The CSR pyramid is a framework guiding how and why an organization should meet its social responsibilities. Developed by University of Georgia Professor Archie B. Carroll who adapted earlier work from the 1950s. The CSR pyramid is based on four levels: economic, legal, ethical, and philanthropic.
Component
Description
Definition
The CSR (Corporate Social Responsibility) Pyramid is a framework that represents the levels of responsibility and ethical behavior that a corporation can adopt. It helps organizations understand their social and environmental obligations to various stakeholders.
Key Elements
– Economic Responsibility: The foundational level involves a corporation’s primary duty to generate profits, provide returns to shareholders, and ensure financial viability. – Legal Responsibility: Corporations must comply with laws and regulations governing their operations, ensuring ethical and legal conduct. – Ethical Responsibility: Beyond legal requirements, organizations should engage in ethical behavior and practices, which often involve voluntary efforts to benefit society. – Philanthropic Responsibility: The highest level involves voluntary contributions to society, including charitable donations, community involvement, and sustainability initiatives.
How It Works
– Economic Responsibility: Ensure financial stability and profitability through sound business practices. – Legal Responsibility: Adhere to all laws and regulations relevant to the industry and geographic locations of operation. – Ethical Responsibility: Make ethical decisions, uphold moral values, and act in ways that benefit stakeholders and society. – Philanthropic Responsibility: Engage in philanthropic activities, supporting communities and addressing societal needs beyond financial obligations.
Economic Benefits
– Sustainable profitability and long-term financial success. – Attracting investors and shareholders who value responsible business practices. – Enhanced reputation and brand image, which can lead to increased customer loyalty.
Ethical Benefits
– Fostering a culture of integrity and ethical decision-making within the organization. – Building trust among stakeholders, including customers, employees, and communities. – Contributing positively to society and addressing societal issues.
Challenges
– Balancing economic and ethical responsibilities can be challenging. – Meeting legal requirements in diverse regions and industries can be complex. – Determining ethical standards and making decisions may vary among individuals and cultures. – Allocating resources for philanthropic initiatives may strain budgets.
Applications
– CSR Strategies: Organizations use the CSR Pyramid as a framework for developing comprehensive CSR strategies. – Reporting: It guides the reporting of corporate social responsibility initiatives in annual reports and sustainability reports. – Stakeholder Engagement: Engaging with stakeholders, such as employees, customers, investors, and communities, to address their concerns and needs.
Examples
– Economic Responsibility: Ensuring fair wages, job creation, and economic growth through business operations. – Legal Responsibility: Complying with labor laws, environmental regulations, and product safety standards. – Ethical Responsibility: Implementing ethical sourcing practices, promoting diversity and inclusion, and adopting sustainable manufacturing processes. – Philanthropic Responsibility: Donating to charitable organizations, supporting education and healthcare initiatives, and engaging in environmental conservation efforts.
Table of Contents
Understanding the CSR pyramid
Corporate social responsibility first surfaced as a concept in Howard Bowen’s 1953 book Social Responsibilities of the Businessman.
Bowen described the concept simply as any policy desirable to the objectives and values of society.
Some years later, University of Georgia Professor Archie B. Carroll organized various social responsibilities into a four-level model. For this reason, the framework is sometimes called Carroll’s CSR pyramid.
Carroll’s model remains relevant today because consumers expect companies to be good corporate citizens.
The model is also a powerful way for a company to simplify the rather nuanced field of corporate social responsibility.
What’s more, empirical research has found that socially responsible companies experience higher profit margins, increased valuation, and lower risk. In some cases, CSR has the power to boost product differentiation and deliver a more stable return on investment during an economic downturn.
The four levels of the CSR pyramid
Carroll suggests corporate social responsibility has to be fulfilled on four different levels:
Economic
The lowest level of the pyramid since it is the responsibility that must be satisfied first.
Without the ability to make a profit, the company cannot fund the other levels.
In some instances, economic responsibilities will facilitate others.
For example, a company transitioning to cheaper, eco-friendly packaging potentially satisfies an economic, legal, and ethical obligation at the same time.
Legal
While the economic level forms a solid foundation, the legal obligations of a company are perhaps the most important.
Does it comply with employment, tax, environmental, health, and safety, or anti-competitive laws?
Failing to abide by the law can result in severe financial and reputational damage.
Ethical
This layer of the pyramid can best be described as doing the right thing through fairness and harm avoidance.
Unlike the first two levels, ethical practices are not something the company is obligated to incorporate.
