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The Pyramid of Corporate

Social Responsibility: Toward


the Moral Management of
Organizational Stakeholders
Archie B. Carroll

F or the better part of 30 years now, corpo- holders with those to


rate executives have struggled with the other competing groups
issue of the firm's responsibility to its soci- claiming legitimacy.
This discussion will be
Social responsibility
ety. Early on it was argued by some that the
corporation's sole responsibility was to provide a framed by a pyramid of can only b e c o m e
m a x i m u m financial return to shareholders. It corporate social respon-
b e c a m e quickly apparent to everyone, however, sibility. Next, we plan reafity if more m a n -
that this pursuit of financial gain had to take to relate this concept to agers b e c o m e
place within the laws of the land. Though social the idea of stakehold-
activist groups and others throughout the 1960s ers. Finally, our goal moral instead of
advocated a broader notion of corporate respon- will be to isolate the
sibility, it was not until the significant social legis- ethical or moral compo-
amoral or immoral.
lation of the early 1970s that this message be- nent of CSR and relate
came indelibly clear as a result of the creation of it to perspectives that
the Environmental Protection Agency (EPA), the reflect three major ethical approaches to manage-
Equal Employment Opportunity Commission m e n t - i m m o r a l , amoral, and moral. The princi-
(EEOC), the Occupational Safety and Health Ad- pal goal in this final section will be to flesh out
ministration (OSHA), and the Consumer Product what it means to manage stakeholders in an ethi-
Safety Commission (CPSC). cal or moral fashion.
These new governmental bodies established
that national public policy n o w officially recog- EVOLUTION OF CORPORATE
nized the environment, employees, and consum- SOCIAL RESPONSIBILITY
ers to be significant and legitimate stakeholders
of business. From that time on, corporate execu- hat does it m e a n for a corporation to
tives have had to wrestle with h o w they balance
their commitments to the corporation's owners
with their obligations to an eve>broadening
group of stakeholders w h o claim both legal and
Wp be socially responsible? Academics and
ractitioners have b e e n striving to estab-
lish an agreed-upon definition of this concept for
30 years. In 1960, Keith Davis suggested that
ethical rights. social responsibility refers to businesses' "deci-
This article will explore the nature of corpo- sions and actions taken for reasons at least par-
rate social responsibility (CSR) with an eye to- tially b e y o n d the firm's direct economic or tech-
ward understanding its c o m p o n e n t parts. The nical interest." At about the same time, Eells and
intention will be to characterize the firm's CSR in Walton (1961) argued that CSR refers to the
ways that might be useful to executives w h o "problems that arise w h e n corporate enterprise
wish to reconcile their obligations to their share- casts its shadow on the social scene, and the

The Pyramid of Corporate Social Responslblhty 39


legitimate, had to address the entire
Figure 1
spectrum of obligations business has to
E c o n o m i c a n d Legal C o m p o n e n t s o f Corporate Social R e s p o n s i b i l i t y
society, including the most fundamen-
t a l - e c o n o m i c . It is u p o n this four-part
Economic Components Legal Components perspective that our pyramid is based.
(Responsibilities) (Responsibilities) in recent years, the term corporate
social performance (CSP) has emerged
as an inclusive and global concept to
1. It is important to perform in a It is important to perform in a
manner consistent with embrace corporate social responsibility,
manner consistent with expecta-
maximizing earnings per share. tions of government and law. responsiveness, and the entire spectrum
of socially beneficial activities of busi-
2. It is irnportant to be committed to 2. It is important to c o m p l y with nesses. The focus on social performance
being as profitable as possible. various federal, state, and local emphasizes the concern for corporate
regulations. action and accomplishment in the social
sphere. With a performance perspective,
3. It is important to maintain a strong 3. It is important to be a law-abiding it is clear that firms must formulate and
competitive position. corporate citizen. implement social goals and programs as
well as integrate ethical sensitivity into
4. It is important to maintain a high It is important that a successful
all decision making, policies, and ac-
level of operating efficiency. firm be defined as one that fulfills
its legal obligations. tions. With a results focus, CSP suggests
an all-encompassing orientation towards
5 It is important that a successful 5. It is important to provide g o o d s normal criteria by which we assess busi-
firm be defined as o n e that is and services that at least m e e t ness performance to include quantity,
consistently profitable. minimal legal requirements. quality, effectiveness, and efficiency.
While we recognize the vitality of the
performance concept, we have chosen
to adhere to the CSR terminology for our
ethical principles that ought to govern the rela- present discussion. With just a slight change of
tionship between the corporation and society." focus, however, we could easily be discussing a
In 1971 the Committee for Economic Devel- CSP rather than a CSR pyramid. In any event, our
opment used a "three concentric circles" ap- long-term concern is what managers do with
proach to depicting CSR. The inner circle in- these ideas in terms of implementation.
cluded basic economic functions--growth, prod-
ucts, jobs. The intermediate circle suggested that THE PYRAMID OF CORPORATE
the economic functions must be exercised with a SOCIAL RESPONSIBILITY
sensitive awareness of changing social values and
priorities. The outer circle outlined newly emerg- F or CSR to be accepted by a conscientious
ing and still amorphous responsibilities that busi- business person, it should be framed in
ness should assume to become more actively such a way that the entire range of busi-
involved in improving the social environment. ness responsibilities are embraced. It is suggested
The attention was shifted from social respon- here that four kinds of social responsibilities con-
sibility to social responsiveness by several other stitute total CSR: economic, legal, ethical, and
writers. Their basic argument was that the em- philanthropic. Furthermore, these four categories
phasis on responsibility focused exclusively on or components of CSR might be depicted as a
the notion of business obligation and motivation pyramid. To be sure, all of these kinds of respon-
and that action or performance were being over- sibilities have always existed to some extent, but
looked. The social responsiveness movement, it has only been in recent years that ethical and
therefore, emphasized corporate action, pro- philanthropic functions have taken a significant
action, and implementation of a social role. This place. Each of these four categories deserves
was indeed a necessary reorientation. closer consideration.
The question still remained, however, of
reconciling the firm's economic orientation with E c o n o m i c Responsibilities
its social orientation. A step in this direction was
taken when a comprehensive definition of CSR Historically, business organizations were created
was set forth. In this view, a four-part conceptu- as economic entities designed to provide goods
alization of CSR included the idea that the corpo- and services to societal members. The profit mo-
ration has not only economic and legal obliga- tive was established as the primary incentive for
tions, but ethical and discretionary (philan- entrepreneurship. Before it was anything else, the
thropic) responsibilities as well (Carroll 1979). business organization was the basic economic
The point here was that CSR, to be accepted as unit in our society. As such, its principal role was

