Exploring Theories Behind Corporate Social Responsibility Practices

For decades, the dominant assumption in business was straightforward: a company exists to make money for its owners. That was the whole story. But this view started cracking under pressure – from workers demanding fair treatment, communities bearing the costs of pollution, and governments insisting on accountability. Today, that narrow idea has been replaced by a far more nuanced understanding of what a corporation owes to the world around it. At the center of this shift is the theory of Corporate Social Responsibility, or CSR – and the competing frameworks that explain why businesses must think beyond profit.

Where CSR theory begins: the shareholder vs. stakeholder debate
Mapping CSR theories: the four-group framework
Carroll’s pyramid: a landmark framework
Stakeholder theory: the central framework of modern CSR
Primary and secondary stakeholders
Why stakeholder interdependence matters
The ethical dimension: obligation, not just strategy
From theory to practice: the growing acceptance of stakeholder approaches
The limits and ongoing debates

Where CSR theory begins: the shareholder vs. stakeholder debate

To understand CSR theory, you have to start with the tension that produced it. For most of the 20th century, mainstream economic thinking held that a business had one primary obligation – to its shareholders. The Nobel Prize-winning economist Milton Friedman famously argued in 1970 that using corporate resources for social purposes was essentially stealing from shareholders. Social problems, in his view, were for governments to solve, not companies.

This shareholder-first doctrine was powerful and widely accepted. But it left enormous questions unanswered. What about employees exposed to unsafe working conditions? What about communities whose air and water were contaminated by industrial waste? What about governments whose laws a company quietly ignored? CSR emerged as a response to exactly these questions – a growing recognition that businesses are embedded in society and cannot treat social consequences as someone else’s problem.

Howard R. Bowen’s landmark 1953 book Social Responsibilities of the Businessman is widely credited with launching the modern CSR era. Bowen argued that the largest corporations were vital centres of power whose decisions touched the lives of ordinary citizens in countless ways. His central question – what responsibilities to society may businesspeople reasonably be expected to assume? – has driven CSR scholarship ever since.

Mapping CSR theories: the four-group framework

As CSR scholarship grew, it became clear that not all approaches to corporate responsibility were built on the same logic. Elisabet Garriga and Domènec Melé, in their influential 2004 paper in the Journal of Business Ethics, mapped this landscape into four broad categories:

Instrumental theories treat the corporation as an instrument of wealth creation. Social activities are acceptable only insofar as they produce economic results. A company might fund a school in a local community – but primarily because it helps recruit better employees or builds brand loyalty. The social good is real but incidental.

Political theories focus on the power corporations hold within society. Because large businesses exercise enormous influence over economies, communities, and even governments, these theories argue that such power must be used responsibly and in the public interest.

Integrative theories go further, arguing that corporations have an obligation to satisfy broader social demands – not just as a business strategy, but as a condition of their continued legitimacy in society.

Ethical theories are the most demanding. They hold that corporations have genuine moral responsibilities to society – responsibilities that exist regardless of whether fulfilling them is profitable.

These four categories are not entirely separate in practice. Most real-world CSR programmes draw on a mixture of motivations. A company might begin with instrumental reasoning and gradually internalize a more ethical approach. What the framework makes clear, though, is that CSR is not a single idea – it is a contested field with real philosophical stakes.

Carroll’s pyramid: a landmark framework

Among the most enduring attempts to define CSR is the model developed by Professor Archie Carroll of the University of Georgia. Carroll’s 1991 Pyramid of Corporate Social Responsibility organizes a company’s obligations into four tiers, each building on the one below it.

At the base sits economic responsibility – the requirement to be profitable. Without financial viability, none of the other responsibilities can be sustained. Above that is legal responsibility: businesses must obey the laws and regulations of the societies in which they operate. The third tier is ethical responsibility – doing what is right, fair, and just, even when the law does not explicitly require it. At the top sits philanthropic responsibility: voluntary contributions to the community, from charitable donations to employee volunteering programmes.

Carroll’s own four-part definition captures this neatly: CSR encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organizations at a given point in time. Importantly, he argued that these four responsibilities should not be approached in sequence, but fulfilled simultaneously as an integrated whole. After 25 years, Carroll’s original 1991 article remained the most frequently downloaded paper from Elsevier Journals – a measure of how influential the framework has been.

That said, the pyramid has its critics. Some argue it does not adequately account for situations where economic and ethical obligations conflict. Others point out that in many non-Western cultures, the ordering of priorities looks quite different – with philanthropy or community obligation sitting at the foundation rather than at the top.

Stakeholder theory: the central framework of modern CSR

If Carroll’s pyramid describes what CSR looks like, stakeholder theory explains why it matters. And no name is more important to that explanation than R. Edward Freeman.

Freeman’s 1984 book, Strategic Management: A Stakeholder Approach, published from the University of Virginia’s Darden School of Business, marked a paradigm shift in how scholars and practitioners thought about corporate accountability. Freeman’s own description of his ambition was modest: he wanted to write something arguing that companies are better off when they run their businesses for all their stakeholders, not just their shareholders. Four decades later, his ideas have reshaped global business thinking.

Stakeholder theory argues that there are parties beyond shareholders whose interests a company must consider – including employees, customers, suppliers, financiers, communities, governmental bodies, and even competitors. The term “stakeholder” itself first appeared in an internal memo at the Stanford Research Institute in 1963, but it was Freeman’s work that gave it academic legitimacy and strategic relevance.

