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Mediterranean Journal of Social Sciences
MCSER Publishing, Rome-Italy
Vol 6 No 4
July 2015
83
Corporate Social Responsibility:
A Review on Definitions, Core Characteristics and Theoretical Perspectives
Aminu Ahmadu Hamidu (PhD Candidate)
Department of Management, School of Management & Information Tech,
Modibbo Adama University of Technology, PMB 2076 Yola, Adamawa State, Nigeria
Email: aahamidu98@gmail.com
Harashid Md Haron (PhD)
Accounting and Islamic Finance Section, School of Management,
Universiti Sains Malaysia, 11800 Pulau Pinang, Malaysia
Azlan Amran (PhD)
Graduate School of Business, Universiti Sains Malaysia, 11800 Pulau Pinang, Malaysia
Doi:10.5901/mjss.2015.v6n4p83
Abstract
This paper reviewed different definitions of CSR and presented some summarised dimensions attributed to the definitions
which represent the area of focus for the definitions including; Obligation to the society, stakeholders involvement, improving
corporate image and reputation, economic development, ethical business practice, law abiding, voluntariness, human rights,
environmental protection, transparency and accountability. The six core characteristics of CSR follows as the features which
shows how CSR is represented with different initiatives and processes ranging from voluntary activities, managing external
factors, stakeholder management, alignment of social and economic responsibilities, considering practices and values and
finally extending CSR activities beyond philanthropy to instrumentality. The last segment of this paper elucidates on theoretical
perspectives of CSR in six categories; the classical view, the legitimacy, stakeholder, agency, institutional, instrumental and
Islamic CSR theories.
Keywords: Corporate Social Responsibility, CSR definitions, CSR core characteristics, Scope of CSR, Theories in CSR
Introduction
1.
The transformation of CSR from an irrelevant or doubtful idea to an indispensable component in achieving organisational
objectives has been recognised by business managers and all stakeholders. Researchers realise its suitability to serve as
a viable area or field of interest for academic research (McWilliams et al, 2006). The managers are using it as a tool to
strategise, comply with regulations and maintain set standards, build corporate reputation and get more customer loyalty
which all culminates in increasing profitability and overall attainment of organisational objectives. CSR research is centred
on practical analysis and assessment of CSR in relation to the impacts it creates on organisational performance.
Theoretically, it explains the change from altruistic base to strategic or instrumental base for achieving sustainable
development (Lee, 2008). CSR has gained an institutional status for regulators because of its linkage with compliance to
law and ethical practices. CSR has acquired different meanings over time and combined some features or characteristics
making it to represent set of obligations, responsibilities, stakeholder rights, and all forms of philanthropic activities
(Moon, 2002). The area defined by advocates of CSR increasingly covers a wide range of issues such as plant closures,
employee relations, human rights, corporate ethics, community relations, fair market operations and the environment.
Business only contributes fully to society if it fulfils its economic responsibilities to stakeholders and is socially
responsible. The objective of CSR is to build sustainable growth for business in a responsible manner (Moir, 2001).
Objectives of the Research
2.
This paper is purposely produced to fulfil the following objectives;
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i. To compile different authoritative definitions on the term CSR from different periods ranging from 1950s to the
21st century
ii. To specify the different stages of CSR definition in decades with their relevant area of focus and a
summarized dimension
iii. To review the basic six core characteristics of CSR
iv. To highlight on the different theories applicable to CSR studies
Methodology
3.
The methodology of this paper is the constructive review of secondary data sources with a view to compare and produce
useful information on summarized areas of convergence and divergence of the literature sources collected. The authors
will express the result obtained from this process and give an insightful interpretation on how the different literatures
contribute to the existing body of knowledge of CSR. In a nutshell this paper is an overview of similarities and differences
on CSR definitions, core characteristics and theories derived from review of different authoritative literature review
sources.
The Meaning of CSR
4.
The most earliest and prominent definitions ascribed to CSR is the one given by Howard Bowen who (Carroll, 1999) refer
to as the father of Corporate social responsibility “the obligations of businessmen to pursue those policies, to make those
decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society”
(Bowen, 1953). All other definitions in the early 50s recognise the need for managers to assume responsibility for public
good “it has to consider whether the action is likely to promote the public good, to advance the basic beliefs of our
society, to contribute to its stability, strength, and harmony” (Drucker, 1954). Furthermore, the two definitions are united
on the need to align CSR with what mangers consider as current and prevailing features of the socio-political
environment they operate within. (Carroll, 2008) stated that the whole idea of CSR in this early period is corporate
philanthropy but there are only few actions which can be regarded as beyond philanthropy in this period.