40 Business Horizons /July-August 1991


to produce goods and services that con- Figure 2
sumers needed and wanted and to make Ethical and Philanthropic Components of
an acceptable profit in the process. At
Corporate Social Responsibility
some point the idea of the profit motive
got transformed into a notion of maximum
profits, and this has been an enduring
Ethical Components Philanthropic Components
value ever since. All other business re- (Responsibilities) (Responsibilities)
sponsibilities are predicated u p o n the eco-
nomic responsibility of the firm, because
without it the others become moot consid- 1. It is important to perform in a It is tmportant to perform in a
erations. F i g u r e 1 summarizes some im- manner consistent with expecta- manner consistent with the philan-
tions of societal mores and ethical thropic and charitable expectations
portant statements characterizing economic
norms. of society.
responsibilities. Legal responsibilities are
also depicted in Figure 1, and we will 2. It is important to recognize and It is important to assist the fine and
consider them next. respect new or evolving ethical/ performing arts.
moral norms adopted by society.
Legal Responsibilities
3. It is important to prevent ethical 3. It is important that managers and
Society has not only sanctioned business norms from being compromised in employees participate in voluntary
to operate according to the profit motive; order to achieve corporate goals. and charitable activities within their
at the same time business is expected to local communities.
comply with the laws and regulations pro-
4. It is important that good corporate 4. It is important to provide assis-
mulgated by federal, state, and local gov- citizenship be defined as doing what tance to private and public educa-
ernments as the ground rules under which is expected morally or ethically. tional institutions.
business must operate. As a partial fulfill-
ment of the "social contract" between busi- 5. It is important to recognize that 5. It is important to assist voluntarily
ness and society, firms are expected to corporate integrity and ethical those projects that enhance a
pursue their economic missions within the behavior go beyond mere compli- community's "quality of life."
framework of the law. Legal responsibili- ance with laws and regulations.
ties reflect a view of "codified ethics" in
the sense that they e m b o d y basic notions
of fair operations as established by our lawmak- seen as embracing newly emerging values and
ers. They are depicted as the next layer on the norms society expects business to meet, even
pyramid to portray their historical development, though such values and norms may reflect a
but they are appropriately seen as coexisting with higher standard of performance than that cur-
economic responsibilities as fundamental pre- rently required by law. Ethical responsibilities in
cepts of the free enterprise system. this sense are often ill-defined or continually
under public debate as to their legitimacy, and
Ethical Responsibilities thus are frequently difficult for business to deal
with.
Although economic and legal responsibilities Superimposed on these ethical expectations
e m b o d y ethical norms about fairness and justice, emanating from societal groups are the implied
ethical responsibilities embrace those activities levels of ethical performance suggested by a
and practices that are expected or prohibited by consideration of the great ethical principles of
societal members even though they are not codi- moral philosophy. This would include such prin-
fied into law. Ethical responsibilities e m b o d y ciples as justice, rights, and utilitarianism.
those standards, norms, or expectations that re- The business ethics movement of the past
flect a concern for what consumers, employees, decade has firmly established an ethical responsi-
shareholders, and the community regard as fair, bility as a legitimate CSR component. Though it is
just, or in keeping with the respect or protection depicted as the next layer of the CSR pyramid, it
of stakeholders' moral rights. must be constantly recognized that it is in dy-
In one sense, changing ethics or values pre- namic interplay with the legal responsibility cat-
cede the establishment of law because they be- egory. That is, it is constantly pushing the legal
come the driving force behind the very creation responsibility category to broaden or expand
of laws or regulations. For example, the environ- while at the same time placing ever higher ex-
mental, civil rights, and consumer movements pectations on businesspersons to operate at lev-
reflected basic alterations in societal values and els above that required by law. F i g u r e 2 depicts
thus may be seen as ethical bellwethers foreshad- statements that help characterize ethical responsi-
owing and resulting in the later legislation. In bilities. The figure also summarizes philanthropic
another sense, ethical responsibilities may be responsibilities, discussed next.

