INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE

INFLUENCE OF CORPORATE SOCIAL
RESPONSIBILITY DISCLOSURE ON CORPORATE
GOVERNANCE AND COMPANY PERFORMANCE

BY
DINH THI BICH NGOC
E0600095

Graduation Project Submitted to the Department of Business Studies, HELP
University College, in Partial Fulfilment of the Requirements for the Degree of
Bachelor of Business (Accounting) Hons

April, 2011


Declaration of Originality and Word count

DECLARATION
I here by declare that this graduation project is based on my original work except for
quotations and citation that have been duly acknowledged. I also declare that it has
not been previously or concurrently submitted for any other courses/degrees at HELP
University College or other institutions. The word Count is 10,027 words.

Dinh Thi Bich Ngoc
April, 2011

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Acknowledgements

This project would not have been made possible without the assistance, support and
encouragement of many people. I wish to take this opportunity to thank all the people
who have helped me during the time of completing the dissertation.

Firstly, I would like to express my deep gratitude to my supervisor at the Vietnam
Commercial University (VCU). He has kindly helped me and supported me all the
way through. For that, I am very grateful. I also would like to express my thanks to
Ms. Sumathi and Ms. Shenba at Help University College, who initiated the project
and give so much instruction and support.

Secondly, I am thankful to my family and my friends, for their support and
encouragement

In addition, a huge thank for all managers, accountants, personnel who sacrificed
theirs time to answers my questionnaire.

DINH THI BICH NGOC

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ABSTRACT
INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE
ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE
BY
DINH THI BICH NGOC
APRIL, 2011
Supervisor: PHAM DUC HIEU
Corporate Social Responsibility (CSR) has become an inescapable priority for
business leaders all over the world. Governments, activists and the media demand

companies to take into account the social consequences of their actions. There is a
large and growing community of international, regional and national organizations
working on sustainable development issues, both in the public and private sectors.

Enterprises are trying on their strategic, tactical and operational levels to identify the
appropriate ways in order to meet society’s demands, at the same time achieve
company performance objectives.

This research first sets a definition of CSR from a different point of views and then
this study focuses on the influence of CSR disclosure on corporate governance and
company performance.

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Table of Contents

Declaration of Originality and Word count ............................................................ II
Acknowledgements .................................................................................................... III
ABSTRACT ............................................................................................................... IV
Table of Figures ....................................................................................................... VII
List of Abbreviations ............................................................................................. VIII
Chapter 1 :

INTRODUCTION ............................................................................... 1

1.1

Research background .............................................................................................1

1.2

Research question ...................................................................................................2

1.2.1

CSR in developed countries .................................................................................2

1.2.2

CSR in Asia ..........................................................................................................3

1.2.3

CSR in Vietnam ...................................................................................................4

1.2.4

Research statement ...............................................................................................6

1.3

Research structure..................................................................................................6

Chapter 2 :
2.1

LITERATURE REVIEW................................................................... 7

Definition of CSR ....................................................................................................7

2.1.1

The Classical View ..............................................................................................7

2.1.2

The Modern View ................................................................................................8

2.2

Tools, standards and reporting for CSR ..............................................................9

2.2.1

Standards and tools ..............................................................................................9

2.2.1

Source of reporting .............................................................................................11

2.3

Related Theory......................................................................................................12

2.3.1

Carroll’s theory ..................................................................................................12

2.3.2

Stakeholder theory .............................................................................................15

2.3.3

Agency theory ....................................................................................................17

2.4

Corporate governance and corporate performance ..........................................19

2.4.1

Definition of Corporate Governance ..................................................................19

2.4.2

Corporate performance and performance criteria ..............................................19

2.5

Relationship between CSR practices and disclosure and Corporate

governance and corporate performance ..........................................................................19
2.5.1

CSR practices and disclosure and Corporate Governance .................................20

2.5.2

CSR practices and disclosure and Corporate Performance ................................20

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2.6

Hypothesis development.......................................................................................23

2.6.1

CSR is the same as business ethics ....................................................................23

2.6.2

CSR is positively associated with corporate governance ...................................24

2.6.3

CSR practices and disclosure can influence Corporate Performance in a very

different level ..................................................................................................................24

Chapter 3 :
3.1

RESEARCH METHODOLOGY .................................................... 26

Research method ..................................................................................................26

3.1.1

Quantitative methodology ..................................................................................26

3.1.2

Qualitative methodology ....................................................................................26

3.2

Data source ............................................................................................................27

3.2.1

Secondary data ...................................................................................................27

3.2.2

Primary data .......................................................................................................27

3.3

Research tool .........................................................................................................27