Frederick (2006) summarizes what CSR stands for in the 50s under three basic issues;
1. Corporate managers are appointed as public trustees
2. There is need to balance competing stakeholders claims with corporate resources; and
3. The acceptance of philanthropy as a humane philosophy and discretionary principle of the organisation.
Moving onwards from then CSR has transformed from philanthropy to regulated practices and instrumentality or
strategic CSR. In the new millennium corporations are increasingly receiving more pressures on compliance with
regulations on environmental protection, transparency, and the market is saturated with competitors thereby necessitating
the introduction of CSR as a strategy to survive and be more efficient (Glan, 2006). Researchers in this period are
focusing on the impact of CSR on financial performance (Brammer & Millington, 2008; Ruf et al, 2001; Surroca et al,
2009). The focus of CSR conceptual review and empirical studies has shifted from an ethics orientation to a performance
orientation and the level of analysis has moved away from a macro-social level to an organizational level in this era. The
essence of engaging in CSR in the new millennium is tagged as “doing good to do well” (Rosamaria & Robert, 2011).
Institutional pressure for CSR improvement has increased necessitating introduction of CSR initiatives that focus
beyond shareholders wealth maximisation (Waddock, 2008). Business corporations are expected to engage in the
following;
1. Sustainable development practices
2. Transparency and accountability
3. Maintain good stakeholder relationship management
4. Advocacy on different aspects of human rights, justice and democratic principles
5. Compliance with accepted international standards on CSR
6. Ethical business practice
A recap of some few definitions of CSR shows that corporations are expected to contribute towards societal
development, improve on corporate reputation and be a corporate citizenry. The social responsibility of business consists
of economic, legal ethical and discretionary initiatives aimed at fulfilling stakeholder expectations (Carroll, 1979). The
major focal point of different scholars on CSR is divergent and heterogeneous with each. For example, (Brown & Dacin,
1997) define CSR as “A corporate status and activities with respect to its perceived societal or, at least, stakeholder
obligations.” Matten & Moon (2004) provides the following “CSR is a cluster concept which overlaps with such concepts
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as business ethics, corporate philanthropy, corporate citizenship, sustainability, and environmental responsibility. It is a
dynamic and contestable concept that is embedded in each social, political, economic and institutional context.”
Lei (2011) in his analysis on evolution of CSR definitions maintained that the area of focus to all analysed
definitions are; sustainability and social obligations like economic, legal, ethical and discretionary responsibilities.
(Dahlsrud, 2008) analyzed 37 definitions used by researchers on CSR and concluded that they are based on five
dimensions; environmental; social, economic, stakeholder and charity dimension. Finally, (Shafiq, 2011) gave a ten
dimensional points on CSR definitions, which gives a full summary of all issues mentioned in various definitions of CSR,
they are; Obligation to the society, stakeholders involvement, improving the quality of life, economic development, ethical
business practice, law abiding, voluntariness, human rights, environmental protection, transparency and accountability.
The table below summarises the scope or dimensions of each definition from different periods.
Table 1 - Dimensions of CSR Definitions
Core Characteristics of CSR
5.
The core characteristics of CSR are the essential features of the concept that tend to be visible in CSR practice. Few, if
any, existing definitions will include all of them, but these are the main points of focus around which the practice of CSR
manifest itself. Six core characteristics are summarised below:
5.1 Voluntary
Scholars define CSR to be a representative of all set of corporate initiatives which are discretionary and extend beyond
what the law has prescribed. The views of government and other stakeholders in all developing countries emphasise this
characteristic (Crane et al, 2008). Many companies are by now familiar and more willing to consider responsibilities
beyond the legal minimum, and in fact the development of self-regulatory CSR initiatives from corporate bodies is often
seen as a way of reducing or avoiding additional regulation through compliance with societal moral norms. Critics of CSR,
therefore, tend to see the element of voluntarism as CSR’s major demerit, arguing that legally mandated accountability is
where attention should really be focused and maximisation of shareholders wealth should be the main organisational
objective.
