CHAPTER -1 HOW TO DEFINE

CORPORATE SOCIAL
RESPONSIBILITY

1.1 What is CSR?

As early as 60 years ago the concept of CSR started to appear
in the literature and many definitions have since then been
developed. The discussion of CSR usually falls within two
general schools, those who mean that companies are only
compelled to maximize their profit within the boundaries of
law and minimal ethical constraints and those who suggest a
broader obligation to the society. In this section a discussion
of CSR in theory will be carried through. As a base Carroll’s
model will be used but other thoughts will also be presented.
The section ends with a summary and the definition that will
be used for this thesis.

1.1.1 The limitation of CSR

A model developed in 1979 the model “Four Domains of
Corporate Social Responsibility” and after that “The Pyramid of
CSR” in the early 90s. In 1979 model defines CSR as “…the
economic, legal, ethical and discretional expectations that
society has of organizations at a given point in time”. The
pyramid leads to a few misunderstandings, especially of the

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priorities of the four CSR domains. Instead another definition
of CSR is “The three-domain model of CSR”. The three
responsibilities of this model are; economic, ethical and legal.
In this model the responsibilities overlap and in the center the
three domains is simultaneously fulfilled.

Figure 1. The three domain model revised.

With the economic domain we refer to the responsibility that

has a direct or indirect positive economic effect on the
company. The activities that fulfill this responsibility should
maximize profit and/or maximize share value. Examples of
this are action intended to increase sales, increase employee
morale and improving the company’s public image. Actions fall
outside the domain if they are not intended to maximize profit
when a more profitable alternative exist or if the company

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engages in them without any consideration of the
consequences. Friedman adopted a fairly different view of CSR
and believes instead that companies should only be obligated
to maximize their profit within the boundaries of law and
minimal ethical constraints. He argues that doing more would
be irresponsible. Furthermore, Friedman implies that
managers that involves in CSR do this at the expense of
shareholders, only to promote their own social, political, or
career agendas. The resources should instead be used on
improving the organization’s efficiency. The legal domain refers
to a company’s responsiveness to legal expectations,
demanded by society through federal, state and local
jurisdiction. Legality is divided into three different categories;
compliance, avoidance of civil proceedings and anticipation of
the law. In compliance the company takes certain actions
because the law allows them to do so. Avoidance of civil
proceedings indicates that an organization undertake certain
actions or behaviors since if they do not, they might get sued.
The last category, anticipating the law, means that the
organization engage in activities that slow down the process of
new legislation. McWilliams and Siegel believe that the legal
aspect should not be included in the definition of CSR.
Instead, they define CSR as “…action that appear to further
some social good, beyond the interest of the firm and that
which is required by law”. CSR according to them indicates
that going beyond the law is CSR; an example of this would be

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to adopting progressive human resource. McWilliams and
Siegel furthermore, exemplify some actions that they identify
as CSR actions; developing non-animal testing procedures,
recycling and supporting local businesses. The ethical domain,
that Carroll present refers to the ethical responsibility a
company has, that is expected by the general public and
stakeholders. Three ethical standards are included;
conventional, consequential and deontological. The standards
and norms that have been accepted by the organization, the
industry, the society and the profession are defined as
conventional standards. The consequential standard is an
action that is considered ethical when it endorses the good of
an individual as well as the society and when it is intended to
produce the greatest net benefit to the society. Lastly, the
deontological domain focuses on those activities that reflect
the company’s consideration of their duty or obligation; this
includes for example citizenship, trustworthiness and caring.
Handy adopts a similar but more detailed perspective on
corporate social responsibility. He believes that companies
have responsibility to their customers, employees and to the
community. This responsibility should not be subordinate to
making profit for their shareholders but given at least the
same priority. Both Carroll and Handy argue that it is
significant for companies to take responsibility for society and
other stakeholders than shareholders. They also stress the
importance to have a sustainable balance between the

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different domains. In Carroll’s model all three components
should be considered but not of the expense of each other. A
company should find a place where all components are taken
into account and their CSR work is as sufficient as possible.
From the discussion above the complexity of CSR is
acknowledged and it can be a broad and occasionally a
confusing issue. Moreover, many different views exist on the
subject of the matter. This thesis take the standpoint that CSR
is the responsibility a company has beyond the law towards
the society including employees, the environment and the
society as a whole. CSR is about using the resources to gain
society but not to an extent that jeopardizes the economy of
the entity. Furthermore, CSR is to be aware that organizations
are a significant part of the society that they operate in and to
understand that doing business comes with a responsibility.
In the long run, this responsibility may also be beneficial for
the organization.