3.3.1

Internet tool ........................................................................................................27

3.3.2

Questionnaire .....................................................................................................28

Chapter 4 :
4.1

FINDING AND DISCUSSION ........................................................ 29

Questionnaire Results...........................................................................................29

4.1.1

Personal Information ..........................................................................................29

4.1.2

CSR Questionnaire .............................................................................................31

4.2

Interview results ...................................................................................................38

4.2.1

CSR and business ethics.....................................................................................38

4.2.2

Motivation of business toward CSR...................................................................39

4.2.3

How to encourage the business to implement more CSR projects .....................40

Chapter 5 :
5.1

CONCLUSION.................................................................................. 41

Implications ...........................................................................................................41

5.1.1

Implications for the Vietnamese Government....................................................41

5.1.1

Implications for the enterprises ..........................................................................41

5.2

Conclusion .............................................................................................................42

Bibliography .............................................................................................................. 43
APPENDIX ................................................................................................................ 45

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Table of Figures
Figure 1: Example definitions of CSR .......................................................................... 9

Figure 2: Social Responsibility Categories (Carroll, 1979) ........................................ 13
Figure 3: The Pyramid of Corporate Social Responsibility (Carroll, 1991) ............... 13
Figure 4: Stakeholder theory diagram ......................................................................... 16
Figure 5: Agency Theory Overview ........................................................................... 18
Figure 6: Respondents’ Age ........................................................................................ 29
Figure 7: What is your business category? ................................................................. 30
Figure 8: You are aware of the term Corporate Social Responsibility ....................... 31
Figure 9: It is obvious to have practical applications of CSR within a company ....... 32
Figure 10: You are aware of the term “Business ethics” ............................................ 33
Figure 11: CSR is the same as “Business ethics” ....................................................... 33
Figure 12: You are aware of the term “Corporate Governance” ................................ 34
Figure 13: Difference of CSR and Corporate Governance ......................................... 35
Figure 14: CSR disclosure influences “Corporate Governance” ................................ 35
Figure 15: CSR disclosure influences corporate performance .................................... 36
Figure 16: Your Company sets out specific objectives for the entire CSR perimeter 37
Figure 17: Your Company is motive to adopt CSR practices ..................................... 38

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List of Abbreviations
CSR

Corporate Social Responsibility

GRI

Global Reporting Initiative

CG

Corporate governance

SI

Sustainability investing

TBL

Triple Bottom Line

WBCSD

World Business Council for Sustainable Development

WTO

World Trade Organization

NGOs

Non-Government Organizations

UNEP

United Nations Environment Programme

CERES

Coalition for Environmentally Responsible Economies

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Chapter 1 :

INTRODUCTION

1.1 Research background
On every continent, in one form or another, CSR is practiced for decades. CSR
practice can be carried out in various forms, such as: building kindergartens or
schools for children; supporting community or social activities…
CSR was born in the United States about thirty years ago. It then has been spreading
to Europe, where it was refined. Large multinationals have sometimes also
transplanted their production units located in other continents. These new forms are
characterized by an image that the company carries on itself. At first, it raises the
question about possible nuisances that the process leads to the community. In a
second step, it raises the question of how it might contribute actively to the wellbeing of society at large, not only to its staff. And in this second stage, it develops
creativity that goes well beyond traditional charity.
Companies use CSR approach to take social and environmental influences of their
business into account to implement best performs possible and therefore contribute to
the improvement of environmental and social protection. This approach gives out a
combination of economic, social responsibility as well as environmental
responsibility.
It has become a real and developed movement all over the world. If you search for
the phrase on Google in English, not yet in other language, you will find more than
80 million results. In about ten thousands of studies, books, articles, forums, websites
of Non-Government Organizations (NGOs), business, consulting, and government,
there are many discussions about CSR.
Companies can gain many benefits through the CSR commitment. They can improve

their image, leading to increase in sales, making investment procedures more
conveniently. Besides, CSR also contribute to improve employees’ attitude through
various programme such as energy saving….