Period & Focus Area Summary of Dimensions
1950’s – 1960’s
• Religious & Humane philosophies
• Community development
• Unregulated philanthropy Philanthropy
• Poverty alleviation
• Obligation to the society
1970’s – 1980’s
• Extension of CSR commitments
• CSR as symbol of Corporate citizenship
• Stakeholder relationship management
• Corporate reputation
• Socio-economic priorities Regulated CSR
• Bridging governance gap
• Stakeholders rights
• Legal & Ethical responsibilities
1990’s – 21
st
Century
• Competitive strategy
• Environmental protection
• Sustainability Instrumental/Strategic CSR
• Internationalisation of CSR standards
• Transparency & accountability
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5.2 Internalizing or managing externalities
Externalities in CSR refers to all sort of factors that has impact on different stakeholders rights are not directly taken care
of in the decision making process of a business organisation. Environmental degradation is typically regarded as an
externality since the general public feel the impact of the production process. Regulation can force firms to internalise the
cost of the externalities, such as pollution fines, but CSR remain as a viable discretionary approach of managing
externalities like taking more safety measures and reduction of pollution by going green. Much CSR activity deals with
externalities involving workers rights, minimisation of rationalisation impact, good stakeholder relationship management to
reduce unsatisfied legitimate claims pile up and discarding production process and products that are not demanded,
harmful or classified as dangerous products (Husted & Allen, 2006). For example, Unilever as an MNC joined with Oxfam
to conduct a study on the impacts of business on living conditions of the Indonesian people. The main objective of the
study is to address the major externalities facing MNCs operating in Asian countries (Clay, 2005). The unexpected
occurrence of catastrophic events or natural disaster prompt managers towards introduction of CSR initiatives which are
humane and for assistance like the corporate response to the Asian tsunami disaster (Fernado, 2007), the crises can also
be a social and economic type (Okpara & Wynn, 2012; Newell, 2005) reduction of prevalent cases of HIV/AIDS in some
African countries (Dunfee, 2006) or industrial accident causing a disaster like the Bhopal 1984 disaster in India
(Shrivastava, 1995)
5.3 Multiple stakeholder orientation
The central theme of stakeholder management is to identify stakeholders orientations based on the three attributes which
defines their power, legitimacy of claim and urgency. Subsequently, defining stakeholder orientations helps in
identification and prioritisation of stakeholders through the adoption of a step by step approach starting with internal
preparations, appointing the internal leadership team of internal stakeholders for marketing, communication, operational
unit, human resources, investor relations and environmental/government affairs etc, limiting expectations to a realistic
level, training on communication skills, stakeholder research, collective bargaining and good industrial relations, adequate
knowledge on crisis and risk management, public relations, adopting a suitable technique of managing multiple
stakeholder orientations, accommodations for possible unavoidable mistakes and finally comparing stakeholder
expectations with organisational performance (Ahmad et al, 2014). CSR involves considering a range of interests and
impacts among a variety of different stakeholders other than just shareholders. The assumption that firms have
responsibilities to shareholders is usually not contested, but the point is that because corporations rely on various other
stakeholders such as consumers, employers, suppliers, and local communities in order to survive and prosper, they do
not only have responsibilities to shareholders. Whilst many disagree on how much emphasis should be given to
shareholders in the CSR debate, and on the extent to which other stakeholders should be taken into account, it is the
expanding of corporate responsibility to these other groups which characterises much of the essential character of CSR.
5.4 Alignment of social and economic responsibilities
This balancing of different stakeholder interests leads to another core feature. Whilst CSR may be about going beyond a
narrow focus on shareholders and profitability, many also believe that it should not, however, conflict with profitability.
Although this is much debated, many definitions of CSR from business and government stress that it is about enlightened
self-interest where social and economic responsibilities are aligned. This feature has prompted much attention to the
‘business case for CSR’ – namely, how firms can benefit economically from being socially responsible. (Edmondson and
Carroll, 1999) conducted a research on Managers of African American businesses and came to the conclusion that
economic and ethical responsibilities comes first before legal responsibility and philanthropic comes last in terms of
priority. But it was observed in this study that philanthropy obtained a high weight level of score than in previous studies.
This study also brings into lime light the application of racial consideration in CSR studies. Consumers in China attach
importance to CSR orientations and revealed that they are more concerned with economic responsibility than ethical and
legal but philanthropy is highly valued (Ramasamy & Yeung, 2009).
5.5 Practices and values
CSR is clearly about a particular set of business practices and strategies that deal with social issues, but for many people
it is also about something more than that – namely a philosophy or set of values that underpins these practices. This
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perspective is evident in CSR initiatives of communitarian or collectivistic societies valuing traditions and cultural
practices of their local communities (Lei, 2011). The values dimension of CSR is part of the reason why the subject raises
so much disagreement– if it were just about what companies did in the social arena, it would not cause so much
controversy as the debate about why they do it. Duarte (2010) explored the perception of managers with respect to the
influence of personal values towards their work. The study examined the relationship between personal values and CSR
initiatives of managers. The study concluded that to a greater extent CSR practices are influenced or affected by the
personal values of managers, because they formulate the CSR policies of the business organisation and their personal
attitude is part of their individualistic characteristics which affects the way they behave.
5.6 Beyond philanthropy
In some regions of the world, CSR is mainly about philanthropy – i.e. corporate discretionary responsibility or voluntarism
towards the general public. CSR is currently a mandatory practice backed by regulations and accepted international
standard which is shifting from altruistic to instrumentality or strategic CSR. It is no longer altruistic in nature only but
more than just philanthropy and community development projects, because of the impacts it has on profitability, human
resource management, marketing, and logistic support which are all part of the core functions of business organisations.
CSR extends beyond philanthropy because of its viability to be instrumental or strategic in satisfying stakeholder
expectations and its potential capability to achievement of organisational objectives. This debate rests on the assumption
that CSR needs to be regulated and institutionalised into normal business practice rather than being left simply to
discretionary activity. The attempt to consider how CSR might be integrated to the core business functions of firms is in
contrast to the notion of it serving simply as an ordinary added value to the business organisation (Grayson & Hodges,
2004).