1.2.1 CSR in practice

To further gain knowledge within the subject of the matter,
CSR in practice needs to be considered. This in order to
understand the activities that a company may undertake that
can be classified as socially responsible. Moreover, it is
significant to remember that CSR activities and practice used
are not intended to be exactly the same in different companies.

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Companies have diverse resources and all cannot take
responsibility to the same extent. The industry in which the
organization operates also affects how the company will
engage in CSR. According to Lantos, organizations may
practice three different forms of CSR; ethical CSR, strategic
CSR and altruistic CSR. The three approaches are mutually
exclusive and based on the activities’ nature (required vs.
optional) and the purpose (stakeholders’ good, firm’s good), or
both. Practicing ethical CSR means going beyond the firm’s
economic and legal obligations and take actions that is morally
mandatory. A corporation is morally responsible towards any
individual or group that might be harmed or injured by a
particular course of action. The tradeoffs in ethical CSR are
usually between short-run profit and moral actions. An
example of this is when an organization spends money on
pollution control and reduction; this may reduce shareholder’s
profit. However, the alternative is considered to be unethical.
Ethical CSR may in the long-run generate goodwill by building
the public’s trust in the company. This will probably minimize
the cost of fines and also bad publication that otherwise may
prevail from unethical behavior. Strategic CSR is an activity
where there is a win-win situation. Hence, both the company
and some of the stakeholder will benefit. This type of CSR
actions implies short-run sacrifices, yet the actions usually
result in long-run gains. An example of strategic CSR was
when Ford campaigned that children should be seated in

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booster-seats and gave away millions such seats. This
generated goodwill among customers and government
regulators and in the end was the resources spent justified.
This is in fact the motives for firms to engage and invest in
strategic CSR; they believe that the investment will be
profitable in the end. Altruistic CSR is when organizations are
contributing to the common good and making the society a
better place on some sort of expense of the firm, linking
corporate competences of the company to societal and
community needs. Altruistic CSR goes beyond ethics and are
actions that are not necessary for the company to take; it
usually lies outside the firm’s activities. The actions gives back
to society and furthermore also some social good. This
regardless if the company financially gains from it, since
return on the investment should not be the motive for the
firm. Examples of altruistic CSR are activities that aid the
society to fight drug and alcohol problems, poverty, crimes and
chronic unemployment.

1.2 Service organizations

Gronroos acknowledged already in 1982 that the service sector
has gradually taken over a large part of the growth of welfare
in the western world. This trend has continues to increase and
on average, 75 percent of GDP in industrialized countries is
due to service organizations. Furthermore, in the USA the
service sectors share in total employment is as large as 88

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percent and production jobs has fallen by half. The definition
of a service organization is described rather similar in
academic literature. Jansson argues that the word “service”
means different things in different contexts. He presents the
word service both as a contrast to goods but states that the
word “goods” can also include everything that is useful in
production, despite the fact that “goods transport” actually
also include a service. He believes that the basic production
factors in all industries provide services and hence, the
concepts cannot be separated. Fuchs takes this even further
and states that “In one sense all industries provide services.
Man cannot create material things”. Where labor is the most
critical factor of production and the receiver of the service is
an individual, the term “personal service” is often used. The
service is intangible and separated from the physical product.
This type of description is rather straight forward and usually
do not create any confusion. In this type of exchange between
buyer and seller, the seller, of a company, is often referred to
as a service organization. Heskett describes a service as a
process of partly overlapping activities and events where the
contact with customers is close. Also Edvardsson, Andersson,
Sanden and Waller) acknowledges this definition and states
that when providing a service, the customer usually
participates in interaction with the company when performing
different moments. This interaction is undertaken in order to
attain a certain result that will affect either the customer itself