Nevertheless, demonstrated evidence of moral and ethical decisions strongly influence consumer brand perception.
Philanthropic
As we noted in a previous section, consumers expect the companies they do business with to give back to society.
These efforts are vital for companies who leave a large carbon footprint, consume natural resources, or contribute to wage, cultural, or gender inequality.
At the most basic level, philanthropy may constitute a company paying the correct amount of corporate tax.
But it also extends to philanthropy as most people know it, with the Bill and Melinda Gates Foundation arguably the best example.
Limitations of the CSR pyramid
Despite its simplicity and effectiveness in distilling a rather nuanced topic, there do exist some limitations to Carroll’s pyramid.
These include:
No cultural component
Critics argue that culture plays an important role in decision-making around corporate social responsibility.
To some degree, this limits the effectiveness of the framework because a company may preach social responsibility without actively embodying it.
Fast-fashion chain H&M was exposed for greenwashing in 2019 – or the act of giving a false impression of environmentally friendly products.
This disconnect between environmentally friendly marketing and non-environmentally friendly production is a great example of poor and misaligned culture.
Establishment cost
Some businesses will find the implementation of CSR principles prohibitively expensive.
Procedures and protocols need to be adjusted and employees need to be retrained.
Social development initiatives must also be developed, funded, and implemented and not impact the bottom line.
Misuse
For many companies, CSR is seen as a quick way to change public perceptions and not a way to create sustainable and measurable positive impacts.
When airline Virgin Australia announced a plan to publicly acknowledge war veterans on their flights, the company failed to consult with them first.
The move was also considered insensitive because the company attempted to benefit from a national day of mourning for those killed in combat.
CSR versus ESG
Whereas CSR is a practical framework for a company to achieve socially responsible goals.
The ESG criteria is a way to measure whether those objectives are met. Thus, ESG is more of an accounting method for measuring sustainability.
Whereas the CSR framework is a practical framework to achieve these goals.
Environmental, social, and governance (ESG) criteria comprise a set of standards socially responsible investors use to evaluate a company based on three main criteria: environmental, social, and corporate governance. Combined they help assess the social responsibility effort of companies in the marketplace.
Key takeaways
The CSR pyramid is a framework detailing how and why an organization should meet its social responsibilities. It was developed by University of Georgia Professor Archie B. Carroll who adapted earlier work from the 1950s.
The CSR pyramid is based on four levels: economic, legal, ethical, and philanthropic.
The CSR pyramid is an effective way of simplifying nuanced corporate social responsibility. However, it does not guide company culture and may encourage short-term, opportunistic, or deceitful practices.
Key Highlights
CSR Pyramid Overview: The CSR pyramid is a framework guiding how and why organizations should fulfill their social responsibilities. It was developed by Professor Archie B. Carroll based on earlier work from the 1950s. The pyramid categorizes responsibilities into four levels: economic, legal, ethical, and philanthropic.
Origin of CSR: The concept of corporate social responsibility emerged in Howard Bowen’s 1953 book. It emphasizes policies aligning with societal objectives and values.
Archie B. Carroll’s Model: Professor Archie B. Carroll organized social responsibilities into a four-level model, known as the CSR pyramid. This model helps companies simplify and address corporate social responsibility in a structured manner.
Relevance of CSR Pyramid: The CSR pyramid remains relevant as consumers expect companies to be good corporate citizens. It simplifies the complex field of corporate social responsibility and has been linked to higher profits, valuation, and risk reduction.
Four Levels of the CSR Pyramid:
Economic Level: The foundational level, focusing on profit generation, which enables other responsibilities.
Legal Level: Adherence to laws related to business operations, such as employment, tax, and environmental laws.
Ethical Level: Doing what is morally right through fairness and harm avoidance, influencing consumer perception.
Philanthropic Level: Giving back to society, addressing issues like carbon footprint, resource consumption, and inequality.
Limitations of the CSR Pyramid:
No Cultural Component: The framework lacks cultural considerations, leading to incongruences between messaging and actions.
Establishment Cost: Implementing CSR can be costly due to retraining, initiatives, and potential impact on profits.
Misuse: Some companies use CSR opportunistically for short-term image change without creating sustainable positive impacts.
CSR vs. ESG:
CSR: A practical framework for companies to achieve socially responsible goals.
ESG: Environmental, Social, and Governance criteria used to measure whether companies meet these goals; an accounting method for sustainability assessment.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