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1.2 Research question
1.2.1

CSR in developed countries

In many developed countries, especially in the U.S and European countries, CSR
isn’t a strange term. Nowadays in these countries, consumers pay attention not to
product quality, but also to how those products are made? Do the doings harm
environment, to health and community? That’s why consumers make a lot of
activities to protect their attentions as well as the environment. We are talking about
the boycott movements against companies who use child labour (like Gap or Nike);
producing fringe foods, soft drink with carbonates or has bad working conditions,
etc.…
Under pressures from the society, large companies have integrated CSR in their
business strategy either in short or long term strategy. They implemented thousands
actions; such as saving energy, using recycled materials, reducing carbon emissions,
or some donation as school building, sufferers help of natural disasters. Many
enterprises contribute moneys to establish research centres on diseases in developing
countries (especial AIDS vaccines). There are some important corporation who are
very actives in these doing as TNT, Google, Bayer, Gap, Toyota, Intel, Unilever,
Coca-Cola, Sony, Samsung, GE, Nokia, HSBC, BP…
The most notable case is the one of Dr. Muhammad Yunus of Grameen Bank who
has provided microcredit to 6,6 million people, of which 97% are poor women in

Bangladesh to borrow money to their life. He was awarded the Nobel Peace Prize in
2006.
The “One Percent Club” in the U.S collects the enterprises that commit to spending
minimum 1% of their profits for social work. Other example: many enterprises in
France, such as RATP (subway company), France Télécom (France Telecom) ...
created many cultural funds to sponsor French Contemporary Art.
Other multinational companies created the Code of Conduct, in which they can
indicate effectively nature principles applicable to their employees worldwide.
In the other hand, when companies involve in socially irresponsible activities, they
are not on the right side of the law. They will have to pay severely as consequence of
making such crimes.

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One of the most remarkable cases in history of CSR is incident of the Exxon Valdez,
who dumped 11 million gallons of crude oil into Prince William Sound in Prince
William Sound, off the coast of Alaska. This action is really a bad CSR act as it
damaged the fishing industry and wildlife. So, as for the consequence, ExxonMobil
had to pay nearly $4.84 billion for clean-up costs, fines, punitive damages
1.2.2

CSR in Asia

The adoption of CSR approach in Asia has been fast, but within many Asian
countries, the implementations of standards required for CSE hasn’t been so quick.
However, many Asian governments and NGOs are willingly taking the CSR theory
an indication for its future evolution in the region. Companies are being demanding
to change and adjust their selves to corporate governance and environmental
stewardship. So, like the rest of the world, the development of CSR in Asia is

passing from a charity application into a strategic of company and a tactical in
decision-making process.
Par example, in Thailand, Phuket industry started working toward a co-operative
CSR theory by creating a program for more sustainable tourism1. This sort of
network concept is passing to many other countries, not only in Asia but also in the
rest of the world.
In Singapore, a co-founder of Banyan Tree Holdings, Claire Chiang, are responsible
of CSR within his enterprise. He was as well the foundational of Singapore Compact,
the local unit of the United Nations Global Compact. This strategic approach was
aimed to associate private-sector operations and strategies with general sustainable
development works by approving to 10 key principles concerning environment,
labour, human rights and anti-corruption.
Indonesia established the first CSR laws in the world. However, China has an
approach that is more effective as Chinese government researched considerably and
then issued CSR instructions directly to companies.

1

Bangkok Post : Corporate Social Responsibility in Asia

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1.2.3

CSR in Vietnam

1.2.3.1

General situation

After many years, Vietnamese shoe manufacturers and textile industries began
paying attention CSR approach and standards of conduct due to pressure from
multinational corporations within the country as well as worsening environmental
problems.
The Vietnamese government later commenced encouraging company protect the
environment and to improve labour conditions. They created new regulations for
sustainable development; some of the best representations are the Vietnam Agenda
212 and the new Environment Protection Law. Environmental Police was established
in order to enforce measure against companies that pollute, with particular charges
for the emission of polluted wastewater.
Created under the support of Vietnam Chamber of Commerce and Industry, Vietnam
Business Links Initiative (VBLI) creates close relationship with NGOs, different
international organizations, and enterprises financed with foreign capital. Small and
medium-size shoe manufacturers and textile industries can take training programs or
consulting services offered by VBLI to improve the labour environment. Afterward,
they can increase CSR understanding among themselves. In 2004, CSR awards
started be given out to the most conscientious enterprises by VBLI.
Typically, there are many social programs such as “6 million cups of milk for
Vietnamese children” and funds scholarships “fireflies light” of the big brands like
Vinamilk, Dutch Lady that gain resonates and consumer support.
1.2.3.2

Some problems concerning CSR in Vietnam

As we can see, many enterprises in Vietnam have put CSR into their business
strategies. However, with the growing economy, businesses in Vietnam are majority
in small and medium-scale; therefor the adoption and implementation of CSR have
not been paid attention and concern.

