, defining a framework,
fieldwork (collecting information and obtaining evidence) using established methods, analysis,
judgment, reporting, and documentation. An audit is independent when someone who has no
interests on the results of the audit performs it. There are many types of audits used by and for
organizations, such as financial audits, quality audits, project audits, operational audits,
performance audits, and ethics audits. An ethics audit is the systematic, independent, and
objective examination and evaluation of the ethical content of the object of the audit.

An audit is systematic when it entails typical steps like planning, defining a framework,
fieldwork (collecting information and obtaining evidence) using established methods, analysis,
judgment, reporting, and documentation. An audit is independent when someone who has no
interests on the results of the audit performs it.

4.2.3. Management consultancy

It is often referred to as business consulting, is defined as “advisory and/or implementation services to the
(senior) management of organizations with the aim of improving the effectiveness of their business
strategy, organizational performance and operational processes”.

Qualification

To be considered a management consultancy company/unit, management consultancy must be a

substantial part of its business and it must be qualified to analyze problems, to give advice and to
assist in implementing such advice. Its activities must not be permanently exclusive to any one
client.

Ethics
The consultancy shall at all times maintain the highest ethical standards in the professional work
undertaken and, in matters relating to a client’s affairs, act solely in the interests of the client.
The consultancy shall not do anything likely to lower the status of management consultancy.

The consultancy undertakes that it shall not at any time or for any purpose misrepresent itself by
the use of any title, symbol or form of words whatever in order either to lend false authority to its
representatives or to mislead clients.

Transparency
Where a consultancy is a subsidiary of a parent body or in alliance with any third party, which is
not in the public practice of management consultancy, all such relationships shall be declared to
the client at the outset of the project, and the consultancy will not enter into any arrangement,
which would detract from the objectivity of the advice given to the client.

Confidentiality
The consultancy shall not disclose, or permit to be disclosed, confidential information
concerning the client’s business and staff.
Quality
The consultancy shall only accept work for which it is qualified and has the capacity to
undertake, provided it may enter into alliances to acquire such competence and organization.

The consultancy, prior to undertaking a client assignment, shall define in writing the scope,
extent and the manner in which it will undertake the project.

The consultancy will not accept an assignment with a scope so limited that the consultancy is
aware that the client will receive either ineffective advice or advice so incomplete, that he needs
to seek further advice.

Where a consultancy wishes to employ the assistance of another organization and/or person not
linked with the consultancy to assist in undertaking the clients project, it shall: Inform the client
and obtain his acceptance by formal agreement; Ensure that the partners’ work is verified and
that they operate to those standards set out in these Guidelines; Support partners to the same
extent as if they were part of the consultancy.

The consultancy will ensure that its quality control procedures are adhered to at all time during
the assignment. The consultancy shall pay particular attention to the maintenance of quality
records, the client perspective and joint evaluation at the end of the assignment.

Finances

The consultancy and the client shall agree upon the terms of the contract and in particular the
methods of calculation of the fees payable.
Chapter 5

Corporate Social responsibility

Introduction

 Corporate social responsibility, or CSR, is a form of self-regulation that reflects a business’s

accountability and commitment to contributing to the well-being of communities and
society through various environmental and social measures.
 CSR plays a crucial role in a company’s brand perception; attractiveness to customers,
employees, and investors; talent retention; and overall business success.
 A company can implement four types of CSR efforts: environmental initiatives, charity
work, ethical labor practices and volunteer projects.
 This topic is for business owners who are looking to implement or improve CSR initiatives
and want to learn more about the benefits, best practices, and potential pitfalls.

The definition of business success goes beyond profitability, growth rate and brand recognition.
In today’s world, customers, employees and other stakeholders judge a company by how its
activity impacts the community, economy, environment and society at large. In other words, by
whether it cares about the greater good and not only greater profit. Corporate social
responsibility practices are a way to demonstrate your business’s stance on the matter.

What is corporate social responsibility?

Corporate social responsibility is a type of business self-regulation with the aim of social
accountability and making a positive impact on society. Some ways that a company can embrace
CSR include being environmentally friendly and eco-conscious; promoting equality, diversity,
and inclusion in the workplace; treating employees with respect; giving back to the community;
and ensuring business decisions are ethical.

CSR evolved from the voluntary choices of individual companies to mandatory regulations at
regional, national and international levels. However, many companies choose to go beyond the
legal requirements and embed the idea of “doing good” into their business models.

There is no one way a company can embrace CSR, but one thing is certain – to be perceived as
genuine, the company’s practices need to be integrated into its culture and business operations.
In today’s socially conscious environment, employees and customers place a premium on
working for and spending their money on businesses that prioritize CSR. They can detect
corporate hypocrisy.
To ensure CSR authenticity, a company should look at its values, business mission and core
issues and determine which initiatives best align with the business’s goals and culture. The
business can do this internally or hire a third party to conduct an assessment.

5.1. Rationale for CSR

There are many reasons for a company to embrace CSR practices.

1. It improves customers’ perception of your brand.

It’s increasingly important for companies to have a socially conscious image. Consumers,
employees, and stakeholders prioritize CSR when choosing a brand or company, and they hold
corporations accountable for effecting social change with their beliefs, practices, and profits.

To stand out among the competition, your company needs to prove to the public that it is a force
for good. Advocating and raising awareness for socially important causes is an excellent way for
your business to stay top-of-mind and increase brand value.

Key takeaway: CSR practices play a crucial role in attracting new customers, whose purchasing
decisions are strongly influenced by the company’s values, reputation, and social and
environmental activism.

2. It attracts and retains employees.

Consumers aren’t the only ones drawn to businesses that give back. Susan Cooney, head of
global diversity and inclusion at Symantec, said that sustainability strategy is a big factor in
where today’s top talent chooses to work.

“The next generation of employees is seeking out employers that are focused on the triple bottom
line: people, planet and revenue,” she said. “Coming out of the recession, corporate revenue has
been getting stronger. Companies are encouraged to put that increased profit into programs that
give back.”