Figure 1 – Core Characteristics of CSR
5.7 Theoretical perspectives of CSR
There has been a great increase in the amount spent on CSR by corporations during the last three decades and the
attention it receives from the academia is also overwhelming (Gray et al, 1995). Nevertheless, as time goes on the
increase start to bring in changes in composition and complexity to the practice of CSR (Deegan and Gordon, 1996). All
theories in CSR are serving as point of reference for every set of CSR practice, but since there is no single accepted
theory, perspective and definition to CSR, it means there should be a lot of variation in what constitute the theoretical and
practical aspect of CSR (Choi, 1999). The theories underpinning CSR studies express how CSR is observed or
interpreted by different stakeholders from different perspectives. For example, classical theory deals with profit
maximisation from a shareholders perspective or priority (Friedman, 1962). Agency theory emphasizes on getting the
legal recognition to act on behalf of the principal from managers (agents) perspective (Salazar & Husted, 2008).
Legitimacy theory also deals with giving the organisation sense of belonging and the right to exist and operate within the
society in accordance to the law (Suchman, 1995). Stakeholder’s theory emphasises on getting stakeholders rights as the
foundation of CSR practice which recognises that different stakeholder’s rights if duly fulfilled leads to full realisation of
organisational objectives (Donaldson & Preston, 1995). Instrumental/Strategic theory deals with using CSR commitments
as a strategy to achieve competitiveness and customer relationship management (Garriga & Mele, 2004). All these
theories express how an organisation can handle CSR practice considering different stakeholders it relates with.
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5.8 Classical View Theory
This theory is considered as a traditional perception of trying to avoid performing CSR activities so as to maximise profit
for the owners of business (shareholders). Friedman (1970) propounded this theory and supported this classical view on
CSR by his statement “The responsibility of business is to maximise profits, to earn a good return on capital invested and
to be a good corporate citizenship obeying the law no more and no less. To go further in a deliberate fashion is to exceed
the mandate of business. It is to make what amounts to an ideological stand with someone else’s money and possibly to
engage in activities with which many stakeholders would not agree.”
This expressed an extreme thought in the capitalist’s economic system where business organisation are only
concerned with maximisation of profit for shareholders by conducting their activities within the limits set by the law (Falck
and Heblich, 2007). Under this theory managers are expected to focus only on profit maximisation because they are the
agents of the shareholders and should strive towards maximisation of shareholders wealth through profit motive
(Herremans et al, 1993). A proponent to this theory (Levitt, 1983) stated that the primary objective of business
organisations is to maximize profits through aggressive competitive strategies in whatever way that the law accepts to
ensure survival of the business, while social welfare should be left for the government to handle. Similarly, one of the
main reasons why businesses try to avoid commitment to CSR initiatives is due to the small nature of direct economic
benefit derived from it at the expense of a colossal amount of resource commitment to CSR activities (Waddock &
Graves, 1997). In the process of CSR implementation additional cost of introducing and maintaining a new environmental
protection policy will be incurred and the business organisation will be in a competitive disadvantaged position, therefore
since commitment to philanthropic responsibility denotes additional costs and competitive disadvantage, the financial
performance of the company will also be negatively affected. This situation is also explained by (Aupperle et al, 1985)
where they came to the conclusion that there is a negative relationship between CSR commitment and financial
performance in the short run because of additional expenditure resulting to loss. According to (Burke & Logsdon, 1996)
economic benefit should be the target or focus of all CSR policies because CSR initiatives should serve as an avenue of
getting profit maximisation to shareholders, where profits are unattainable CSR activities should be stopped. Blowfield &
Frynas (2005) cautioned on excessive commitment to philanthropic responsibility which signifies diverting shareholders
wealth to non economic activities hence leaving the main objective of business unachieved.
Friedman’s classical view on CSR has generated a lot of interest by scholars leading to conducting empirical
studies to validate the argument been proposed. The scholars are trying to bring a form of conformity between profit
maximisation (economic objective) and CSR activities (non economic objectives) by stating that CSR leads to increase in
financial performance at the long run (Garriga and Mele, 2004; Carroll & Shabana, 2010). Similarly in this regard,
(Margolis & Walsh, 2003) examined 127 published empirical studies which focused on the relationship between CSR
commitment and corporate financial performance and concluded that majority of the studies showed a positive
relationship.
5.9 Legitimacy Theory
Suchman (1995) stated the definition of legitimacy as “a generalised perception or assumption that the actions of an
entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and
definitions.” Dowling & Pfeffer (1975) defined legitimacy as “a condition or status which exists when an entity’s value
system is congruent with the value system of the larger social system of which the entity is a part. When a disparity,
actual or potential exists between the two value systems, there is a threat to the entity’s legitimacy.” A business
organisation throughout its survival needs to fulfil what the society expect from it, by doing so the business organisation is
considered as an entity that deserve to be in the same environment with the society it serves, this notion gives the
essence of been part of the society and have a legitimate right of survival. Legitimacy theory expresses how a business
reacts to the pressures and expectation of its stakeholders to survive. Aguilera et al (2007) considered legitimacy to be
the relationship between the activities of an organisation and the perception of its stakeholders on the activities it
undertakes.