In 2004, Vietnam Agenda 21 Office is set up in the Department of Science, Education,
Natural Resources and Environment by the Ministry of Planning and Investment (MPI).
The office is assigned to develop the Agenda 21 Programme on sustainable
development of Vietnam.
2

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Consumer trust for businesses is being hurt seriously when business fraud and
irresponsible to the community has become more common.
The financial crisis started in America has been rapidly spread worldwide and is
becoming big obsession of the business community in Vietnam. But for ordinary
people, there is still an obsession other problem that is no less serious, such as the
threat of poor quality goods, especially those products directly related to health, and
conditions of life environmental is seriously ruined.
Perpetrators of this situation are no other the businesses who are doing fraud.
The sauce with 3-MCPD toxic, fish sauce containing urea, or growth stimulants
infused into cattle through animal feed had barely settled completely, and then there
is a break out again about melamine contamination of milk, wine produced by fatal
industrial alcohol, fake and poor quality fertilizer, gas stations selling fraudulently...
Even in cases where fraud is detected, many businesses have names, are well known.
Because of lack of regulations concerning CSR, there are many cases difficult to
solve within companies, par example: controversies surrounding the sanctions,
typically the Vedan case. It is such serious case but so far the Ministry of Natural
Resources and Environment has only fined the company 216 million. And about the
possibility of closing factories or criminal prosecution, one person said yes, others
said no and anyone can invoke the law to defend their opinions.
In addition, the sanctions regime of Vietnam is not enough to deter so many
companies don’t care, despite the law to do business fraud. This doing is proven. In

October 2008, Vinh Long province found 11 establishments producing low-quality
fertilizer, in which the content of useful organic in many products is almost zero, but
ultimately the theses factories were fined a total only of 130 million VND.
Obviously, the penalty is too light compared to the profit they earned from fraud
employment, as well as its impact on farmers.
Along with theses situations, environmental destruction actions show that business
ethics and social responsibility are degradation. They are running by profit, despite
the consequences for customers, whose business is always claiming to be treated as
"God".

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1.2.4

Research statement

Deputy Director of Vietnamese Chamber of Commerce and Industry (VCCI) in Ho
Chi Minh City, Mrs. Nguyen Hong Ha, said: Vietnam has been joining WTO, the
Government removed tariff barriers; occupational safety law, issued and modified
environmental law, so businesses should seriously implement and comply with. She
added “Here is the most appropriate time to implement CSR."
But why do companies have to implement CSR? How can they do? When do they
begin? Where do they implement? Which tool can they base on?
In order to understand more about CSR, this study focuses on the influence of CSR
disclosure on corporate governance and company performance.

1.3 Research structure
The remainders of this research is organised as follow
Chapter 2 “Literature review” starts with the definition of CSR from the classical

view to the modern view so that the readers can have a general picture about CSR.
Some theories and researches related to CSR concepts presents through different
collections, summaries and discussion.
The relationship between CSR practices and disclosure and Corporate governance
and corporate performance is studied and in the end of this chapter, I, my self, give
some of hypothesises hereof.
Passing to the third chapter, research method is presented with different parties such
as, data source, research tools.
The results of research, my findings through the questionnaire are available in the
fourth chapter. This chapter presents also the limitation during the research.
Finally, the last chapter give some implication for Government and Enterprises and
eventually the conclusion of this research.

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Chapter 2 :

LITERATURE REVIEW

2.1 Definition of CSR
Since the beginning of this document, I had talked many things about CSR but what
does CSR mean?
Academics and students have been motivated to establish an agreed-upon definition
of this concept for 50 years.
CSR doesn’t have a single definition that is universally accepted. The enormous
quantity of studies (report, book, etc…) defines CSR differently, despite of the same
core elements of CSR presented in those definitions. Moreover, to different people,
CSR concept is a continually evolving concept and means different things.
2.1.1

The Classical View

There are many discussion and debates about the position of CSR in companies. For
many researchers, ranging from Adam Smith3 to Milton Friedman4, social
responsibility shouldn’t be part of management’s decision-making process. In the
1950-1960, Milton Friedman argued that the objective of corporate responsibility is
making much profit as possible. According to him, there is only one category of
CSR: spending enterprise resources and engaging in activities in order to increase
companies’ profits so long as it complies with the rules that have been defined.
Beside, Peter Drucker5 argues that the responsibilities of business in society are "to
supply goods and services to customers and an economic surplus to society...rather
than to supply jobs to workers and managers, or even dividends to shareholders".
Latter, he argues about corporate mismanagement. If a hospital forgets it’s exist for
its patients and a university forgets it’s exist for its student, that’s corporate
mismanagement.