The Pyramid of Corporate Social ResponslblliW 41


part of businesses even though there is
Figure 3 always the societal expectation that busi-
The Pyramid of Corporate Social Responsibility nesses provide it.
One notable reason for making the dis-
tinction between philanthropic and ethical
responsibilities is that some firms feel they
PHILANTHROPIC are being socially responsible if they are
Responsibilities \ just g o o d citizens in the community. This
distinction brings h o m e the vital point that
Be a good corporate c i t i z e n . \ CSR includes philanthropic contributions
Contribute resources \
to the community; \ but is not limited to them. In fact, it would
improve quality of life. \ be argued here that philanthropy is highly
desired and prized but actually less impor-
tant than the other three categories of social
ETHICAL responsibility. In a sense, philanthropy is
Responsibilities icing on the c a k e - - o r on the pyramid, us-
ing our metaphor.
Be ethical. The pyramid of corporate social respon-
Obligation to do what is right, just, \ sibility is depicted in F i g u r e 3. It portrays
and fair. Avoid harm.
the four components of CSR, beginning
with the basic building block notion that
economic performance undergirds all else.
LEGAL At the same time, business is expected to
Responsibilities
o b e y the law because the law is society's
Obey the law. , \ codification of acceptable and unacceptable
Law is society's codification of right and wrong. \ behavior. Next is business's responsibility to
Play by the rules of the g a m e . ~ be ethical. At its most fundamental level,
this is the obligation to do what is right,
just, and fair, and to avoid or minimize
ECONOMIC harm to stakeholders (employees, consum-
Responsibilities ers, the environment, and others). Finally,
business is expected to be a good corpo-
Be profitable. rate citizen. This is captured in the philan-
The foundation upon which all others rest. \ thropic responsibility, wherein business is
\ expected to contribute financial and h u m a n
resources to the community and to improve
the quality of life.
No metaphor is perfect, and the CSR
Philanthropic Responsibilities pyramid is no exception. It is intended to portray
that the total CSR of business comprises distinct
Philanthropy encompasses those corporate ac- components that, taken together, constitute the
tions that are in response to society's expectation whole. Though the c o m p o n e n t s have b e e n
that businesses be good corporate citizens. This treated as separate concepts for discussion pur-
includes actively engaging in acts or programs to poses, they are not mutually exclusive and are
promote h u m a n welfare or goodwill. Examples of not intended to juxtapose a firm's economic re-
philanthropy include business contributions of sponsibilities with its other responsibilities. At the
financial resources or executive time, such as same time, a consideration of the separate com-
contributions to the arts, education, or the com- ponents helps the manager see that the different
munity. A loaned-executive program that pro- types of obligations are in a constant but dy-
vides leadership for a community's United Way namic tension with one another. The most critical
campaign is one illustration of philanthropy. tensions, of course, would be between economic
The distinguishing feature b e t w e e n philan- and legal, economic and ethical, and economic
thropic and ethical responsibilities is that the and philanthropic. The traditionalist might see
former are not expected in an ethical or moral this as a conflict b e t w e e n a firm's "concern for
sense. Communities desire firms to contribute profits" versus its "concern for society," but it is
their money, facilities, and employee time to suggested here that this is an oversimplification.
humanitarian programs or purposes, but they do A CSR or stakeholder perspective would recog-
not regard the firms as unethical if they do not nize these tensions as organizational realities, but
provide the desired level. Therefore, philan- focus on the total pyramid as a unified whole
thropy is more discretionary or voluntary on the and h o w the firm might engage in decisions,