Legitimacy deals with two major concepts, the perception of the general public and the efficiency of the
communication channels used by the corporation. Legitimacy theory require organisation to continuously check whether
their survival is serving the public as they expect regarding the values they uphold and cherish (Mobus, 2005). Legitimacy
theory is build upon the idea that business organisations operates in a community through an implied or perceived
agreement to perform some socially responsible acts in order to survive within the community and achieve its objectives.
It is the community that determines how useful and worthy an organisation is to them based on the congruency between
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what they expect and what they get from the business organisation (Haron et-al 2007). Communication is very essential
in legitimacy theory because the business organisation need to provide only what is needed and what is congruent to the
norms, values and expectations of the community, so that the organisation can be an entity that is legitimately considered
by the community as a unit that serves them (Deegan 2000). Under legitimacy theory communicating CSR initiatives is a
source of initiating and protecting organisational legitimacy.
Pattern (1992) observed that there is a positive relationship between disclosure of CSR initiatives and
organisational legitimacy. (Deegan and Rankin 1997; Brown and Deegan 1998) all concur to this finding. Previously,
financial performance is regarded as a yardstick for determining organisational legitimacy, but now it is the way that the
organisation serves the community that determines it legitimacy to survive. Campbell (2000) pointed out that disclosure of
CSR initiatives bridges the legitimacy gap between how an organisation is perceived and how it wants to be perceived.
Moir (2001) argued that legitimacy theory is a form of social contract that impliedly exists between stakeholders and the
business organisation, its fulfilment determines the survival of the organisation. (Pallazo & Scherer, 2006; Dijken, 2007)
expressed that seeking for organisational legitimacy is now a critical area of concern to Multinational corporations
because the perception of NGO’s and host communities forces the MNC’s to change their attitudes on human rights
issues, child labour, forced labour, exposing workers to unsafe working conditions etc.
5.10 Agency Theory
This refers to a situation in the process of conducting business where the owner of the business organisation (principal)
utilizes the expertise of an agent (appointed manager) to perform some tasks on his behalf (Heath & Norman, 2004). This
express the relationship between the agents (managers) and the principals (Shareholders/Investors), the managers are
acting as agents to the shareholders, they are the ones responsible for decision making and implementing it in running
the affairs of a business organisation, and they also are having access to information that even the owners cannot get
(Fama & Jensen, 1983). One of the major issues or fundamental problem that this form of legal relationship presents to
the principal is the need to have a constant scrutiny on each step taken by their agent, therefore the principal also needs
financial information update at regular basis to help in monitoring the gains achieved from delegating responsibility to the
agent (Hendriksen & Breda, 1992). It is naturally assumed that agents know more of a corporation than the principal. Due
to this perception some agents can at times exercise their discretion to maximise their utility at the expense of the
principal as noted in (Salazar & Husted, 2008). To ensure compliance with the principal’s directive there must be a
provision for agency cost, bonding costs and monitoring to motivate the agent in delegating on behalf of the principal.
Since delegation of responsibility and contractual obligation are vested on the shoulders of the agent, all his actions are
considered acts of the principal and if within the legal framework been conducted it is deemed acceptable.
The agency theory literatures are all focusing on how to maintain the relationship between the agent and the
principal so that owners and managers can all get what they expect due to the benefits of proper delegation of authority
to agents.
5.11 Stakeholders Theory
This theory focuses on the relationship between the business organisation and any single individual or group of people or
functional bodies that are involved in the process of achieving organisational objectives. Stakeholders can be defined as
any group or individual that can affect or be affected by the process of achieving business objectives (Freeman, 1984). A
stakeholder as defined by (Clarkson, 1995) is any person or group of people that are having an ownership right or any
form of interest or claim on an organisation. Starik (1995) include humans and non-human entities in his definition of
stakeholders. He regarded the natural environment as the non-human stakeholder because of the implications and
relevance it has on CSR policies. Jones (1999) classified stakeholders into two groups; primary and secondary groups.
The primary group consist of those who influence the survival of the organisation in a direct manner, their continuous
participation keep the organisation surviving. The organisation depends solely and directly on the participation of its
primary stakeholders. The organisation can only survive if its managers utilise their skills in creating valuable products to
satisfy its shareholders, customers, suppliers, investors, employees, and government. Secondary stakeholders are the
group that does not have a direct impact on achievement of organisational objectives, their role is less in importance,
impact and the survival of the organisation does not depend on their participation.
