CSR THEORIES

Corporate Social Responsibility (CSR) has evolved from a predominantly shareholder-oriented understanding of business towards broader approaches that recognize the responsibilities of corporations towards multiple stakeholders and society. CSR theories provide a conceptual foundation for understanding why organizations should act responsibly, to whom they are responsible, and how they can create value for both business and society.

Early approaches emphasized the economic purpose of business and the interests of owners. However, contemporary CSR literature recognizes that organizations operate within a complex social environment and depend upon relationships with employees, customers, suppliers, governments, communities, investors and other stakeholders.

Shareholder Theory

The Shareholder Theory represents a contrasting perspective to stakeholder theory. It is strongly associated with economist Milton Friedman, particularly his influential 1970 article, The Social Responsibility of Business Is to Increase Its Profits.

Friedman's argument is that business executives are agents of the owners and their primary responsibility is to use corporate resources in ways that increase shareholder returns, provided that the organization operates within the law and accepted ethical norms.

Under the shareholder perspective, CSR activities are justified when they contribute to the legitimate economic interests of the organization.

For example, an organization may invest in:

• Employee welfare → to improve productivity.
• Environmental efficiency → to reduce costs.
• Community programmes → to strengthen reputation.
• Ethical marketing → to retain customers.

Therefore, CSR is acceptable when it is consistent with the long-term interests of the business.

Stakeholder scholars criticized the shareholder theory because it gives insufficient attention to groups that bear the social and environmental consequences of corporate activities.

Stakeholder Theory

R. Edward Freeman (1984) developed Stakeholder Theory in his influential book Strategic Management: A Stakeholder Approach. Freeman challenged the traditional view that corporations should primarily serve shareholders. He argued that organizations should consider the interests of individuals and groups who can affect or are affected by the achievement of organizational objectives.

Stakeholders may include:

• Employees and managers
• Customers and suppliers
• Shareholders and creditors
• Government and regulatory agencies
• Local communities
• NGOs and other interest groups

The theory emphasizes that long-term organizational success depends on creating and maintaining mutually beneficial relationships with stakeholders. Consequently, stakeholder management has become an important component of strategic CSR.

Triple Bottom Line

The Triple Bottom Line (TBL) framework is associated with John Elkington (1997) and his book Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Traditionally, business performance was assessed primarily through financial results. Elkington argued that sustainable business performance should consider three interconnected dimensions: People, Planet and Profit.

1. People

The People dimension represents the organization's social responsibilities and its contribution to human well-being. It includes:

• Employee welfare and labour standards
• Human rights
• Community development
• Diversity and inclusion
• Consumer welfare

2. Planet

The Planet dimension focuses on environmental sustainability, including:

• Carbon emissions and climate change
• Waste management
• Water conservation
• Biodiversity protection
• Renewable energy
• Efficient use of natural resources

3. Profit

Profit represents the economic sustainability of the organization. It includes:

• Revenue and profitability
• Productivity
• Business growth
• Shareholder returns
• Long-term financial viability

Thus, TBL encourages organizations to pursue economic prosperity while simultaneously creating social and environmental value.

Corporate Citizenship

Corporate Citizenship views corporations as members of society rather than merely economic institutions. Crane, Matten and Moon have extensively examined this perspective.

Corporate citizenship involves three broad dimensions:

• Economic citizenship: Employment, investment, innovation, production and taxation.
• Social citizenship: Education, healthcare, community development, employee volunteering and social inclusion.
• Environmental citizenship: Climate protection, biodiversity conservation, responsible resource use, waste reduction and pollution prevention.

Legitimacy Theory

Legitimacy Theory explains the relationship between an organization and the society in which it operates. Its central proposition is that organizations require social acceptance or legitimacy to maintain their continued operations and support.

Suchman (1995) defines legitimacy as a generalized perception that an organization's actions are desirable, proper or appropriate within a socially constructed system of norms, values and beliefs. He identifies three forms of legitimacy:

1. Pragmatic legitimacy: Pragmatic legitimacy exists when stakeholders support an organization because they perceive that its activities provide direct or indirect benefits to them. The organization's legitimacy is therefore based largely on the practical value that stakeholders receive from its activities. Example: IKEA has introduced initiatives aimed at making sustainable products and energy-efficient solutions more accessible to consumers, including products designed to reduce household energy consumption. These initiatives can provide consumers with practical benefits while supporting environmental objectives. This represents pragmatic legitimacy because consumers may support IKEA's sustainability initiatives when they perceive direct benefits such as affordability, convenience, energy savings or improved products.
2. Moral legitimacy: Moral legitimacy exists when stakeholders perceive that an organization's activities are ethically appropriate, socially responsible and beneficial to society. Unlike pragmatic legitimacy, the emphasis is not primarily on what stakeholders personally gain but on whether the organization's actions are considered the "right thing to do." Example: Patagonia, the outdoor apparel company, has built its corporate identity around environmental responsibility, including efforts related to sustainable materials, environmental activism and conservation. This represents moral legitimacy because stakeholders may view the company's commitment to environmental protection as socially and ethically desirable, even when particular initiatives do not provide them with an immediate personal benefit.
3. Cognitive legitimacy: Cognitive legitimacy represents a deeper form of acceptance in which an organization, business model or practice becomes widely understood, familiar and taken for granted within its social environment. Stakeholders no longer need to question why the organization or its role exists because it has become a normal and established part of society. Example: Amul has become deeply associated with India's dairy cooperative movement and rural milk producers. Over several decades, its cooperative model has become widely recognized as an established part of India's dairy ecosystem. This illustrates cognitive legitimacy because Amul's role in connecting dairy farmers with consumers has become so familiar and socially embedded that its presence and function are widely accepted as a normal part of India's dairy sector.

CSR can contribute to organizational legitimacy by demonstrating that corporate activities are consistent with societal expectations. Sustainability reporting, community development, environmental protection and ethical business practices are examples of activities that can strengthen legitimacy.

Type of Legitimacy	Key Question	Example
Pragmatic	"Does this benefit me?"	Farmers benefit from ITC e-Choupal
Moral	"Is this socially right?"	Tata's community development initiatives
Cognitive	"Isn't this simply normal?"	UPI as a normal method of payment

Social Contract Theory

Social Contract Theory views the relationship between business and society as an implicit social contract. Organizations operate because society provides resources, infrastructure, legal protection, markets and social acceptance. In return, businesses are expected to operate responsibly and contribute to societal well-being.

Donaldson and Dunfee (1999) developed an important social-contracts approach to business ethics in Ties That Bind. From a CSR perspective, organizations are expected to respect social expectations relating to:

• Consumer safety
• Environmental protection
• Employment and labour standards
• Human rights
• Fair competition
• Taxation
• Community welfare

CSR can therefore be viewed as one mechanism through which organizations fulfil their broader obligations to society.

Creating Shared Value (CSV)

Porter and Kramer (2011) introduced the concept of Creating Shared Value (CSV). They argued that businesses can strengthen competitiveness while simultaneously improving social and economic conditions. Unlike conventional philanthropy, CSV integrates social concerns into the organization's core business strategy.

Three broad approaches are:

1. Reconceiving products and markets: Developing products and services that address social needs, such as affordable healthcare products.
2. Redefining productivity in the value chain: Improving social or environmental conditions while increasing business efficiency through energy efficiency, employee health, sustainable sourcing and waste reduction.
3. Enabling local cluster development: Strengthening the local business ecosystem through supplier development, skill development, infrastructure and entrepreneurship.