42 Business Horizons /July-August 199


actions, and programs that simultaneously fulfill By n o w most executives understand that the
all its c o m p o n e n t parts. term "stakeholder" constitutes a play on the word
In summary, the total corporate social re- stockholder and is intended to more appropri-
sponsibility of business entails the simultaneous ately describe those groups or persons w h o have
fulfillment of the firm's economic, legal, ethical, a stake, a claim, or an interest in the operations
and philanthropic responsibilities. Stated in more and decisions of the firm. Sometimes the stake
pragmatic and managerial terms, the CSR firm might represent a legal claim, such as that which
should strive to m a k e a profit, o b e y the law, be might be held by an owner, an employee, or a
ethical, and be a g o o d corporate citizen. customer w h o has an explicit or implicit contract.
Upon first glance, this array of responsibili- Other times it might be represented by a moral
ties may seem broad. They seem to be in striking claim, such as w h e n these groups assert a right to
contrast to the classical economic argument that be treated fairly or with due process, or to have
m a n a g e m e n t has one responsibility: to maximize their opinions taken into consideration in an
the profits of its owners or shareholders. Econo- important business decision.
mist Milton Friedman, the most outspoken propo- Management's challenge is to decide which
nent of this view, has argued that social matters stakeholders merit and receive consideration in
are not the concern of business people and that the decision-making process. In any given in-
these problems should be resolved by the stance, there m a y be numerous stakeholder
unfettered workings of the free market system. groups (shareholders, consumers, employees,
Friedman's argument loses some of its punch, suppliers, community, social activist groups)
however, w h e n you consider his assertion in its clamoring for management's attention. H o w do
totality. Friedman posited that m a n a g e m e n t is "'to managers sort out the urgency or importance of
m a k e as m u c h m o n e y as possible while conform- the various stakeholder claims? Two vital criteria
ing to the basic rules of society, both those em- include the stakeholders' legitimacy and their
bodied in the law and those e m b o d i e d in ethical power. From a CSR perspective their legitimacy
custom" (Friedman 1970). Most p e o p l e focus on may be most important. From a m a n a g e m e n t
the first part of Friedman's quote but not the efficiency perspective, their p o w e r might be of
second part. It seems clear from this statement central influence. Legitimacy refers to the extent
that profits, conformity to the law, and ethical to which a group has a justifiable right to be
custom embrace three c o m p o n e n t s of the CSR making its claim. For example, a group of 300
p y r a m i d - - e c o n o m i c , legal, and ethical. That only employees about to be laid off b y a plant-closing
leaves the philanthropic c o m p o n e n t for Friedman decision has a more legitimate claim on manage-
to reject. Although it may be appropriate for an ment's attention than the local chamber of com-
economist to take this view, one would not en- merce, which is worried about losing the firm as
counter m a n y business executives today w h o one of its dues-paying members. The stake-
exclude philanthropic programs from their firms' holder's p o w e r is another factor. Here we may
range of activities. It seems the role of corporate witness significant differences. Thousands of
citizenship is one that business has no significant small, individual investors, for example, wield
problem embracing. Undoubtedly this perspec- very little p o w e r unless they can find a w a y to
tive is rationalized under the rubric of enlight- get organized. By contrast, institutional investors
ened self interest. and large mutual fund groups have significant
We next propose a conceptual framework to p o w e r over m a n a g e m e n t because of the sheer
assist the manager in integrating the four CSR magnitude of their investments and the fact that
components with organizational stakeholders. they are organized.
With these perspectives in mind, let us think
CSR AND ORGANIZATIONAL STAKEHOLDERS of stakeholder m a n a g e m e n t as a process by
which managers reconcile their o w n objectives
There is a natural fit between the idea of with the claims and expectations being made on
corporate social responsibility and an them by various stakeholder groups. The chal-
organization s stakeholders. The word lenge of stakeholder m a n a g e m e n t is to ensure
"social" in CSR has always b e e n vague and lack- that the firm's primary stakeholders achieve their
ing in specific direction as to w h o m the corpora- objectives while other stakeholders are also satis-
tion is responsible. The concept of stakeholder fied. Even though this "win-win" outcome is not
personalizes social or societal responsibilities by always possible, it does represent a legitimate
delineating the specific groups or persons busi- and desirable goal for m a n a g e m e n t to pursue to
ness should consider in its CSR orientation. Thus, protect its long-term interests.
the stakeholder nomenclature puts "names and The important functions of stakeholder man-
faces" on the societal m e m b e r s w h o are most agement are to describe, understand, analyze,
urgent to business, and to w h o m it must be re- and finally, manage. Thus, five major questions
sponsive. might be p o s e d to capture the essential ingredi-