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or something that the customer owns. Furthermore
establishes three main characteristics that distinguish a
service from a product; immateriality, joint production and
heterogeneity. Immateriality means that a service is abstract
and immaterial. A service can be difficult to describe and hard
to judge before purchased, while the opposite is true with a
product. The joint production characteristics imply that a
service produces, delivers, consumes and promotes at the
same time. The third characteristic, heterogeneity, indicates
that the service provided by a company usually differs. A
service to one customer is often very different from the same
service to another customer. The description of a service may
vary somewhat and is highly dependent on the context. The
service may be interrelated with a product, as with the case of
transportation etc, or provided independent. The authors of
this thesis believe that it is imperative to state what a service
organization is, and to present different definitions of a
service. This is due to the fact that it clarifies the distinction
between a manufacturing organization and a service
organization. To state this difference is vital for this thesis in
order to analyze the different CSR approaches. Information
about service organizations and CSR as well as the CSR
operations in other industries will be provided below.

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1.2.1 Different industries and CSR
A study conducted by Snider, Hill and Martin examines some
of the largest corporations in the world’s socially responsible
behavior. The research provides information on how the
different organizations communicate their CSR activities on
their websites. It becomes obvious that the oil and gas,
automobile and financial industry rather often provide CSR
reporting on their corporate website. Grafstrom furthermore
states that manufacturing and production companies
frequently report and communicate their CSR activities. They
argue that this is due to the fact that these types of industries
have for several years, been pressured to avoid actions that
may pollute or harm the environment. The scandals with BP
and Shell gained a lot of media attention and generated in bad
publicity for gas and oil companies. Today, these industries
are aware that the media and the public require that they act
in a matter that is considered to be social responsible.
Moreover, manufacturing and production companies will be
heavily criticized if using child labor or pollute the
environment etc. This may result in consumer rejection and
this is a risk that these industries are not willing to take.
Manufacturing and production organizations in the western
world also have strict laws and regulations concerning
pollution and employment. These legal obligations are
established by the government and producing organizations

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have to obey those rules. Communicating CSR activities is not
as common within the service sector. When studying several
service companies’ websites there is not much information
provided about their CSR activities. Also in academic literature
it is rather difficult to find information about CSR and service
organization. From this information, it can be assumed that
service organization maybe not engage in CSR to the same
extent as producing organizations but it can also be the case
that they do, but it is not as apparent for an external party. In
their study, they find that strong organizational culture is not
associated with high CSR performance and that service
organizations with CSR activities do not create a more
relationship oriented organization. Yet do not establish in
specific what social responsibility is in the context of a service
organization, instead they define CSR as “a concept whereby
companies integrate social and environmental concerns in
their business operations and in their interaction with
stakeholders on a voluntary basis”. Since this was the only
article found that integrated CSR with service organizations
and the fact that Jaakson do not specify what CSR activities
the organizations realize, the question of what CSR is in the
context of service organization is, still exist.

1.3. Stakeholder theory

The term stakeholder was first presented as a way to
distinguish between the different groups towards which

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companies have an obligation to. However, in 1984 Edward
Freeman introduces stakeholders as something more
extensive, multifaceted and important than this. Freeman is
still today, one of the most frequently cited authors when
discussing stakeholder theory. According to Freeman,
managing the stakeholders effectively is necessary for
prosperity and he states that “each of these groups plays a
vital role in the success of the business enterprise in today’s
environment”. Stakeholders are the individuals, groups or
organizations that affect or are affected by the organizations
actions. Stakeholders can be either internal, like employees,
owners and shareholders or external, for example creditors,
suppliers and customers. The outcome of the company’s
actions can either damage or benefit the stakeholders and the
reverse is also true. This reciprocal relationship has to be
carefully handled in order to not disturb the balance between
the organization and the stakeholders. The actual term
stakeholder comes from the idea that every group has a
“stake” in the organization. The stakeholder view (Figure 1.1)
is, according to Freeman, much oversimplified and each
category can be broken down into smaller groups. This
classification may create difficulties since each supplier is not
alike as well as all governments are not the same.

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 Figure 2. The original Stakeholder Model.

