Theories of CSR

1- Carrol CSR Pyramid Theory.

Carroll developed a theory for how corporations interact with their communities and the rest of
the world, which is now known as Carroll's Pyramid of CSR. It is built on four pillars. It
enhances the firm's reputation, but the challenge is that you must research external social and
environmental situations.

Economic responsibility.
It is a business organization's responsibility to make money. The economic responsibility is at the bottom
of Carroll's CSR Pyramid since it is critical for a company's survival. Assets are required for any
corporation or organization to succeed and sustain, even if it is a non-profit organization such as a charity
association. The first stage in implementing CSR, according to Carroll, is to enroll in business operations
and create profits. Carroll continued that profits are required to compensate investors and owners. Profits
must also be re-invested to keep the business growing. A company represents economic responsibility to
various stakeholders through investments, marketing initiatives, commercial operations, and long-term
financial strategy. When a company begins operations, it must hire a lot of employees and deal with a
variety of stakeholders, including vendors, sellers, marketing consultants, stockholders, investors,
insurance companies, banks, and financial institutions. If a corporation makes a profit, various
stakeholders will benefit, which economists refer to as the Win-Win theory. As a result, stakeholders’
profit, the money circulation process improves, and a corporation successfully fulfils its CSR economic
responsibility.
Legal Responsibility
Corporations must adhere to all applicable laws and regulations. Legal Responsibility is the second level
of the CSR Pyramid, according to Carroll's Pyramid theory. A responsible company is one that follows
the rules of a fair commercial game. A responsible corporation follows the law because it feels that
ethical business practices benefit society as a whole. Both the economy and society are affected. If a
company engages in tax evasion or money laundering, this is a red flag. It is irrational to consider it
sharing in CSR ideals if it engages in harmful activities or even generates a dangerous product. Profits are
important for investors and owners to be rewarded. Furthermore, gains must be re-invested to keep the
company growing.
Ethical Responsibility
Corporations must act as decent citizens in their communities. Such accountability permits firms to make
decisions that are beneficial to society even if the law does not demand it. Carroll stated that corporations
must follow the spirit of the law rather than the letter of the law.
Philanthropic Responsibility
It's a voluntary action motivated by a company's desire to participate in social activities that aren't
regulated, required by law, or widely seen as ethical in the corporate world. So philanthropic
responsibility is pure contributing to society; it's a corporate activity or effort devoted solely to
community expectations.

2- The Triple Bottom line Theory

John Elkington discovered the Triple Bottom Line idea (TBL) in his book "Cannibals with
Forks." TBL is a CSR framework that covers three performance dimensions: economic, social,
and environmental. TBL's three dimensions must produce long-term outcomes. The TBL
concept's fundamental goal is sustainability, however the issue may be finding a balance between
the three CSR duties in order to achieve long-term societal and ecological goals.
According to TBL theory, the most important thing for a corporation is to create consistent
profits over time, rather than large earnings. As a result, businesses begin to enroll in the TBL
CSR framework and develop a strategy plan that includes calculating expenditures and taxes,
anticipating business climate elements, and evaluating market opportunities. Set a benchmark
and stay away from the most dangerous threats. A thorough examination of all of these elements
will result in achieve long-term profitability.
Businesses must consider their social responsibilities in addition to their financial
responsibilities. In the TBL CSR framework, achieving social sustainability by a corporation is a
must. However, because societies differ from one another, each corporation is required to collect
data from national authorities on social issues such as unemployment rates, human rights, female
labor force participation, health services, government-provided educational services, and so on.
Following the determination of community priorities, shareholders must make decisions in order
to satisfy as many constituents as possible as many social needs as possible So, in order for a
business to be stable in the long run, it must engage in social activities in corporation for
business.
One of the key concepts in the TBL framework is environmental sustainability. If businesses do
not respect the environmental dimension, our children will not be able to enjoy the same standard
of living that we do now. Corporations must pay attention to environmental changes and follow
new environmental laws while exercising caution exploitation of natural resources. Corporations
must use alternative energy sources in order to survive to reduce the use of traditional energy
sources (such as oil, gas, coal, and so on), and it must protect air and water sources while also
disposing of toxic and solid waste in an environmentally responsible manner. All of these
elements contribute to the preservation of the environment.
3- The Stakeholder Theory
Freeman and Reed define stakeholders in a broad sense. According to stakeholder theory, a corporation's
goals can only be met through safeguarding and balancing the interests of many stakeholders. Allowing
the corporation to retain strong interrelationships and connections with community and corporate
stakeholders. If the goal is met, the company will acquire all stakeholders' trust and loyalty. The challenge
is that any firm utilizing this strategy must balance the interests of all stakeholders and implement a
transparent policy with them. The risk in Stakeholder Theory is that corporate directors would share the
interests of stakeholders who are only interested in maximizing profits, across the spectrum of other
stakeholders as people in the surrounding area, whose lives are affected by the business operations.