What’s more, employees that share the company’s values and can relate to its CSR initiatives are
much more likely to stay. Deloitte’s 2020 Global Marketing Trends Report shows that purpose-
driven companies retain talent up to 40% more than their competitors. Considering that the
estimated cost of losing an employee averages 40% of their annual salary, according to a report
by the Washington Center for Equitable Growth, offering your team a sense of purpose and
meaning in their work is worth the effort.

3. It increases your appeal to investors.

By demonstrating a developed CSR program and initiatives, your company is bound to become
more appealing to both current and future investors.

Almost 80% of surveyed businesses were open to providing them with data and considering their
perspectives on sustainability. Just like customers, investors are holding businesses accountable
when it comes to social responsibility.

At the same time, a company that takes CSR seriously signals to both investors and partners that
it’s interested in long-term as well as short-term gain. CSR goes hand in hand with
environmental, social, and governance (ESG) metrics that help external analysts quantify the
company’s social efforts, and becomes a key factor for investors’ consideration and continued
interest.

Tip: Don’t wait until investors ask you to provide social impact data. Get ahead of current trends
by sharing ESG scores, sustainability reports and CSR metrics.

4 types of corporate responsibility your business can practice

In recognition of how important socially responsible efforts are to their customers, employees
and stakeholders, many companies focus on four broad CSR categories.

1. Environmental efforts: One primary focus of CSR is the environment. Businesses have
large carbon footprints, regardless of size. Any steps a company can take to reduce its
footprint is considered good for both the company and society.

2. Philanthropy: Businesses can practice social responsibility by donating money, products or

services to social causes and nonprofits. Larger companies tend to have plentiful resources
that can benefit charities and local community programs; however, even as a small business,
your efforts can make a difference. If you have a specific charity or program in mind, reach
out to the organization. Ask them about their specific needs and whether a donation of
money, time or your company’s products would best help them.

3. Ethical labor practices: Companies can demonstrate CSR by treating employees fairly and
ethically. This is especially true of businesses that operate in international locations with
labor laws that differ from those in the U. S.

4. Volunteering: Participating in local causes or volunteering your time (and your staff’s time)
to community events says a lot about your company’s sincerity. When your company does
good deeds without expecting anything in return, you express concern (and support) for
specific issues and social causes.

Building a socially responsible business

While startups and small companies don’t have the deep financial pockets that enterprises have,
their efforts can have a significant impact, especially in their local communities.

“Even 5%, though it might not sound like a lot, can add up to make a difference,” Schmidt said.
“When thinking of ways to donate and give back, start local, and then move from there.”

When identifying and launching a CSR initiative, involve your employees in the decision-
making process. Create an internal team to spearhead the efforts and identify organizations or
causes related to your business or that employees feel strongly about. You’ll increase
engagement and success when you contribute to something that matters to your employees.
Involving your employees in the decision-making process can also bring clarity and assurance to
your team.

“If decisions [about CSR] are made behind closed doors, people will wonder if there are strings
attached and if the donations are really going where they say,” Cooney said. “Engage your
employees [and consumers] in giving back. Let them feel like they have a voice.”

Whichever strategies you use for sustainable development, be vocal. Let your consumers know
what you are doing to be socially conscious.

“Consumers deserve to share in the good feelings associated with doing the right thing, and
many surveys have found that consumers are inclined to purchase a sustainable product over a
conventional alternative,” Cooney said. “Announcing these benefits is a win-win from both a
commercial and sustainability perspective.”

Tip: Make your employees and team part of the decision-making process for your social
responsibility efforts.

What to avoid when creating a socially responsible business model

Becoming a socially responsible business can be simple, but there are a few caveats.

1. Don’t choose unrelated initiatives.

Avoid participating in charitable efforts that are not related to your core business focus or that
violate your company’s ethical standards in any way. Instead of blindly sending money to a
completely unrelated organization, find a nonprofit that your company believes in or invest in a
project in your community.

2. Don’t use CSR as a marketing scheme.

Don’t use CSR opportunities solely for marketing purposes. Schmidt said running a corporate
responsibility campaign as a quick marketing scheme can backfire if your business doesn’t
follow through. Instead of trying a one-time stunt, adopt socially responsible business practices
over time. Schmidt said employees and consumers react positively to companies that embrace
long-term social responsibility.

3. Don’t wait for the industry to catch up.

If you are considering sustainable activities that aren’t legally required yet, don’t wait. By
adopting socially responsible norms early on, you set the bar for your industry and refine your
process.

Undertaking CSR initiatives is a win for everyone involved. The impact of your actions will not
only appeal to socially conscious consumers and employees, but can also make a real difference
in the world.

Examples of CSR companies

If you’re looking for CSR inspiration for your business, here are six companies practicing
corporate social responsibility on a large scale.

 LEGO: The toy company has invested millions of dollars into addressing climate change
and reducing waste. LEGO’s environmentally conscious efforts include reduced packaging,
sustainable materials, and investments in alternative energy.

 TOMS: TOMS donates one-third of its net profits to charities that support physical and
mental health as well as educational opportunities. During the pandemic, the brand directed
all charitable donations to the TOMS COVID-19 Global Giving Fund.

 Johnson & Johnson: The brand Johnson & Johnson focuses on reducing its environmental
impact by investing in alternative energy sources. Globally, Johnson & Johnson also works
to provide clean, safe water to communities.

 Starbucks: The global coffee chain has implemented a socially responsible hiring process
to diversify its workforce. Its efforts are focused on hiring more veterans, young people
looking to start their careers, and refugees.

 Google: Google has demonstrated its commitment to the environment by investing in

renewable energy sources and sustainable offices. CEO Sundar Pichai is also known to take
stands on certain social issues.
 Pfizer: The pharmaceutical company’s focus on corporate citizenship is reflected in its
healthcare initiatives, which include spreading awareness about non-infectious diseases and
providing accessible health services to women and children in need.

Key takeaway: No matter the size of your company, socially responsible practices can not only
benefit your business, but also make a positive impact on the world.

Corporate social responsibility FAQs

Corporate social responsibility is a modern approach to running a business. Here are some of the
most frequently asked questions about it.