Due to the fact that all different stakeholders are affected by

the organization, they put demands on the organization. It is
therefore important for the organization to take all the
different stakeholders interests into account, yet, this may be
complex since their different relationship to the company
sometimes generates conflicting interests. Moreover since all
individuals or parts within each stakeholder group differ, their
interest and demands on the firm are even more implications
for the firm occur. Over the last years stakeholder theory has
been gradually approved to be an essential topic together with

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the concept of CSR and as the leading “red thread” in research
about business ethics. Investment in CSR is argued to create
stakeholder value as well as value for the business itself.
Jamali & Keshishian states that the stakeholders determine to
what extent the company gets involved in CSR. There is a
contradictive view behind this, on the one hand corporate
responsibility management is portrayed as what organizations
voluntarily accept as their responsibilities to society and on
the other there is an expectation from the stakeholders that
these responsibilities is consistent with what the company is
accountable for.

1.3.1 Classifications of stakeholders

The term stakeholders have been argued to be vague in scope
and too broad and the different groups consist of different
individuals hence, several general classifications of
stakeholders have been conducted. A common classification is
primary and secondary stakeholders, this categorization is in
relation to what impact they have on the organization’s
objectives and missions. Also Freeman discusses the
stakeholders in term of primary and secondary. He makes the
distinction that the primary stakeholders are the ones without
whose participation the organization cannot continue to exist
and secondary stakeholders are those who influence and are
affected by the company but not essential for its survival. For

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managers of the organization it is important that they
distinguish who their primary stakeholders are and manage to
create profit and satisfaction for them so they remain part of
the organization. Secondary stakeholders are also important to
not neglect since they may be able to harm and help the firm
as well. However, it should not be of the expense of primary
stakeholders. Critics against the model argue that even this
term is too ambiguous and that different understandings can
be established in the disparities in managerial and legal
interpretations of the concept. Fassin states that the different
stakeholders have barely been introduced by the classification
and that the definition is unclear. He argues that the
classification of primary stakeholders as “those without whom
the organization could not survive” and secondary
stakeholders as, “those who can affect the firm or be affected
by it” is still confusing since those who can affect the
organization are not always the ones that are affected by it.
Fassin categorize the different stakeholders in three classes. A
real stakeholder has a real claim on the firm and this
relationship is reciprocal, examples are customers, employees
and owners. The stake watchers protect the interests of the
real stakeholders and are for example unions and non-
governmental organizations (NGO´s). The stake watchers are
an indirect stakeholder and do not have a direct claim on the
company. The stake keepers are the third class and do not
have any stake in the firm, but they have influence and

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control. They impose regulations and laws on the firm while
the firm has little or no impact on them, an example of a stake
keeper are the government. The standpoint that is taken for
this thesis is that the most primary stakeholders of an
organization are the ones that the firm itself consider as vital
for prosperity and that the secondary stakeholders are the
ones that either affect or are affected by the organization or
both. The difference stakeholder groups will be discussed more
in detail below and their connection to CSR will also be
touched upon.

1.3.1.1 Shareholders
Shareholders of an organization usually aim at making profit;
hence they are usually rather resistant to spend much
resource on CSR. Researchers that agree with the
shareholders perspective argue that it is undemocratic to
engage in CSR activities since the shareholders resources are
used for societal interests. Friedman furthermore argues that
businesses should aim at making profit and that the manager
of a company only function is to act as an employee of the
actual owners of the corporations, i.e. the shareholders. This
is not in direct contradiction to Freeman; he does not present
the stakeholder approach as an attack on the shareholder
theory. Instead he defines the stakeholder theory as something
instrumental and states that the organization classifies who

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their most essential stakeholders are rather than defining it
himself. That is, if the shareholders are the most primary
stakeholder and their main objective is to make as large profit
as possible, then that should also be the goal of the firm.
However, if the employees are considered to be the most vital
stakeholder group and they find it significant to engage in
socially responsible actions then that will be the incentive for
the organization as well.

1.3.1.3 Competitors
The competitors of an organization affect the company’s way of
doing business. At present, not only local and national
competitors need to be considered but also international
competition that not always operate under the same laws and
regulations. This may create pressure for organizations in the
western world were environmental and employment laws are
rather strict since foreign organizations sometimes have other
presumptions. However, research indicates that organizations
that engage in CSR usually create advantages over their
competitors.

