Definition of CSR

What is corporate social responsibility (CSR)? To answer this question, we need to consider the big picture questions: What is the purpose of for-profit organizations in society? Why do firms exist? What value do businesses serve for society?

The concept of CSR represents an extension of the ongoing debate about the role of business in society.

Two opposing perspectives to CSR have emerged resulting from different interpretations of the role of corporations in society—business view and societal view. In the narrow business view (or economic view), corporations contribute to society by making a profit, which supports employment, wages, purchase, investments, and taxes. Milton Friedman, one of the forerunners of the business view, argued that the social responsibility of a business is to increase its profits. Friedman noted:

"There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

From this perspective, society falls outside the zone of business; governments and non-governmental, non-profit organizations should be responsible for improving society. Friedman  further argued that CSR can be a major threat to the capitalist system as the profits belong to the shareholders, not to the corporations.

Along these lines, Williamson, in his theory of transaction-cost analysis, argued that agency problems increase when managers act on behalf of non-shareholding stakeholders, and added that the central relationship between shareholders and managers will be distorted when the additional concern for stakeholders added into the relationship. Similarly, Fama and Jensen argued that shareholder value maximization should be priority for corporate managers—not the stakeholder welfare. However, the business view has been increasingly challenged by many circles in recent years, leading management scholars to develop theories that reconcile the business view with societal approaches.

In contrast, the societal view, also called the stakeholder view, argues that no one group of stakeholders has a priority over other groups, and that corporations must balance the interests of all stakeholders. In other words, the societal view holds that stakeholder welfare is maximized when corporations attend directly to all stakeholders without prioritizing the interests of some over the others. In essence, stakeholder theory emphasizes responsibilities of corporations to society and “personalizes societal responsibilities by delineating the specific groups or persons.”

CSR is then conceptualized as the notion that corporations have responsibilities to society that go beyond economic, legal, and moral expectations. 

As such, the economic view suggests that businesses are only obligated to create wealth for their owners. The social view expects them to create wealth for owners, but to do so in ways that are deemed acceptable to society. CSR covers the relationship between corporations (or other large organizations) and the societies with which they interact.

Reading: Milton Friedman, The Social Responsibility of Business is to Increase its Profits (PDF)