The stakeholder’s theory is the extension of objectives beyond profit maximisation to include the rights and claims
of non-shareholders (Mitchell et al, 1997). The theory is mainly classified into three classes; descriptive, instrumental, and
normative. The descriptive explain how to manage or communicate with stakeholders, the normative deals with how to
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treat stakeholders, and instrumental deals with the relationship between stakeholders and corporate performance
(Donaldson & Preston, 1995). Since a business organisation is having different types of stakeholders it would be very
difficult to have all their different demands attended to at the same time as expressed in (Mele, 2008). Despite the
criticism which the stakeholders theory receives like serving as an excuse for managerial opportunism, destruction of
business accountability in an attempt to satisfy all stakeholders which is impossible as noticed in (Jensen, 2000;
Sterberg, 2000), the theory is supported by empirical studies which indicates that a lot of organisations engage in CSR to
serve stakeholders demands (Maignan & Ferrell, 2000). The stakeholder’s theory according to (Pirsch et al, 2007)
broadened the objectives of business organisations apart from profit maximisation to include satisfying stakeholder’s
needs as objectives of business organisations. Blair (1995) and Clarkson (1995) explained that stakeholder’s theory
specifies how to implement CSR not leaving it as an abstract terminology. Under this theory managers are expected to
specify their stakeholders and target each group with a certain policy to ensure its responsibilities are settled. This
approach in implementing CSR initiatives in the long run leads to success in achieving organisational goals. Corporate
performance is measured by the way an organisation satisfies its stakeholders because there is a positive relationship
between stakeholder’s satisfaction and corporate performance (Ruff et al, 2001; Waddock and Graves, 1997).
5.12 Institutional Theory
(Scott & Christensen, 1995) identified institutional theory as an external factor that influences the way an organisation act.
Institutional theory is having a link with the way an organisation perform its CSR practice because one of the drivers to
CSR performance is the pressure exerted by stakeholders and competitors, the organisation need to meet multiple
demand expected from it and act according to accepted norms in the industry, because organisational legitimacy and
survival could be at stake if an organisation fail to conform with acceptable institutional norms (Dimaggio & Powell, 1983).
Similarly, conformity with accepted institutional norms is positively related with accessibility to resources and achieving
organisational legitimacy (Oliver, 1991). Normally, an organisation accepts and interprets features or practices that are
institutionalised or regarded as acceptable acts to be a social unit that operates within an industry (Scott, 2008).
Therefore, institutional theory deals with how organisational decisions are formed, negotiated and transformed into reality
by observing what the industry or competitive environment upholds. The activities of a corporate body is shaped by the
dominant organisation within the field it operates (Brammer et-al, 2012).
The process of trying to conform to institutional norms and practices makes an organisation to imitate what others
are doing so as to be socially acceptable; this is known as isomorphism which can be either institutional or competitive.
There are three motivating factors which leads to isomorphism they are; coercive mechanism, normative mechanism and
mimetic. The last one which is mimetic mechanism is as a result of the voluntary urge to imitate other competitors
expecting they have an acceptable standard (Amran & Siti-Nabiha, 2009). Normative mechanism is when imitation is
regarded as a necessity to conform to certain requirements for being within the institutional framework like guidelines
from professional bodies and academic centres. Coercive mechanism relates to imitation by force, or persuasion, or
invitation to sign an agreement. This happens when an organisation relies on another organisation and cannot stand
independently on its own. The main aim of institutional theory is the institutionalisation of behaviour. According to this
theory, institutions can influence organisational behaviour amidst its counterparts within the same industry. Institutions
can establish acceptable and recognised standards, norms, specifications or mode of operation used within industries
(Kang & Moon, 2012).
5.13 Instrumental Theory
Instrumental theory looks at CSR from the perspective of a strategist aiming to take CSR practice as an indispensable
opportunity to exploit and get benefits for the business organisation. This theory emphasises on linking CSR practices
with profit maximisation to benefit different stakeholders. Burke and Logsdon (1996) noted that economic benefits derived
from implementation of CSR policies show how an organisation is effective in using the instrumental/strategic theories of
CSR. When an organisation utilises CSR commitments to support its core business activities and accomplish its missions
effectively accompanied by getting a substantial high yields then CSR assumes a strategic position in the decision
making process of that organisation.
Classical view theory and instrumental/strategic theory are similar when it comes to supporting wealth
maximisation as a sole responsibility to shareholders. The only difference between the two theories is that classical is an
extreme position on profit motive at the expense of satisfying the community, while instrumental theory tries to adopt or
execute CSR commitments once it can be a strategic point for increase in reputation and wealth maximisation (Garriga &
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Mele, 2004). A lot of studies support the instrumental CSR theory because there is a positive relationship between CSR
practice and financial performance (Ruff et-al 2001; Goll & Rasheed 2004; Mittal et-al, 2008; Dowell et-al, 2000;
Herremans et-al, 1993; Luo & Bhattcharya, 2006). Therefore, instrumental theory supports engaging in CSR practices if it
leads to profitability and good image creation or reputation. Johnson (2003) noted that a positive relationship between
CSR and financial performance is achievable by having competitive advantage, strategising in target areas and
maximising the shareholders value. Strategising through CSR practices as a tool for enhancing corporate image is also
found to be positively related with customer’s loyalty (Lafferty et-al, 1999; Rahizah et-al, 2011).