What is corporate social responsibility (CSR)?

Corporate social responsibility is a way of describing how companies measure and control their
impact on society. This includes a company’s contributions – both positive and negative – to the
economy, environment and greater community.

Who is CSR for?

Businesses of all sizes can choose to introduce a comprehensive CSR program or selected
initiatives and reap the associated benefits. No matter the size or maturity of your business, an
investment in ethical behavior and sustainable practices can improve your brand value, build
customer trust, grow your company, and improve the bottom line.

What are the benefits of CSR for companies?

CSR can be beneficial to a company in several ways. The first is by improving its brand image.
When customers or clients see evidence that a business is socially responsible, they tend to
respond positively.

The second benefit is improving employee morale. Morale tends to be higher at companies that
invest effort and resources into ethical and socially responsible behavior.

The third involves appealing to new talent. Modern employees often choose purpose-driven and
environmentally conscious companies over financial benefits.

Lastly, CSR-active companies attract investors and partners. A company that is willing to invest
in long-term policies and improvements offers security to potential investors.

What are examples of CSR initiatives?

Some examples of CSR components are reducing carbon footprint and energy consumption,
engaging in wildlife conservation initiatives, encouraging charity and volunteer work, supporting
local communities, improving labor policies, ensuring diversity and equality in the workplace,
investing in nonprofit organizations, and guaranteeing ethically sourced materials.

Whichever practices you employ, make sure they are authentic and match your corporate values.
Otherwise, your business might be accused of green washing.

How do you monitor CSR?

There are a few key ways to measure CSR. The first is to break CSR goals into categories, such
as philanthropy, labor practices, and environmental efforts.

To track the success of these investments, look for measurable key performance indicators. How
much has your company’s carbon footprint changed? How many people did you reach with a
charitable effort? Monitor new developments and keep a pulse on general public perception of
issues associated with your company’s social causes.

5.2. Describing Corporate Social Responsibility

This topic explores the key elements of social responsibility by mainly focusing on CSR's
essential dimensions, i.e. social, economic, environmental, stakeholder, and voluntariness
dimension of social responsibility on the part of corporations.
Estimated Reading Time: 8 minutes

Introduction

Social responsibility is an ethical framework in that organizations should not behave unethically.
They must work and contribute to society’s welfare – comprised of various stakeholders and
communities – that they operate in and interact with.

As such, the ideological notion of social responsibility is effectively taken to apply to every
organizational entity, be it, a government, a corporation, institution or an individual dealing with
society at large when conducting its commercial or business activities. However, it recent
decades, social responsibility has come to be acknowledged as particularly relevant in terms of
corporate behavior, meaning, and how businesses and mangers conduct their activities while
managing societal relationships. Social responsibility of corporations entails them being
committed to socially-oriented initiatives to improve the quality of life and overall well-being of
society and the environment.

Entrepreneurial scandals concerning the wrong implementation of doing socially responsible

organizations have provoked the stakeholders’ emergence of cooperative initiatives to establish a
typical pattern for social responsibility practices. In current business conditions, the company’s
work has become an essential part of society as a whole, and stakeholders attention are on the
social and environmental impacts of business. Therefore, to establish a relationship that lasts
long with their stakeholder in general and the customers in particular, firms need to consider and
manage their business activities in accordance with the increasing concerns. Traditionally,
companies have only one aim and responsibility for making a profit, but with the inception of the
CSR concept, they are now responsible for more than just their owners.

Various elements make up the social responsibility notion and several related dimensions that
impact companies’ business activities. For these reasons, companies must strive to teach and
constantly improve their CSR practices through appropriate actions regarding social,
environmental, and economic sustainability.

Elements of Corporate Social Responsibility

According to the content analysis of current CSR definitions, most authors have concluded that
there are three main elements of social responsibility: social, environmental, and economical,
that makes up social responsibility. The elements are nothing but the various dimensions of CSR
that defines its importance and analyze its objectives. However, the recent literature has explored
two new dimensions of CSR that are stakeholder and volunteering dimension. The dimensions
involved in the social responsibility concept of corporations are selected from different
definitions of CSR. Finally, this article has aimed to examine all the five dimension of CSR. The
dimensions are discussed below:

The Economic Dimension

The Economic dimension of CSR is concerned with the impact on the finances of a company.
Companies should be motivated by profit and put their business in the hands of consumers,
investors, and other stakeholders.

Corporate entities are well aware that their survival depends on sacrifice in short-term profits
while getting positive results in the future, which satisfy the owners and managers as they are
used to maximize profits. The economic dimensions represent that companies have to meet their
economic responsibilities such as returning money to investors, guaranteeing customer’s
satisfaction and loyalty, fair compensation to employees, fair prices of goods, etc. It also assumes
companies’ responsibility that it will strive for long-term sustainable business, adequately
respond to business risks, creates necessary security and safety for its workers, investors, and
society in general.

The Social Dimension

Social responsibility is one of the significant factors in setting up the relationships between the
company’s business and society. As the name suggests, social responsibility means being
accountable for its social effects, either direct or indirect, on the people in society. CSR’s social
dimension’s primary objective is that companies should work for the betterment of society and
that they need to integrate social concerns in their business operations and consider the full scope
of their impacts on exposed communities.

Corporations, as a social actor, being themselves a part of the social community, should pay
attention to serve internal and external human communities. Companies should realize their
obligations and respond accordingly to the needs, rights, demands, and expectations for their
social life’s well-being. When addressing the social dimension, the companies should use their
business to benefit society by sourcing fair trade products or agreeing to pay a livable fair wage
to its employees. It could also be through taking endeavors for sustainable use of resources or
using the company’s’ resources to organize charitable fundraisers. The CSR activities of the
companies, in essence, should generate value and in the interests of the communities.

The Environmental Dimension

In recent years corporate has been viewed as the main cause of social, environmental, and
economic problems. As a result of external pressures, companies have started to consider their
influence on the environment and their business actions’ advantages and disadvantages.