Freeman’s foundational definition is precise: a stakeholder is any group or individual who can affect, or is affected by, the achievement of an organization’s goals. This is a deliberately wide net. It includes people who benefit from a company’s success but also those who can be harmed by its decisions.

Primary and secondary stakeholders

Stakeholders can be divided into two broad categories. Primary stakeholders are those without whom the organization cannot survive – employees, shareholders, customers, suppliers, and local communities. Their relationship with the company is direct and often contractual. Secondary stakeholders – special interest groups, the media, competitors, and broader civil society – have no direct transactional relationship with the firm but can significantly shape its reputation and operating environment.

This distinction matters for how companies allocate attention and resources. Not all stakeholders have equal claims on corporate decision-making, and identifying who holds most influence in a particular context is a core task of stakeholder management. Stakeholder theory argues that corporations should treat all their constituencies fairly, and that doing so strengthens reputation, customer relations, and market performance.

Why stakeholder interdependence matters

A key insight of stakeholder theory is that stakeholder groups are not isolated from each other – they are deeply interconnected. Scholars anchored in Freeman’s tradition argue that corporations operate in the interests of all their stakeholders, and that the stakeholders themselves are interdependent, to the extent that value created for one group has multiplier or spillover effects on others. When a company invests in employee wellbeing, it also tends to improve customer service outcomes. When it supports local community development, it often strengthens its own supply chains and social licence to operate.

This interconnectedness dissolves one of the most common objections to stakeholder theory – the idea that serving multiple stakeholders necessarily means trade-offs at every turn. Stakeholder theory holds that organizations aim to generate multiple benefits for different stakeholder groups, and that satisfying one group’s needs often complements rather than conflicts with satisfying another’s.

The ethical dimension: obligation, not just strategy

One of the most important aspects of stakeholder theory is its ethical core. Older views of CSR often framed social responsibility as something companies did because it was good for business – a reputational asset, a way to attract talent, a hedge against regulation. Stakeholder theory insists on something stronger: that businesses have a genuine ethical obligation to the people affected by their decisions.

Freeman’s work marked a paradigm shift from the shareholder-centric view of corporate responsibility, arguing that managers bear a fiduciary relationship not just to shareholders but to the full range of stakeholders the company affects. This is not merely about doing good PR – it is about recognizing that a mining company that contaminates a community’s water supply has caused a real harm, regardless of its profit margins.

Freeman and Dmytriyev have further argued that economic and social considerations cannot be cleanly separated – making profits and serving society are not opposing goals but interconnected ones. CSR, on this view, is not a cost centre or a PR exercise. It is embedded in what it means to run a business well.

From theory to practice: the growing acceptance of stakeholder approaches

The shift from theory to practice has been gradual but significant. In 2019, more than 200 CEOs affiliated with the Business Roundtable officially adopted a new Statement on the Purpose of a Corporation, explicitly moving away from shareholder primacy and embracing a commitment to deliver long-term value to all stakeholders – customers, employees, suppliers, communities, and shareholders alike. This was a watershed moment: the most powerful corporate lobby in the United States formally endorsing the logic Freeman had articulated 35 years earlier.

There is a growing call for corporations to redefine their responsibilities and integrate socio-economic and environmental concerns into business processes and strategies in order to transparently impact on societies. This is visible in the rapid expansion of ESG (Environmental, Social and Governance) reporting, in supply chain due diligence laws emerging across Europe, and in the proliferation of sustainability frameworks like the Global Reporting Initiative.

Stakeholder theory is now the most widely used theoretical lens in CSR and sustainability research, functioning as a collection of policies and practices related to stakeholder relations, legal compliance, environmental stewardship, and a company’s commitment to sustainable development. Its evolution reflects a broad consensus that businesses are not islands – they exist within, and are sustained by, the social and natural systems around them.

The limits and ongoing debates

CSR theory is not without its tensions. One persistent challenge is the problem of greenwashing – companies performing CSR symbolically without substantive change. Stakeholder engagement is needed to drive real CSR practices and differentiate genuine efforts from performative ones. Another challenge is prioritization: when the interests of employees, communities, and shareholders genuinely conflict, theory provides a framework but not always a clear answer.

There is also the question of power. Stakeholder theory assumes that all affected parties can meaningfully participate in corporate decision-making. In reality, large corporations often have far more power than the communities or workers whose lives they shape. Inclusive decision-making requires more than rhetorical commitment – it demands structural accountability mechanisms.

Finally, the synergy between CSR and stakeholder theory offers a comprehensive framework for addressing the multifaceted challenges businesses face in the modern era, from climate change to social inequality. But translating that framework into consistent, measurable action remains the central challenge for corporations, regulators, and civil society alike.

What do you think? As CSR moves from voluntary practice toward regulatory expectation in many countries, does stakeholder theory provide an adequate ethical foundation for holding corporations accountable – or does it risk giving businesses too much discretion in deciding whose interests matter most? And in a world where corporations routinely operate across borders and cultures, whose definition of a “stakeholder” should govern?

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Table of Contents

Where CSR theory begins: the shareholder vs. stakeholder debate 🔗

Mapping CSR theories: the four-group framework 🔗

Carroll’s pyramid: a landmark framework 🔗

Stakeholder theory: the central framework of modern CSR 🔗

Primary and secondary stakeholders 🔗

Why stakeholder interdependence matters 🔗

The ethical dimension: obligation, not just strategy 🔗

From theory to practice: the growing acceptance of stakeholder approaches 🔗

The limits and ongoing debates 🔗