5.14 Islamic CSR - The Theory of Public good (Maslaha)
Scholars agree that religion influences people’s habits, values, and attitudes and their entire lifestyle which translates into
influencing how people conduct business transactions and how they behave in an organised set up (Jamali & Sidani,
2013; Chapra 2000). They all agree that religion as a means of identifying behaviour should be interpreted in ways that
are compatible and understandable to provide a framework for socio economic and institutional benefits (Dusuki &
Abdullah, 2007).
The Shariah as a comprehensive framework consist of three elements to enable the realisation of the objectives of
Shariah. The first is Aqidah which represents the belief of a Muslim in the Islamic faith. Second is the Akhlaq which is the
code of conduct on morality and ethical practices. Lastly we have the main body of understanding the practical aspects of
the shariah know as fiqh. The first two always remain unchanged but the third is subject to changes in giving solutions to
contemporary situations through analogical deduction or reasoning (Siwar & Hossain, 2009).
The concept of Maslaha ‘the public good’ is simply an introduction of something new for the interest of the public,
or promoting the welfare of the public and preventing evil or all forms of bad practices. In applying the doctrine of the
Maslaha three conditions must be met. It must only be on transactions (muámalat) not on any form of (ibadat) because
rulings on ibadat (forms of worship) are fixed or unchangeable (tauqifiyya). It should be in line with the principle of (Daf al
mafasid) preventing evil first before considering benefits. Priority should be placed first on (Dharuriyat) the essentials (i.e
the safeguarding of faith, life, intellect, posterity, and wealth) before (Hajiyat) the supplements and lastly (tahsiniyat) the
embellishments (i.e voluntary charity, good manners and good relationship with others). The categorisation of the Public
good (Maslaha pyramid) is diagrammatically presented in a pyramid form showing priority shift from first the essentials to
supplements and finally lowest priority given to embellishments. The Maslaha pyramid serves as a guide and basis for
prioritisation and development of CSR policies for business organisations. The tree levels of the maslaha pyramid are all
interrelated to one another and mutually dependent, they depict the priority attached to the three levels in the process of
implementing Islamic CSR. The maslaha pyramid is shown below;
Source: (Dusuki & Abdullah, 2007)
The table below gives the summary of basic theories in CSR with the sources, variables in consideration and summary of
findings from literatures using the theories
Theory Literatures & Variables Summary of Findings
Classical view Friedman (1962, 1970) Falck & Heblich (2007) Dowell et-al
(2000) Waddock & Graves (1997) Aupperle et-al (1985)
Burke & Logsdon (1996) Blowfield & Frynas (2005) Moir
(2001) Levitt (1983)
Wealth maximisation, business and shareholders,
Government and Society, Relationship between business
and society, objectives of business and government control,
responsibilities of government and business organisations
The responsibility of business is shareholders wealth maximisation
Profit maximisation is a main objective. Social welfare is to be fulfilled
by government without resorting to partnership with private enterprises
Primary objective of business organisations is to maximise profits
through aggressive competitive strategies as long as it is acceptable
legally and leave all social welfare to government
Profit maximisation within the confines of the law as long as the law
accepts, the organisation should seek for profit maximisation only
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Theory Literatures & Variables Summary of Findings
A
gency Heath & Norman (2004) Hendriksen & Breda (1992) Fama &
Jensen (1983) Salazar & Husted (2008) Lee (2008)
Agents (managers), principals (shareholders), the
relationship between the two parties and its effects on CSR
implementation, delegation of power to perform tasks,
contractual agreement and its effects on CSR
implementation
This express the relationship between the agents (managers) and the
principals (Shareholders/Investors),the managers are acting as agents
to the shareholders
Managers are agents of the shareholders assuming responsibilities on
their behalf. This goes with legal obligations
Managers have access to information which shareholders don’t have,
because they are responsible for decision making on behalf of the
shareholders
There is a contractual agreement between the agent and the principal
whereby delegation of power to make some decisions is given to the
agent
Institutional
Stakeholder
Legitimacy
Amran & Siti Nabiha (2009) Scott & Christensen (1995)
Scott (2008) Dimaggio & Powell (1983) Oliver (1991)
Brammer et-al (2012) Kang & Moon (2012)
Factors influencing organisational act, Pressure from
Stakeholders, relationship between institutional norms and
organisational legitimacy isomorphism, coercive mechanism,
normative mechanism, mimetic mechanism, institutional and
competitive isomorphism
Maignan and Ferrell (2000) Clarkson (1995) Donaldson and
Preston (1995) Mele (2008) Mitchell et-al (1997) Freeman
(1984) Pirch et-al (2007) Ruff et-al (2001)
Stakeholders rights, CSR policies from a Stakeholders
perspective, responsibilities to stakeholders, measuring
corporate performance by stakeholders satisfaction
Deegan (2000) Suchman (1995) Aguilera et-al (2007) Mobus
(2005) Haron et-al (2007) Dowling & Pfeffer (1975) Deegan
& Ranking (1997) Pattern (1992) Brown & Dacin (1999)
Dijken (2007) Pallazo & Scherer (2006) Campbell (2000)
Environmental protection, Corporate citizenry, relationship