1.3.1.4 Customers
Since corporate brand image has become a key strategy
activity for firms today, the role of the customers as a vital
stakeholder has increased. A study conducted by Singh,

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Sanchez and del Bosque indicates that costumer’s main
concern is the reliability and safety of products when taking
ethical aspects into consideration. They also state that
companies could gain on communicate more of their CSR work
to consumers since that would create a positive image of their
organization. Freeman also highlights the importance of
customers when discussing stakeholder theory. He
emphasizes the customers bargaining power and neglecting
their claims may hinder the organizations prosperity. Simply,
the customers are the buyers and failure to meet their
demands decreases sales and profit. Appling this on CSR
implies that the customer’s perception of CSR engagement
should also reflect on in what matter the organizations engage
in CSR.

1.3.1.5 Employees
One stakeholder that should be considered as imperative for
the organization is the personnel of a company. According to
Mitchell, Agle and Wood employees’ posses’ legitimacy,
urgency and power, the three characteristics that validates
their role for the company. Despite the fact that employees are
regarded as a vital tool for a company’s CSR activities little
research has been conducted within the field. Rodrigo and
Arenas tries to disclose the relationship between CSR and
personnel by examine employee’s reactions to corporate social
responsibility programs at the attitudinal level. They argue

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that employees’ attitudes towards CSR are complex and
consist of different levels of acceptance, identification and
development. Moreover, employee’s reactions to CSR consist of
their attitudes towards society and not just towards their
company. This indicates that the employees’ ideologies and
social condition play an important role for their approach to
CSR. Rodrigo and Arenas also argue that three types of
employees can be derived from attitudes; committed employee,
indifferent employee and dissenting employee. Even if the
implementation of CSR is successful within a company it does
not necessarily mean that the employees will be positive
towards this. Nonetheless, if creating a positive working
environment, with respect to salary and working conditions,
this will foster the employees’ attitudes towards CSR in a
positive way. Moreover, if a company engages in CSR activities
this will increase the sense of importance that committed
employees attach to work performance and the degree to
which they identify with the organization and hence enhance
their effort and working performance. Klein states that,
personnel satisfied with their organization’s commitments to
social and environmental are more likely to be positive and
productive, then those who work in less responsive
organizations. He argues that there is a positive relationship
between an organizations involvement in CSR and employees
attitudes towards senior management. Furthermore employee
engagement increases when a company is committed to social

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responsibility. According to Klein much of this can be
attributed to the fact that a sense of pride can be the driver of
both morale and results. As stated earlier, despite the fact that
not much research has been conducted within the field of
employees and CSR, the theories that can be found states that
there is a positive relationship between organizations
engagement in CSR activities and the effectiveness of
personnel. Moreover, it increases the employees pride over
their organization and that may further raise their
engagement. Rodrigo and Arenas argue that only committed
workers or workers that have established or will establish
long-term relationships with the organization will be affected
by engagement of CSR activities. Employees that are not
committed to their organization, dissenting workers and young
professionals that are too focused on their career are
unaffected whether or not their organization is socially
responsible or not.

1.3.1.6 Civil society

Within the civil society are the different pressure groups that
may affect an organization, such as media, NGO´s, unions etc.
These would fall into what Fassin classifies as stake watchers
since their aim is to preserve the interest of the real
stakeholders, i.e. unions protect the interest of employees.
Despite the fact that the civil society does not have a direct

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claim on the organization as such, they may still have a major
impact on the organization. Especially media is today a
powerful force and can by creating negative or positive
publicity, either be a beneficial for the organization or cause
devastating consequences. When organizations are involved in
business scandals or other problem regarding CSR, this often
results in enormous publicity.

1.3.1.7 Suppliers
A well functioning relationship with suppliers is essential for
business prosperity. The actions of the suppliers may reflect
upon the actions of the company and it is therefore vital to
establish goals and objectives before establishing
collaborations with another firm in order to reduce
misinterpretations and failures. Fassin states that suppliers
are real stakeholders which mean that they have a real claim
on the company and that the relationship is reciprocal.
Moreover, from a CSR perspective, an organization may be
held responsible for the actions of their suppliers and
therefore their objectives and approach may be of utmost
importance.

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