The Pyramid of Corporate Social Responsibdlty 43


To be sure, thinking in stakeholder-
Figure 4 responsibility terms increases the com-
Stakeholder/Responsibility Matrix plexity of decision making and may be
extremely time consuming and taxing,
Types of CSR especially at first. Despite its complexity,
however, this approach is one methodol-
Stakeholders Economic Legal Ethical Philanthropic ogy m a n a g e m e n t can use to integrate val-
u e s - w h a t it stands for--with the tradi-
Owners tional economic mission of the organiza-
tion. In the final analysis, such an integra-
Customers tion could be of significant usefulness to
management. This is because the stake-
Employees holder/responsibility perspective is most
consistent with the pluralistic environment
Community
faced by business today. As such, it pro-
Competitors vides the opportunity for an in-depth cor-
porate appraisal of financial as well as
Suppliers social and economic concerns. Thus, the
stakeholder/responsibility perspective
Social Activist Groups would be an invaluable foundation for
responding to the fifth stakeholder man-
Public at Large agement question about strategies, actions,
or decisions that should be pursued to
Others effectively respond to the environment
business faces.

ents we need for stakeholder management: MORAL MANAGEMENT AND


1. Who are our stakeholders? STAKEHOLDERS
2. What are their stakes?
3. What opportunities and challenges are t this juncture we would like to e x p o u n d
presented by our stakeholders?
4. What corporate social responsibilities (eco-
nomic, legal, ethical, and philanthropic) do we
A u p o n the link between the firm's ethical
responsibilities or perspectives and its
major stakeholder groups. Here we are isolating
have to our stakeholders? the ethical c o m p o n e n t of our CSR pyramid and
5. What strategies, actions, or decisions discussing it more thoroughly in the context of
should we take to best deal with these responsi- stakeholders. One w a y to do this would be to
bilities? use major ethical principles such as those of jus-
Whereas m u c h could be discussed about tice, rights, and utilitarianism to identify and de-
each of these questions, let us direct our atten- scribe our ethical responsibilities. We will take
tion here to question f o u r - - w h a t kinds of social another alternative, however, and discuss stake-
responsibilities do we have to our stakeholders? holders within the context of three major ethical
Our objective here is to present a conceptual a p p r o a c h e s - - i m m o r a l management, amoral man-
approach for examining these issues. This con- agement, and moral management. These three
ceptual approach or framework is presented as ethical approaches were defined and discussed in
the stakeholder/responsibility matrix in F i g u r e 4. an earlier Business Horizons article (Carroll 1987).
This matrix is intended to be used as an ana- We will briefly describe and review these three
lytical tool or template to organize a manager's ethical types and then suggest h o w they might be
thoughts and ideas about what the firm ought to oriented toward the major stakeholder groups.
be doing in an economic, legal, ethical, and phil- Our goal is to profile the likely orientation of the
anthropic sense with respect to its identified three ethical types with a special emphasis u p o n
stakeholder groups. By carefully and deliberately moral management, our preferred ethical ap-
moving through the various cells of the matrix, proach.
the manager m a y develop a significant descrip-
tive and analytical data base that can then be Three Moral Types
used for purposes of stakeholder management.
The information resulting from this stakeholder/ If we accept that the terms ethics and morality
responsibility analysis should be useful w h e n are essentially synonymous in the organizational
developing priorities and making both long-term context, we may speak of immoral, amoral, and
and short-term decisions involving multiple moral m a n a g e m e n t as descriptive categories of
stakeholder's interests. three different kinds of managers. Immoral man-