The consideration should be limited to pollution prevention and energy savings, labor
improvements, and efficient use of raw material as well as control and reduction of waste.

Implementation of the environmental element of social responsibility depends on the

government’s legal and administrative conditions. The interests of different groups, including the
company itself regarding environmental CSR and protection activities, are with the consequential
variation level.

Corporations try to gain positive public opinion and social support by implementing environment
protection activities; however, it is noteworthy that this goal is the following way impossible to
attain only by fulfilling legal requirements and avoiding incidents.

The companies should adopt a more proactive approach and mandate the business strategies to
consider environmental protection and do environmental reporting. It is true that environmental
CSR activities initially add additional expenses to companies and its financial benefits are not
immediately visible and easily measurable. This is often why companies don’t tend to sacrifice
their profit instead of environment protection voluntarily because they don’t see a positive
connection between the present expense and later gains.

The Stakeholder Dimension

One of the essential elements of corporations’ social responsibility is to take care of its
stakeholders’ interests. The idea of stakeholders has a traditional foundation root that sees
businesses as an integral part of society and not just an isolated element for making profits for its
owners, i.e. shareholders.

Stakeholders are the major part of the system that influences corporate decisions-making
processes to bring all sides of the business in balance via fulfilling everyone’s needs without
causing harm to other parts of the system. To work in their interests while managing company’s
operations is key elements of social responsibility of the organizations. The definition of
stakeholders as given by Mahoney (2012) is as follow:

“…those persons and groups who contribute to the wealth-creating potential of the firm and are
its potential beneficiaries and/or those who voluntarily or involuntarily become exposed to risk
from the activities of a firm… Thus, stakeholders include shareholders, holders of options issued
by the firm, debt holders, employees (especially those investing firm specific human capital),
local communities, environment as latent stakeholders, regulatory authorities, the government,
inter-organizational alliance partners, customers and suppliers”.

There are different categorizations of stakeholder inter alia one of them focus on attributes of
power, legitimacy, and urgency. Managers can combine these attributes to generate the
concerned group of shareholders that must be paid attention to their stakeholders.

Since it’s impossible to manage all the stakeholders’ needs, the managers should seek balances
and minimize the conflicts between stakeholders and prevent all unethical behaviors. That’s why
companies implement CSR activities in their operation to improve their relationship with
stakeholders.

Moreover, sustainability is a very crucial part of the stakeholder dimension of CSR. Companies
need to take social responsibility for a wider group of direct and indirect collaborators, consider
the whole supply chain, and establish such a level of collaboration that all socially irresponsible
and unsustainable practices are detected and prevented at the earliest.

The Voluntariness Dimension

The Voluntariness dimension assumes organizations’ discretionary rights to make decisions that
are not imposed by any duty to fulfill certain conditions. Voluntariness is primarily associated
with the pro-activity that transcends the imposed standards, values, and rules. The dimension
indicates overcoming the minimum prescribed standards related to products’ quality and safety,
support for the community, employees, and engagement in social projects through volunteering
and establishing corporate foundations and charitable institutions.

The Voluntariness dimension focuses on ethical and philanthropic responsibilities and is

inextricably related to the CSR practice of business ethics. One concept understands corporation
as a legal entity with the power to own, buy, and sell the property to enter into contracts, to sue
and to be sued, certain rights over people because of their financial influence and power and
position to cause injuries to employees, consumers, and environmental damage of course. Thus,
business ethics clarify that corporations have the responsibility to avoid said bad actions to
prevent corporate social irresponsibility (CSI). The perceived social responsibility of
corporations guides them on the relevance of ‘doing good’ and ‘avoiding bad.

Conclusion

Being a socially responsible company can bolster a company’s reputation and build its brand
image. Social responsibility empowers the organizations to leverage the corporate resources at
their business disposal to do good for society and, most importantly, reduce their business
operations’ negative impact. Consideration of the above-mentioned significant elements of social
responsibility by corporations can boost organizational growth, ethical values, and morale and
lead to greater productivity in the workforce, mainly through the stakeholder dimension or
through CSR’s social and voluntariness dimension.

5.3. Social Responsibility Debate

The Debate over Corporate Social Responsibility updates and broadens the discussion on several
questions by bringing together in one volume a variety of practical and theoretical perspectives
on corporate social responsibility. It is perhaps the single most comprehensive volume available
on the question of just how "social" business ought to be. The volume includes contributions
from the fields of communication, business, law, sociology, political science, economics,
accounting, and environmental studies. Moreover, it draws from experiences and examples from
around the world, including but not limited to recent corporate scandals and controversies in the
U.S. and Europe.

Corporate social responsibility (CSR) is an idea that has grown during the last three decades
from the voluntary activity of business firms into a debate about whether CSR should be
mandated by law because of the increased demand from society. Further, it has been argued that
business corporations are owned by their shareholders, and the managers must concentrate on
maximizing the wealth of their shareholders and not of the community. To determine how better
to apply CSR, this paper begins with looking at the evolution of CSR as a system around the
world and then discusses the definition of CSR. In addition, this paper explores the advantages
and disadvantages of implementing voluntary CSR and then explores mandatory CSR.
Moreover, in this paper, it is found that determining the proper CSR system depends on many
factors in each country, such as the social, economic and legal factors that should be examined
before applying mandatory or voluntary CSR.

Corporate social responsibility (CSR) often refers to 'companies voluntarily going beyond what
the law requires to achieve social and environmental objectives during the course of their daily
business activities. ‘CSR is typically considered voluntary and beyond compliance with the law.
CSR is an organization obligation to benefit society in ways that transcend the primary business
objectives of maximizing profit. The EU Commission (2002) CSR is a concept whereby
company integrate social and environment concerns in their operations and in their stakeholders
on a voluntary basis. Milton Friedman
‘
Company’s directors have a single duty of maximize profits for investors’ sparkled subsequent
debates. He was the opinion that social issues are not the business of companies but that of the
government; after all companies pay tax to the government for country development. Admirers
of CSR from all ages argues that, most of the societal problems such as pollution, destruction of
natural beauty, accident, diseases are caused by companies, hence there cannot be any better
panacea than companies themselves contributing to the welfare of the people. They further argue
on natural grounds that, companies are corporate citizens or artificial persons and they should
contribute to the welfare of their fellow citizen in good faith. These and other related arguments
for CSR stems from the fact that, contributing to the social welfare of people is a charitable act.
Making CSR mandatory defeat the natural laws of donation thereby shifting CSR as a charitable
act to new realm of increasing the tax burden of companies.