between CSR activities and stakeholders perception,
expectation of society and CSR initiatives, communication
effectiveness in achieving legitimacy, relationship between
CSR disclosure and organisational legitimacy, legitimacy
gap, organisational legitimacy and CSR practices, MNC’s in
host communities, congruency in value system of
organisation and the society
Institutional theory is having links with organisational legitimacy
Conformity with institutional norms is positively related with accessibility
to resources and achieving organisational legitimacy
Survival and legitimacy of an organisation depends on how it embraces
institutional norms
In trying to achieve conformity between organisation and its competitive
environment, activities of a corporate body must reflect the dominance
of institutional characteristics
A business organisation is a social institution responsible to both
internal and external bodies
CSR practices are based on the stakeholders value oriented system
The foundation of every CSR policy should target stakeholders rights
and their perspective of CSR practice
Corporate performance is measured by the way an organisation
satisfies its stakeholders
Stakeholders theory broadens the objectives of business from profit
maximisation to satisfaction of stakeholders needs as objective of
business organisation
CSR is a response to the environmental pressures involving social,
political and economic forces to achieve legitimacy
Organisations engage in CSR to gain legitimacy or moral standing from
stakeholders who exert pressure on implementation of CSR
commitments
Serving the public as they expect considering the values they cherish
and uphold
It is the community that determines the CSR initiatives they get from the
organisation. The higher the rate of conformity between their
expectations and what they get in CSR initiatives the higher the
legitimacy accorded to the organisation
There is a positive relationship between CSR disclosure and
organisational legitimacy
Engaging in CSR increases organisational legitimacy
Financial performance ceases to fully realise organisational legitimacy if
compared to serving the community as a determinant for its legitimacy
Legitimacy gap exist if CSR initiatives does not tally with the
expectations of the community
Instrumental
Garriga and Melé (2004) Herremans et-al (1993) Johnson
(2003) Luo & Bhatcharrya (2006) Lafferty et-al (1999)
Rahizah et-al (2011)
Strategy, competitiveness, corporate image, customer
relationship management, CSR policies, relationship
between CSR and financial performance with strategy as a
mediating factor
Social responsibility is part of the business strategy for reasons of good
image, public relations ploy, and firm’s competitive advantage
CSR is a vital tool for strategising through restoration of goodwill and
achieving a competitive advantage
Enhancing corporate image through CSR practice is positively related
with customers loyalty
Islamic
Dusuki & Abdullah (2007) Jamali & Sidani (2013) Siwar &
Hossain (2009) Chapra (2000)
Allah, Vicegerency, Human beings, Natural environment,
Justice and equilibrium, Rights and responsibilities,
responsible acts, mandatory and recommended CSR,
relationship between Objectives of the Shariah and public
good
CSR is part of a collective religious obligation inspired by the taqwa
dimension (God consciousness)
Relationship between the Creator and creatures, the relationship
between man and his fellow brothers, the relationship between man and
the natural environment
Spiritual guidance on conducts, CSR also inclusive, how man relates
with God in fulfilling CSR obligations through an Islamic framework
Conclusion
6.
From the literature reviewed the term CSR does not have a single agreed upon definition which is encompassing without
need to changes in conformity with new realities. The lack of homogeneity in definitions could be attributed to the ever-
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changing roles of CSR in business management practice. The definitions in the 50s and 60s are all showing the need for
philanthropic activities to contribute towards societal welfare and development. The area of focus for scholars in defining
CSR at this period is interpreted as voluntarism and contributing towards social welfare. The next stage is the period of
growing concern and awareness on workers’ rights, stakeholder satisfaction and relationship management, regulated
CSR practice and consumer protection. The final stage is the instrumentality and sustainability period which shows the
adoption of CSR as a strategic tool in achieving organisational objectives. CSR is highly institutionalised and
standardised by different international indexes of responsible investing and sustainability currently. The core
characteristics of CSR are the same area of focus emphasised by different scholars in defining what CSR stands for. In a
nutshell it is the features which depict CSR performed by business organisations starting with voluntary activities,
managing external factors, stakeholder management, alignment of social and economic responsibilities, considering
practices and values and finally extending CSR activities beyond philanthropy. The theoretical part of CSR deals with the
rationale of applying some theories in studying the impacts of CSR on corporate performance and reputation, the
classical theory constitute the view of shareholders who are better off if the business minimise spending on CSR but they
can sacrifice for more gain in the long run. The remaining theories all emphasise taking CSR as integral part of strategy
for achievement of organisational objectives.
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