Agency Theory

The notion of agency theory is used to understand and address problems in the connection
between corporate principals and their agents. The most common example is the interaction
between shareholders, who act as principals, and corporate executives, who act as agents.

 Agency theory aims to explain and resolve conflicts between principals and their agents'
various priorities.
 Principals rely on agents to complete some transactions, resulting in a lack of agreement
on priorities and techniques. • The principal-agent problem refers to the disparity in
priorities and interests between agents and principals.
 "Reducing agency loss" refers to the process of resolving expectations disparities.
 One method of achieving a balance between principal and agent is through performance-
based compensation.
 Shareholders and management, financial planners and their clients, and lessees and
lessors are examples of common principal-agent relationships.

The nature of the implicit and explicit contractual relationship between corporations and
stakeholders is also investigated by agency theory, with managers (agents) responsible for
maintaining such relationships.

Shareholder Value Theory

TPB claims that "attitudes toward behavior," "subjective norms," and "perceived behavioral
control" all influence human "intention," with "intention" leading to "actual conduct." The TPB
is operationalized by looking at stock market investors' "attitudes" toward environmental, social,
and governance issues, with a focus on "intention" toward ESG investing as a factor in
investment decisions. A person's willingness to take action is described by a 'intention,' which is
defined as a full set of attainable behavioral beliefs. Shareholder theory, on the other hand,
ignores the possibility that shareholders and corporations have goals other than financial
achievement.
Theory of Planned Behavior
According to TPB, human "intention" is influenced by "attitudes toward behavior," "subjective
standards," and "perceived behavioral control," with "intention" leading to "real conduct." The
TPB is operationalized by examining stock market investors' "attitudes" toward ESG issues, with
an emphasis on "intention" toward ESG investing as a factor in investment decisions. An
individual's preparedness to do an action is characterized as a 'intention,' which is defined as a
comprehensive set of attainable behavioral beliefs.
Goal Setting Theory

Edwin Locke proposed the goal-setting theory of motivation in the 1960s. According to this
theory, goal setting is fundamentally linked to task performance. It states that setting specific and
challenging goals, as well as providing appropriate feedback, contribute to higher and better task
performance. Goals, in a nutshell, indicate and direct an employee as to what needs to be done
and how much effort is required.

The following are the key features of goal-setting theory:

 The willingness to work toward achieving a goal is the primary source of job motivation.
Clear, specific, and difficult goals are more motivating than broad, general, and
ambiguous goals.
 Goals that are specific and explicit lead to increased productivity and improved
performance. Goals that are unambiguous, measurable, and clear, as well as a deadline
for completion, help to minimize misunderstanding.

Behavioral Asset Pricing Model (BAPM)