44 Business Horizons /July-August 1991


agement is characterized by those managers holism, drunk driving deaths, lung cancer, dete-
w h o s e decisions, actions, and behavior suggest riorating health, and offensive secondary smoke.
an active opposition to what is d e e m e d right or Finally, w h e n McDonald's initially decided to use
ethical. Decisions by immoral managers are dis- polystyrene containers for food packaging it just
cordant with accepted ethical principles and, did not adequately consider the environmental
indeed, imply an active negation of what is impact that would be caused. McDonald's surely
moral. These managers care only about their or does not intentionally create a solid waste dis-
their organization's profitability and success. They posal problem, but one major consequence of its
see legal standards as barriers or impediments business is just that. Fortunately, the c o m p a n y
m a n a g e m e n t must overcome to accomplish what has responded to complaints by replacing the
it wants. Their strategy is to exploit opportunities polystyrene packaging with p a p e r products.
for personal or corporate gain. Moral m a n a g e m e n t is our third ethical ap-
An example might be helpful. Many observ- proach, one that should provide a striking con-
ers would argue that Charles Keating could be trast. In moral management, ethical norms that
described as an immoral manager. According to adhere to a high standard of right behavior are
the federal government, Keating recklessly and employed. Moral managers not only conform to
fraudulently ran California's Lincoln Savings into accepted and high levels of professional conduct,
the ground, reaping $34 million for himself and they also c o m m o n l y exemplify leadership on
his family. A major accounting firm said about ethical issues. Moral managers want to be profit-
Keating: "Seldom in our experience as accoun- able, but only within the confines of sound legal
tants have w e experienced a more egregious and ethical precepts, such as fairness, justice, and
example of the misapplication of generally ac- due process. Under this approach, the orientation
cepted accounting principles" ("Good Timing, is toward both the letter and the spirit of the law.
Charlie" 1989). Law is seen as minimal ethical behavior and the
The second major type of m a n a g e m e n t ethics preference and goal is to operate well above
is amoral management. Amoral managers are what the law mandates. Moral managers seek out
neither immoral nor moral but are not sensitive and use sound ethical principles such as justice,
to the fact that their everyday business decisions rights, utilitarianism, and the Golden Rule to
m a y have deleterious effects on others. These guide their decisions. When ethical dilemmas
managers lack ethical perception or awareness. arise, moral managers assume a leadership posi-
That is, they go through their organizational lives tion for their companies and industries.
not thinking that their actions have an ethical There are numerous examples of moral man-
dimension. Or they m a y just be careless or inat- agement. When IBM took the lead and devel-
tentive to the implications of their actions on o p e d its O p e n Door policy to provide a mecha-
stakeholders. These managers m a y be well nism through which employees might pursue
intentioned, but do not see that their business their due process rights, this could be considered
decisions and actions m a y be hurting those with moral management. Similarly, w h e n IBM initiated
w h o m they transact business or interact. Typically its Four Principles of Privacy to protect privacy
their orientation is towards the letter of the law rights of employees, this was moral management.
as their ethical guide. We have b e e n describing a When McCullough Corporation withdrew from
sub-category of amorality k n o w n as unintentional the Chain Saw Manufacturers Association because
amoral managers. There is also another group we the association fought mandatory safety standards
m a y call intentional amoral managers. These for the industry, this was moral management.
managers simply think that ethical considerations McCullough k n e w its product was potentially
are for our private lives, not for business. They dangerous and had used chain brakes on its o w n
believe that business activity resides outside the saws for years, even though it was not required
sphere to which moral judgments apply. Though b y law to do so. Another example of moral man-
most amoral managers today are unintentional, agement was w h e n Maguire Thomas Partners, a
there m a y still exist a few w h o just do not see a Los Angeles commercial developer, helped solve
role for ethics in business. urban problems by saving and refurbishing his-
Examples of unintentional amorality abound. toric sites, putting up structures that matched old
When police departments stipulated that appli- ones, limiting building heights to tess than the
cants must be 5'10" and weigh 180 pounds to law allowed, and using only two-thirds of the
qualify for positions, they just did not think about allowable building density so that o p e n spaces
the adverse impact their policy would have on could be provided.
w o m e n and some ethnic groups who, on aver-
age, do not attain that height and weight. The Orientation Toward Stakeholders
liquor, beer, and cigarette industries provide
other examples. They did not anticipate that their Now that we have a basic understanding of the
products would create serious moral issues: alco- three ethical types or approaches, we will pro-

The Pyramid of Corporate Sooal Responslbdlty 45


p o s e profiles o f w h a t the likely s t a k e h o l d e r ori- e a c h o f t h e s e g r o u p s is essentially identical (pro-
e n t a t i o n m i g h t b e t o w a r d the m a j o r s t a k e h o l d e r tect their rights, treat t h e m w i t h r e s p e c t a n d fair-
g r o u p s using e a c h of the three ethical a p - ness), specific b e h a v i o r s a n d o r i e n t a t i o n s arise
p r o a c h e s . O u r g o a l is to a c c e n t u a t e the m o r a l b e c a u s e o f the differing n a t u r e o f the groups. In
m a n a g e m e n t a p p r o a c h b y contrasting it w i t h the an a t t e m p t to flesh o u t the c h a r a c t e r a n d salient
o t h e r t w o types. features of the t h r e e ethical t y p e s a n d their stake-
Basically, t h e r e are five m a j o r s t a k e h o l d e r h o l d e r orientations, F i g u r e s 5 a n d 6 s u m m a r i z e
g r o u p s that are r e c o g n i z e d as priorities b y m o s t the orientations t h e s e t h r e e t y p e s might a s s u m e
firms, across i n d u s t r y lines a n d in spite o f size o r w i t h r e s p e c t to four of the m a j o r s t a k e h o l d e r
location: o w n e r s ( s h a r e h o l d e r s ) , e m p l o y e e s , cus- g r o u p s . B e c a u s e o f s p a c e constraints a n d the
tomers, local c o m m u n i t i e s , a n d the society-at- g e n e r a l n a t u r e of the society-at-large category, it
large. A l t h o u g h the g e n e r a l ethical o b l i g a t i o n to has b e e n omitted.