The passage and coming into force of Indian Companies Act 2013 which mandate companies to
spend part of their net profit after tax for CSR signals a new line of debate on CSR. As a global
phenomenon, the start of a policy in one country begins the policy planning of another country.
Therefore India CSR law may be replicated soon among neighboring countries when there is
successful implementation. It is increasing important for a critical discussion on the mandating of
CSR. This paper attempts to raise some unconventional justifications on mandatory CSR to set
grounds for further debates.

APROACH OF CORPORATE SOCIAL RESPONSIBILITY

According to Carroll (1979,1991), the corporate social responsibility is the same with economic
and legal obligations, the corporate should ethical by caring the community with its need and
expectation so as to make corporate good for citizen. Also the corporate should be discretionary
by voluntary.

Economic Responsibility

The corporate have responsibility to support the economic welfare societies, any business
organization is responsible to produce goods and services according to the need and want of the
society and to sell to them at reasonable profit. In doing this the company must also generate
enough profit for its investors. This responsibility gives birth to business and sets the foundation
for other responsibilities.

Legal Responsibility
The government enacts the rules and regulation example Company Act, so as to make sure the
companies follow these rules and regulation. These rules may be in environment protection and
on product which government required companies to produce. The companies have
responsibilities to obey rules, law and regulation which enacted by the government, also
companies must produce goods and services under the umbrella of the legal requirement

The Ethical Responsibility:

The responsibility of the companies is to act ethical by producing goods and services which meet
with the needs and expectation of the society. With this responsibility companies are expected to
act beyond the spirit of the law. Moreover, business organization has the obligation to avoid
harm and to do what is righty, just, to do what expected morally or ethical in order to become
good corporate citizenship, to recognize that corporate integrity and ethical behavior go beyond
more compliance.

Philanthropic Responsibility:

The responsibility of the firm is to contribute to financial, human resources to the community
and improving the quality of life. This can be by providing educational facilities, donations in
university and colleges as well as meeting the need and expectation of the community. By doing
so the company creates reputation and image by becoming good corporate citizen. Also the firm
assists voluntarily those projects that enhance a community quality of life.

The philanthropic components of CSR are to perform in a manner consistent with the
philanthropic and charitable of the society, to assist the fine and performing arts, to engage
managers and employee in voluntary and charitable activities within their local communities, to
provide assistance to private and public educational institutions, to assist voluntary those project
enhance a community quality of life.

CSR Around the world

Companies are required under section 404 of the Sarbanes Oxley Act to give details of spending,
but only reporting is mandatory no amount is fixed.

Moreover the stock exchange authorities have different indices to indicate a company‘s
performance member on sustainability program. It makes the firm to be effective and efficient on
improving and promoting good welfare of the society. It also makes the firm to recognize the

needs and expectations of the society.

United Kingdom (UK)

Most companies report to the index. It is voluntary exercise. Sustainable exercise is considered
vital to the valuation of the company, along with the profit. Also this enables to have a free of
choice to conduct social responsibility or not.

Belgium:

Reporting is mandatory under the CORPORATE CODE. There is a choice of method, the most
favorite been Global Reporting Initiatives (GRI).

Saudi Arabia:

The department of revenue levies a special tax that is 2.5% of the capital. But the department has
to spend it on the government social benefit practice. It is the only country with a fixed corporate
social responsibility tax.

China:

Voluntary exercise; government companies report with their balance sheet. Most companies
featured in the Fortune 500 companies also issue voluntary report.

Japan:

Voluntary reporting: companies have been seriously following the regime and such reporting has
been a part of the annual disclosure since 1990 till now.

India:

CSR is mandatory and companies are supposed to use 2% of their net profit after tax for
corporate social responsibility but it is not applicable to all companies depending on profit which
company generate. This provision is laid in Section 135 of the Companies Act 2013. In general,
most of the countries all over the world make CSR as voluntary even in African countries. This
enables the firm to conduct CSR by their choice according to its net profit. Also most of the
firms do CSR as the way of maximize profit by building image and reputation of the firm
towards the customer and the society in general
In general, most of the countries all over the world make CSR as voluntary even in African
countries. This enables the firm to conduct CSR by their choice according to its net profit. Also
most of the firms do CSR as the way of maximize profit by building image and reputation of the
firm towards the customer and the society in genera

5.4. Social Responsibility Theories

Broadly, there are three major theoretical approaches to these new responsibilities:

1. Corporate social responsibility (CSR)

2. The triple bottom line
3. Stakeholder theory

Corporate Social Responsibility (CSR) Theory

The title corporate social responsibility has two meanings. First, it’s a general name for any
theory of the corporation that emphasizes both the responsibility to make money and the
responsibility to interact ethically with the surrounding community. Second, corporate social
responsibility is also a specific conception of that responsibility to profit while playing a role in
broader questions of community welfare.

As a specific theory of the way corporations interact with the surrounding community and larger
world, corporate social responsibility (CSR) is composed of four obligations:

1. The economic responsibility to make money. Required by simple economics, this obligation
is the business version of the human survival instinct. Companies that don’t make profits are
—in a modern market economy—doomed to perish.

Of course there are special cases. Nonprofit organizations make money (from their own activities
as well as through donations and grants), but pour it back into their work. Also, public/private
hybrids can operate without turning a profit. In some cities, trash collection is handled by this
kind of organization, one that keeps the streets clean without (at least theoretically) making
anyone rich. For the vast majority of operations, however, there have to be profits. Without them,
there’s no business and no business ethics.