In BAPM asset prices are influenced by the investor's views and preferences. In this theory
expressive and emotional benefits are included, and it states that the value of the investment or
expected return of the stock depends on risks, social responsibility, liquidity, thrill, prestige,
misleading emotions, cognitive errors, and so forth.
Political Economy Theory
The political economy theory recognizes the critical role of a country's sociopolitical and
economic system in shaping the value system between corporations and society, as this value
system stimulates normative pressures on corporations to participate in CSR activities. As a
result, when corporations engage in unethical behavior in society, the corporations' existence is
inevitably eliminated. The political economy theory also explains the importance of
governmental intervention as a motivator when there is an imperfect market and social disorder
caused by corporations.
Legitimacy theory
Legitimacy theory is derived from political economy. According to this theory, corporations and
society have a social contract. The corporation is given perpetual legal existence and a common
seal by the society's existing rules and regulations. Corporations do not have an inherent right to
use resources, but the social contract states that corporations have the right to exercise their
ownership power in society. As a result, if discrepancies between corporate activities and
community interests are discovered, corporations must initiate changes to the social contract.
Legitimacy theory proposes a state of equilibrium in which corporations maximize shareholder
wealth while also considering the interests of the public.
Dependence Theory

The fact that there is no universally accepted definition of what constitutes an important resource
is a common feature of resource dependence theory. The resource dependency theory has been
widely used in research on CSR reporting practices, with a focus on the board of directors as
potential corporate resources. This theory attempts to explain organizational and inter-
organizational behavior in terms of the critical resources that an organization must possess in
order to survive and function properly in society. Understanding the behavior of the corporation
is more important than understanding the environment in which the corporation operates.
Because the corporate environmental context contains the three core concepts of social context,
such as corporate autonomy, interest, and power, corporations must consider these issues when
conducting business in society.

Resource Based View Theory

The relationship between corporate resources and long-term competitive advantage is at the heart
of the resource-based view (RBV), a concept developed by Wernerfelt (1984) and expanded by
Barney (1991). The RBV of corporations has evolved primarily in the field of strategic
management, and its framework indicates that corporations have a diverse set of resources and
capabilities that can provide a source of long-term competitive advantage. According to Barney
(1991), strategic resources are distributed heterogeneously across corporations and that these
differences are stable over time. The resources' core characteristics include value, scarcity,
imitability, and substitutability. These characteristics are viewed as potential factors that allow
corporations to engage in CSR activities while gaining a competitive advantage.
Legitimacy Theory
Institutional theory is more alive and visible, and its various mechanisms put pressure on
corporations to uphold their social responsibilities. It has piqued the interest of a diverse range of
social science scholars, and it is used to investigate systems ranging from micro interpersonal
interactions to global macro frameworks. According to DiMaggio and Powell (1983),
isomorphism exists when three components, including coercive, normative, and mimetic
pressures, encourage corporations to respect the demands of stakeholders. Scott (2005), on the
other hand, emphasizes the role of institutional rationality, in which three elements, such as
cultural-cognitive, normative, and regulative approaches, provide meanings of corporate
effective performance and efficient operations that are in accordance with the demands of
stakeholders.
Stewardship Theory of Governance
The stewardship theory is based on a man model that is motivated by pro-organizational and
collectivistic behaviors rather than individualistic and self-serving behavior. According to this
theory, management is motivated by an intrinsic desire to be a good steward of corporate assets.
A true steward acts in such a way that it benefits current stakeholders while also preserving
options for future generations. According to the steward theory, a steward protects and
maximizes shareholder wealth through firm performance. It emphasizes the position of
employees or executives to act more autonomously in order to maximize shareholder returns.
Employees take ownership of their jobs and work hard at them. Stewardship of state resources
refers to the government's role as an effective manager and responsible protector of critical state
resources. Responsible stewardship of state resources boosts legitimacy while also protecting and
generating critical revenue for essential services.
Institutional Theory of CSR
According to institutional theory, CSR should be explicitly placed within a broader field of
economic governance characterized by various modes, such as the market, state regulation, and
beyond. While CSR measures are frequently aimed at or use markets as a tool (e.g., fair trade,
eco-branding, etc.), institutional economic theories see markets as socially embedded within a
larger field of social networks, business associations, and political rules. Many of the most
interesting developments in CSR today, in particular, take place in a social space of private, but
collective forms of self-regulation.
Institutional theory stands out as a promising candidate for a conceptual framework. Institutional
theory is not only well established in a number of those social sciences, but it also provides a
promising avenue for integrating those diverse perspectives. Applying institutional theory to the
study of CSR allows for a better understanding of business responsibilities in two major areas:
CSR diversity and CSR dynamics.