Figure 5
Three Moral Types and Orientation Toward
Stakeholder Groups: Owners and Employees

Type of Management Orientation Toward Owner~Shareholder Stakeholders

Immoral Management Shareholders are minimally treated and given short shrift. Focus is on
maximizing positions of executive groups---maximizing executive com-
pensation, perks, benefits. Golden parachutes are more important than
returns to shareholders. Managers maximize their positions without share-
holders being made aware. Concealment from shareholders is the operat-
ing procedure. Self-interest of management group is the order of the day.

Amoral Management No special thought is given to shareholders; they are there and must be
minimally accommodated. Profit focus of the business is their reward. No
thought is given to ethical consequences of decisions for any stakeholder
group, including owners. Communication is limited to that required by
law.

Moral Management Shareholders' interest (short- and long-term) is a central factor. The best
way to be ethical to shareholders is to treat all stakeholder claimants in a
fair and ethical manner. To protect shareholders, an ethics committee of
the board is created. Code of ethics is established, promulgated, and made
a living document to protect shareholders' and others' interests.

Type of Management Orientation Toward Employee Stakeholders

Immoral Management Employees are viewed as factors of production to be used, exploited,


manipulated for gain of individual manager or company. No concern is
shown for employees' needs/rights/expectations. Short-term focus. Coer-
cive, controlling, alienating.

Amoral Management Employees are treated as law requires. Attempts to motivate focus on
increasing productivity rather than satisfying employees' growing maturity
needs. Employees still seen as factors of production but remunerative
approach used. Organization sees self-interest in treating employees with
minimal respect. Organization structure, pay incentives, rewards all geared
toward short- and medium-term productivity.

Moral Management Employees are a human resource that must be treated with dignity and
respect. Goal is to use a leadership style such as consultative/participative
that will result in mutual confidence and trust. Commitment is a recurring
theme. Employees' rights to due process, privacy, freedom of speech, and
safety are maximally considered in all decisions. Management seeks out
fair dealings with employees.

i6 Business Horizons / July-August 1991


By carefully considering the described stake- h o u g h the c o n c e p t of corporate social
holder orientations u n d e r each of the three ethi-
cal types, a richer appreciation of the moral man-
a g e m e n t a p p r o a c h should be possible. O u r goal
T responsibility m a y from time to time be
supplanted b y various other focuses such
as social responsiveness, social performance,
here is to gain a fuller understanding o f w h a t it public policy, ethics, or stakeholder m a n a g e m e n t ,
m e a n s to e n g a g e in moral m a n a g e m e n t and w h a t an underlying challenge for all is to define the
this implies for interacting with stakeholders. To kinds o f responsibilities m a n a g e m e n t and busi-
be sure, there are other stakeholder g r o u p s to nesses have to the constituency g r o u p s with
w h i c h moral m a n a g e m e n t s h o u l d be directed, but w h i c h they transact and interact most frequently.
again, space precludes their discussion here. This The pyramid of corporate social responsibility
might include thinking of m a n a g e r s and n o n - gives us a f r a m e w o r k for understanding the
m a n a g e r s as distinct categories of e m p l o y e e s and evolving nature of the firm's economic, legal,
w o u l d also e m b r a c e such g r o u p s as suppliers, ethical, and philanthropic performance. The
competitors, special interest groups, government, implementation o f these responsibilities m a y vary
and the media. d e p e n d i n g u p o n the firm's size, m a n a g e m e n t ' s

Figure 6
Three Moral Types and Orientation Toward
Stakeholder Groups: Customers and Local Conlmunity

Type of 3ganageme, Tt Orientation Toward Customer Stakeholders

Immoral Management Customers are viewed as opportunities to be exploited for personal or


organizational gain. Ethical standards in dealings do not prevail; indeed, an
active intent to cheat, deceive, and/or mislead is present. In all marketing
decisions--advertising, pricing, packaging, distribution--customer is taken
advantage of to the fullest extent.

Amoral Management Management does not think through the ethical consequences of its deci-
sions and actions. It simply makes decisions with profitability within the
letter of the law as a guide. Management is not focused on what is fair
from perspective of customer. Focus is on management's rights. No consid-
eration is given to ethical implications of interactions with customers.

Moral Management Customer is vmwed as equal partner in transaction. Customer brings needs/
expectations to the exchange transaction and is treated fairly. Managerial
focus is on giving customer fair value, full information, fair guarantee, and
satisfaction. Consumer rights are liberally interpreted and honored.

Type of Management Orientation Toward Zocal Community Stakeholders

Immoral Management Exploits community to fullest extent; pollutes the environment. Plant or
business closings take fullest advantage of community. Actively disregards
community needs. Takes fullest advantage of community resources without
giving anything in return. Violates zoning and other ordinances whenever it
can for its own advantage.