2. The legal responsibility to adhere to rules and regulations. Like the previous, this
responsibility is not controversial. What proponents of CSR argue, however, is that this
obligation must be understood as a proactive duty..
3. The ethical responsibility to do what’s right even when not required by the letter or spirit of
the law. This is the theory’s keystone obligation, and it depends on a coherent corporate
culture that views the business itself as a citizen in society, with the kind of obligations that
citizenship normally entails.
4. The philanthropic responsibility to contribute to society’s projects even when they’re
independent of the particular business. A lawyer driving home from work may spot the local
 children gathered around a makeshift lemonade stand and sense an obligation to buy a drink
to contribute to the neighborhood project..

The Triple Bottom Line Theory

The triple bottom line is a form of corporate social responsibility dictating that corporate leaders
tabulate bottom-line results not only in economic terms (costs versus revenue) but also in terms
of company effects in the social realm, and with respect to the environment. There are two keys
to this idea. First, the three columns of responsibility must be kept separate, with results reported
independently for each. Second, in all three of these areas, the company should obtain
sustainable results.

The notion of sustainability is very specific. At the intersection of ethics and economics,
sustainability means the long-term maintenance of balance.

 Economic sustainability values long-term financial solidity over more volatile, short-term
profits, no matter how high. According to the triple-bottom-line model, large corporations
have a responsibility to create business plans allowing stable and prolonged action. That bias
in favor of duration should make companies hesitant about investing in things like dot-coms.

 Social sustainability values balance in people’s lives and the way we live. The fair trade
movement fits this ethical imperative to shared opportunity and wealth. Developed and
refined as an idea in Europe in the 1960s, organizations promoting fair trade ask businesses
—especially large producers in the richest countries—to guarantee that suppliers in
impoverished nations receive reasonable payment for their goods and services even when
the raw economic laws of supply and demand don’t require it.

An array of ethical arguments may be arranged to support fair trade, but on the front of
sustainability, the lead argument is that peace and order in the world depend on the world’s
resources being divided up in ways that limit envy, resentment, and anger.

Social sustainability doesn’t end with dollars; it also requires human respect. All work, the logic
of stability dictates, contains dignity, and no workers deserve to be treated like machines or as
expendable tools on a production line.

In today’s capitalism, many see—and the perception is especially strong in Europe—a world in
which dignity has been stripped away from a large number of trades and professions. They see
minimum wage workers who’ll be fired as soon as the next economic downturn arrives.

Finally, social sustainability requires that corporations as citizens in a specific community of

people maintain a healthy relationship with those people.

Fitting this obligation into the case of W. R. Grace in Woburn, it’s immediately clear that any
corporation spilling toxins that later appear as birth defects in area children isn’t going to be able
to sustain anything with those living nearby. Any hope for cooperation in the name of mutual
benefit will be drowned by justified hatred.

 Environmental sustainability begins from the affirmation that natural resources—

especially the oil fueling our engines, the clean air we breathe, and the water we drink—are
limited. If those things deteriorate significantly, our children won’t be able to enjoy the
same quality of life most of us experience. Conservation of resources, therefore, becomes
tremendously important, as does the development of new sources of energy that may
substitute those we’re currently using.

Together, these three notions of sustainability—economic, social, and environmental—guide

businesses toward actions fitted to the conception of the corporation as a participating citizen in
the community and not just as a money machine.

It’s important to note that while sustainability as a business goal puts the breaks on the economic
world, and is very conservative in the (nonpolitical) sense that it favors the current situation over
a changed one, that doesn’t mean recommending a pure freeze. Sustainability isn’t the same as
Ludditism, which is a flat resistance to all technological change.

The Luddites were a band of textile workers in Britain in the 1800s who saw (correctly) that
mechanized looms would soon rob them not only of their livelihood but also of their way of life.
To stop the change, they invaded a few factories and broke everything in sight. Their brute
strategy succeeded very briefly and then failed totally. Today, Ludditism is the general
opposition to new technologies in any industry on the grounds that they tear the existing social
fabric: they force people to change in the workplace and then everyplace, whether they like it or
not. There’s an element of (perhaps justifiable) fear of the future in both Ludditism and the
business ethics of sustainability, but there are differences between the two also. For example,
sustainability concerns don’t always stand against technological advances.

Actually, innovation is favored as long as advances are made in the name of maintaining the
status quo. For example, advances in wind power generation may allow our society to continue
using energy as we do, even as oil reserves dwindle, and with the further benefit of limiting air
pollution.

Stakeholder Theory
Stakeholder theory, which has been described by Edward Freeman and others, is the mirror
image of corporate social responsibility. Instead of starting with a business and looking out into
the world to see what ethical obligations are there, stakeholder theory starts in the world. It lists
and describes those individuals and groups who will be affected by (or affect) the company’s
actions and asks, “What are their legitimate claims on the business?”
“What rights do they have with respect to the company’s actions?” and “What kind of
responsibilities and obligations can they justifiably impose on a particular business?” In a single
sentence, stakeholder theory affirms that those whose lives are touched by a corporation hold a
right and obligation to participate in directing it.

As a simple example, when a factory produces industrial waste, a CSR perspective attaches a
responsibility directly to factory owners to dispose of the waste safely. By contrast, a stakeholder
theorist begins with those living in the surrounding community who may find their environment
poisoned, and begins to talk about business ethics by insisting that they have a right to clean air
and water. Therefore, they’re stakeholders in the company and their voices must contribute to
corporate decisions. It’s true that they may own no stock, but they have a moral claim to
participate in the decision-making process. This is a very important point. At least in theoretical
form, those affected by a company’s actions actually become something like shareholders and
owners. Because they’re touched by a company’s actions, they have a right to participate in
managing it.

Who are the stakeholders surrounding companies? The answer depends on the particular
business, but the list can be quite extensive.

If the enterprise produces chemicals for industrial use and is located in a small Massachusetts
town, the stakeholders include:

 Company owners, whether a private individual or shareholders

 Company workers
 Customers and potential customers of the company
 Suppliers and potential suppliers to the company
 Everyone living in the town who may be affected by contamination from workplace
operations
 Creditors whose money or loaned goods are mixed into the company’s actions
 Government entities involved in regulation and taxation
 Local businesses that cater to company employees (restaurants where workers have
lunch, grocery stores where employee families shop, and similar)
 Other companies in the same line of work competing for market share
 Other companies that may find themselves subjected to new and potentially burdensome
regulations because of contamination at that one Massachusetts plant

The first five on the list—shareholders, workers, customers, suppliers, and community—may be
cited as the five cardinal stakeholders.

The outer limits of stakeholding are blurry. In an abstract sense, it’s probably true that everyone
in the world counts as a stakeholder of any serious factory insofar as we all breathe the same air
and because the global economy is so tightly linked that decisions taken in a boardroom in a
small town on the East Coast can end up costing someone in India her job and the effects keep
rippling out from there.
In practical terms, however, a strict stakeholder theory—one insistently bestowing the power to
make ethical claims on anyone affected by a company’s action—would be inoperable. There’d
be no end to simply figuring out whose rights needed to be accounted for. Realistically, the
stakeholders surrounding a business should be defined as those tangibly affected by the
company’s action.

5.5. Pyramid of CSR

Carroll’s CSR pyramid is a framework that explains how and why organizations should take
social responsibility. It was developed by Archie Carroll in 1991 and has since become one of
the most accepted corporate theories of CSR due to its simplicity and timeless structure.

The four-part definition of CSR was originally published in 1979. In 1991, Carroll extracted the
four-part definition and recast it in the form of a CSR pyramid.

The purpose of the pyramid was to single out the definitional aspect of CSR and to illustrate the
building block nature of the four part framework. The pyramid was selected as a geometric
design because it is simple, intuitive, and built to withstand the test of time. Consequently, the
economic responsibility was placed as the base of the pyramid because it is a foundational
requirement in business. Just as the footings of a building must be strong to support the entire
edifice, sustained profitability must be strong to support society’s other expectations of
enterprises. The point here is that the infrastructure of CSR is built upon the premise of an
economically sound and sustainable business.

At the same time, society is conveying the message to business that it is expected to obey the law
and comply with regulations because law and regulations are society’s codification of the basic
ground rules upon which business is to operate in a civil society.

If one looks at CSR in developing countries, for example, whether a legal and regulatory
framework exists or not significantly affects whether multinationals invest there or not. A legal
infrastructure is imperative to provide a foundation for legitimate business growth.

In addition, business is expected to operate in an ethical fashion. This means that business has
the expectation, and obligation, that it will do what is right, just, and fair and to avoid or
minimize harm to all the stakeholders with whom it interacts.

Finally, business is expected to be a good corporate citizen, that is, to give back and to contribute
financial, physical, and human resources to the communities of which it is a part. In short, the
pyramid is built in a fashion that reflects the fundamental roles played and expected by business
in society. Below is a graphical depiction of Carroll’s Pyramid of CSR.

Carroll's pyramid of CSR was designed to help companies adapt their business behavior so that
all activities are economically profitable, ethical, legally compliant and socially supportive.
According to the theory, in order to achieve this, companies must fulfill their responsibilities at
four levels: Economic, Legal, Ethical, and Philanthropic.

Economic Responsibility

The foundation of Carroll's Corporate Social Responsibility Pyramid is economic responsibility.

This is because the only way for a business to survive and support society in the long term is by
being profitable. Without profit, companies cannot pay their workers, give shareholders a return
on their investments, or produce quality products and services.

Economic responsibility focuses on practices that facilitate the long-term growth of the business,
while also meeting the standards set for legal, ethical, and philanthropic practices.

Legal Responsibility

The next level up on Carroll's Corporate Social Responsibility Pyramid is legal responsibility.
This refers to a company’s legal obligation to adhere to all relevant laws and regulations.

This includes compliance with employment laws, tax regulations, employee health and safety
obligations, and laws regulating anti-competitive conduct. It’s all about operating in a way that
promotes fair business practices on a national, regional, and local level.

Ethical Responsibility

The next layer of the pyramid is ethical responsibility. This is all about doing the right thing,
being fair and avoiding harm. Unlike the first two layers of Carroll’s CSR pyramid which are all
about legal and shareholder obligations, this layer is more concerned with morals and ethics.
Examples of ethical responsibility include being environmentally friendly, treating employees
and suppliers in line with an ethical code of conduct, and embracing activities and standards that
go beyond legal compliance.

Ethical responsibility is all about recognizing and respecting evolving moral standards and
performing in a way that meets society’s expectations. Ultimately, it is about consistently
demonstrating your business integrity and conducting your operations in an ethical way.

Philanthropic Responsibility

At the top of the pyramid is philanthropic responsibility. This level is all about giving back to the
community, exceeding the expectations of shareholders and stakeholders, and going the extra
mile to make the world a better place.
It goes beyond doing what’s right; it’s about standing by your values and principles as a
company and giving back something of value to society. This might be in the form of donations,
volunteer work, or community development, among other philanthropic initiatives.

How to Apply Carroll's CSR Pyramid to Your Business?

The main aim of Carroll's Corporate Social Responsibility Pyramid is to help businesses have a
more positive impact on stakeholders and surrounding communities. By taking ownership of
corporate decisions and striving to improve operations, companies can improve their reputations
and increase profits in a sustainable and ethical way.

Below are a few tips to help you implement Carroll’s CSR pyramid in your business and get the
most from your CSR policies.

Engage All Four Levels

Make sure you focus on engaging with all four layers of the pyramid. The pyramid should be
seen as a whole, not a series of parts. For example, you cannot be philanthropically responsible if
you are not profitable as a business or legally compliant. Work on improving all four key areas.

Consider All Stakeholders

The next thing to keep in mind when you implement Carroll's Corporate Social Responsibility
Pyramid is to make sure you consider all stakeholders and each level of the supply chain. For
example, your ethical initiatives should focus on the fair treatment of employees and suppliers
(paying fair wages, providing safe working conditions, sourcing things ethical, etc), not just on
treating your customers fairly by offering quality products/services for reasonable prices.