Amoral Management Does not take commumty or its resources into account in management
decision making. Community factors are assumed to be irrelevant to busi-
ness decisions. Community, like employees, is a factor of production. Legal
considerations are followed, but nothing more. Deals minimally with com-
munity, its people, community activity, local government.

Moral Management Sees vital community as a goal to be actively pursued. Seeks to be a lead-
ing citizen and to motivate others to do likewise. Gets actively involved
and helps institutions that need help--schools, recreational groups, philan-
thropic groups. Leadership position in environment, education, culture/arts,
volunteerism, and general community affairs. Firm engages in strategic
philanthropy. Management sees community goals and company goals as
mutually interdependent.

The Pyramid of Corporate Social ResponslblhW 47


philosophy, corporate strategy, industry charac- standard might embrace. Further, moral manage-
teristics, the state of the economy, and other such ment, to be fully appreciated, needs to be seen
mitigating conditions, but the four c o m p o n e n t within the context of organization-stakeholder
parts provide m a n a g e m e n t with a skeletal outline relationships. It is toward this singular goal that
of the nature and kinds of their CSR. In frank, our entire discussion has focused. If the "good
action-oriented terms, business is called u p o n to: socieW" is to b e c o m e a realization, such a high
be profitable, o b e y the law, be ethical, and be a expectation only naturally becomes the aspiration
good corporate citizen. and preoccupation of management.
The stakeholder m a n a g e m e n t perspective
provides not only a language and w a y to person- References
alize relationships with names and faces, but also
some useful conceptual and analytical concepts R.W. Ackerman and R.A. Bauer, Corporate Social Re-
for diagnosing, analyzing, and prioritizing an sponsiveness (Reston, Va.: Reston Publishing Co, 1976).
organization's relationships and strategies. Effec-
A B. Carroll, "A Three-Dimensional Conceptual Model
tive organizations will progress beyond stake- of Corporate Social Performance," Academy of Man-
holder identification and question what opportu- agementRevieu,, 4, 4 (1979): 497-505.
nities and threats are posed by stakeholders;
what economic, legal, ethical, and philanthropic A.B. Carroll. "In Search of the Moral Manager," Busi-
responsibilities they have; and what strategies, ness Horizons, March-April 1987, pp. 7-15.
actions or decisions should be pursued to most
effectively address these responsibilities. The Committee for Economic Development, Social Respon-
stakeholder/responsibility matrix provides a tem- sibilities of Business Corporations (New York: CED,
plate m a n a g e m e n t might use to organize its 1971).
analysis and decision making.
K. Davis, "Can Business Afford to Ignore its Social
Throughout the article we have b e e n build- Responsibilities?" California Management Review, 2, 3
ing toward the notion of an improved ethical (1960): 70-76.
organizational climate as manifested by moral
management. Moral m a n a g e m e n t was defined R. Eetls and C. Walton, Conceptual Foundations of
and described through a contrast with immoral Business (Homewood, II1.: Richard D. Irwin, 1961).
and amoral management. Because the business
landscape is replete with immoral and amoral "Good Timing, Charlie," Forbes, November 27, 1989,
managers, moral managers m a y sometimes be pp. 140-144.
hard to find. Regardless, their characteristics have
W.C. Frederick, "From CSRx to CSR2: The Maturing of
b e e n identified and, most important, their per-
Business and Society Thought," University of Pittsburgh
spective or orientation towards the major stake- Working Paper No. 279, 1978.
holder groups has b e e n profiled. These stake-
holder orientation profiles give managers a con- M. Friedman, "The Social Responsibility of Business Is
ceptual but practical touchstone for sorting out to Increase its Profits," New York Times, September 13,
the different categories or types of ethical (or 1970, pp. 122-126.
not-so-ethical) behavior that may be found in
business and other organizations. S.P Sethi, "Dimensions of Corporate Social Responsi-
It has often b e e n said that leadership by ex- bility," California Management Review, 1 7, 3 (1975):
ample is the most effective w a y to improve busi- 58-64.
ness ethics. If that is true, moral m a n a g e m e n t
provides a model leadership perspective or orien-
tation that managers may wish to emulate. One
great fear is that managers m a y think they are
providing ethical leadership just by rejecting im-
moral management. However, amoral manage-
ment, particularly the unintentional variety, may
Archie B. Carroll is Robert W. Scherer
unconsciously prevail if managers are not aware Professor of Management and Corpo-
of what it is and of its dangers. At best, amorality rate Public Affairs at the College of Busi-
represents ethical neutrality, and this notion is ness Administration, University of Geor-
not tenable in the society of the 1990s. The stan- gia, Athens.
dard must be set high, and moral m a n a g e m e n t
provides the best exemplar of what that lofty

48 Business Horizons / July-August 1991