Effective CSR Management

The best way to ensure you make a truly positive impact with Carroll's Corporate Social
Responsibility Pyramid is to manage it in the right way. You might consider creating a dedicated
CSR position or department in your company to make sure all your CSR initiatives are
implemented in a sustainable and responsible way. You might also consider using integrated
software to manage all your CSR activities and measure your KPIs at each level of the pyramid.

5.6. Contemporary CSR Concepts

The factors influencing the development of the corporate social responsibility at global level as a
key element of contemporary business management are the following:-

 Globalization – the globalization of economics is the basic factor for the development of the
corporate social responsibility in business, because it runs the organizations against a wider
specter of new problems - cultural and regulatory differences, labor differences, corruption,
health crisis, human rights and environmental issues.
 The Non-government Organizations (NGOs) – The development of the citizen society
organizations challenges a new corporate behavior. Heterogeneous in respect of their aims,
the NGOs do their best to alter the organization management in regards to improving the
positive influence and reduction of the harmful consequences of the business operations.

 Government Initiatives – the political pressure inflicts initiatives among government and
inters government organizations. The scope of the business responsibilities is under debate
and new rules on world trade are being defined. The social responsibilities of the business are
in regards to the environment, the labor rights, the trade, the corruption, the corporate
management, health services, etc.

 The Public Opinion – shifts in the public values underline the corporate responsibilities to
improve the social comfort and to improve the environment in which it functions. The public
opinion shapes as a factor for the corporate social responsibility under the pressure of the
non-government organizations, the legal requirements for business conduct and the rise of
the marketing related to the connection between the company reputation and its attitude
towards the society.

 The socially responsible investments – the socially responsible investments render even
bigger pressure on the organizations in order to limit the social, environmental, and the
ethical risks arising in the course of their operations.

 Business Standards – the appearance of standards for consumer protection/ interests in the
manufacturing of certain products creates the need for social responsibility in business.

Limitations of CSR

There are several challenges and limitations of CSR that researchers have found. Undoubtedly,
some criticisms are aligned with the concept of CSR that leads to disadvantages for some
companies over others. Many researchers consider CSR not helping disadvantaged firms like
small and micro businesses, but it is used to get higher profits. Below are some of the main
limitations of CSR that creates doubt on its effectiveness:

Lack of concrete clarity on the CSR concept

CSR is not the coherent, homogenous concept that it is often presented as being. One of the main
concerns is that the term CSR has become so broad that people interpret it differently and adapt
it for different purposes. This vagueness of the concept restricts its effectiveness both as an
analytical tool and as a guide for decision-makers. That’s the reason CSR is interpreted in
different ways by different people.

For example, CSR practices are a different thing for practitioners to implement in the company
and to researchers trying to establish it as a structured discipline; it can also mean different to
NGOs and corporate entities. These differences in the CSR mechanism implementation can
cause frustration, especially for managers who require a clear and concise concept.
The CSR concept’s malleability points out two extreme views: a narrow conception of CSR,
which is more corporatist orientation, and an expansive view. The malleability of the concept
makes it difficult for the researchers to operationalize a particular definition to reveal when a
corporation is or is not socially, environmentally, ethically responsible, or acting according to
society’s conflicting norms.

Limitations of Social Reporting and Social Auditing

In India and many countries worldwide, the importance of social responsibility and reporting is
being recognized by many corporations. However, the progress and performance of this social
reporting and auditing are hindered due to the below-outlined reasons.

Not Mandated disclosure: Indeed, disclosure of social responsibility information is not

mandatory for India’s private sector units. On the other hand, in public sector units, the ‘order for
social overheads schedule’ doesn’t fulfill the social audit requirements.

Lack of Standard Format: there is a lack of well-established concepts, postulates, conventions,

and axioms to guide and govern the social accountants in drafting their reporting and audit.

No clear cut definition of social reporting: Since in India we don’t have a settled definition and
procedure for social reporting, every enterprise tends to follow different methods for measuring,
reporting, and evaluating social responsibility behavior.

No cadre of social auditors: There is often the case that the company’s general operations
auditors are doing social auditing for the firm. There is no separate cadre of social auditors in
many companies, and even if there are some, it’s not clear how the social auditing has to be
conducted.

Auditing social cost and benefit is an intricate function: It is highly doubtful if accountancy
scholars alone can perform the tedious task of identifying and documentation of social effects of
business activities and audit the social costs and benefits.

Lack of objectivity: The collection of data information, evaluation of accuracy, and objectivity
on social reporting is complex. Some firms manipulating society and stakeholders for their own
benefit

One of CSR’s significant limitations is that big firms manipulate society and stakeholders
(consumers) for their benefit.

The traditional belief is that since corporations operate in a society and comprehensive
environment, they are mandated to follow the social, environmental, ethical, and legal norms of
that society and contribute to the fulfillment and expansion of those norms. Although the
viewpoint sounds noble in theory, it is little more than a motherhood statement. The CSR
concept is difficult, if not impossible, to operationalize, and it is noteworthy that firms do not
operate in the desired way continuously. It is supposed that ethical consumer, one of the
stakeholders of companies, will drive the social and environmental change. Still, they are
honestly concerned about the price, taste, or sell-by date than ethics. There has been no such
socially responsible change in the behavior of ethical consumers. Corporations have direct and
indirect political, legislature, and judiciary influence; in-fact political lobbying as a corporate
strategy has more than 200-year history. Resultantly, corporations skew societal and
environmental standards to their own needs and profit.

Conclusion

Radical corporate social responsibility (RCSR) should be adopted for genuine CSR to overcome
CSR’s limitations. It is clear that CSR has significant benefits for the society and environment,
but its diluted concept, as discussed above, is overshadowing its significance with its challenges
and constraints. Hence, there is an urgent need to adopt a more radical approach to conducting
CSR practices in a corporate entity. RCSR for that purpose is inclusive, more radical
transparency in which the stakeholder and general public have greater transparent confidence in
how the firm conducts its objectives and vision. There should be a genuine commitment of
companies to CSR, a better and sustainable allocation of resources, and evaluation and correction
of companies’ operation on the society and environment.