Adam Smith (5 June 1723 – 17 July 1790]) is a Scottish social philosopher and a
pioneer of political economy.
4 Milton Friedman (July 31, 1912 – November 16, 2006) is an American economist and
statistician. He is also a professor at the University of Chicago. He received the Nobel
Memorial Prize in Economic Sciences
5 Peter Ferdinand Drucker (November 19, 1909 – November 11, 2005) is a writer,
management consultant, and self-described “social ecologist.”
3

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In general, classical views indicate that business should not implement any social

responsibility, as a result, the one and only responsibility of business is to maximize
its profits without fraud or deception.
2.1.2

The Modern View

During modern era, the first definition of social responsibility approach was
established in 1953 with the publication of Howard Rothmann Bowen6’s book
“Social Responsibility of the Businessman”. Bowen argued that public
responsibility, social obligations, and business morality were synonyms words for
social responsibility. According to him, businessmen have obligation of following
those policies or pursuing those lines of acts presented in “social responsibilities of
businessmen” in order to make decisions. Theses activities show up the terms of
objectives and values of our society.
Beside, in 1979, Archie Carroll argued that: "the social responsibility of business
encompasses the economic, legal, ethical, and discretionary expectations that society
has of organizations at a given point in time."
The table below will present some other definitions:

Organization

Type of

Definition of CSR

Organization

World Bank

The commitment of business to contribute to

and the World

sustainable economic development – working with

Business
Council on

Governmental

employees, their families, the local community and
society at large to improve their quality of life, in

Sustainable

ways that are both good for business and good for

Development

development (SIDA, 2005).
A concept whereby companies integrate social and

European
Commission

Governmental

environmental concerns in their business operations
and in their interaction with their stakeholders on a
voluntary basis

Howard Rothmann Bowen (October 27, 1908 – December 22, 1989) was an
American economist and college president,
6

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The voluntary actions that business can take, over and
UK
Government

Governmental

above compliance with minimum legal requirements,
to address both its own competitive interests and the
interests of wider society7
A concrete action taken by Chinese companies to

Chinese
Ministry of

Governmental

Commerce

implement the political aspiration of the new
Communist Party collective leadership – putting
people first in a harmonious society8
Means managing our business responsibility and

sensitively for long-term success. Our goal is not, and

HSBC

Corporation

never has been, profit at any cost because we know
that tomorrow’s success depends on the trust we build
today
A company’s commitment to operating in an

CSR Asia

Social

economically,

socially

and

environmentally

enterprise

sustainable manner while balancing the interests of
diverse stakeholders

Figure 1: Example definitions of CSR

2.2 Tools, standards and reporting for CSR
Since the 1980s, pressure particularly by NGOs, the concepts of ethical finance, fair
trade, and sustainable development had entered the debate in political forums. They
have appealed to universities and research centres to conduct studies in order to
develop tools to identify the level of corporate responsibility.
2.2.1

Standards and tools

Standards and tools for quality and environment are well known. ISO (International
Organization for Standardization9) has published ISO 9000 for quality management
system and ISO 14000 for environmental management system. Two subcommittees
Source: www.csr.gov.uk
Ethical Corporation, 2005, Politics: A Chinese definition of CSR, 15 September 2005
9 ISO is an international standard-setting body composed of representatives from
various national standards organizations
7
8

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of ISO, who are specialized in these standards, agreed on the method of
implementation that facilitates enterprises to establish a common policy for both the
whole quality and environment management system.
In terms of human resource management, this issue is complicated as it is not a
technical problem. Each country has different perspective: occupational safety is the
responsibility of the individual or collective responsibility; the minimum benefit of
employees about dignity and democracy is given by the employer voluntary or is
prescribed by the state and collective bargaining.

ISO working group on Social Responsibility (WGSR) has been widely consulted all
partners. Only in 2007, there were 320 representatives from 55 countries and 26
international organizations attending the conference of WGSR. And on 1 November
2010, ISO 26000 is published. This standard specifies the integration of corporate
responsibility, of governance and of ethic in a more enlarged way. This is not a
certifiable standard, but a guide of suggestions for companies and organizations.
Brief, here are the criteria hat can be use as the basis for certification of a business:
-

The standard of the International Labour Organization (ILO)

-

ISO 9001 for quality management system

-

ISO 14001 for environment management system: This standard aims to
measure the impact of an undertaking on the environment. It is initiated in
1996 and revised in 2000. It takes into account the significant environmental
aspects: emissions to air, discharges into water, soil contamination, waste
management, use of raw materials and natural resources.

-

OHSAS 8001 for occupational safety
Social Accountability Standard 8000 for human resource management: This
standard was initiated by the Council on Economic Priorities. It concerns
working conditions, prohibition of child labor, forced labor ... There are two
types of engagement for business: certificate in case of compliance for the

production, or membership status in case that criteria are respected for
suppliers chains et for all production units.

Also, there are some guidelines how to present a report on social responsibility as the
Global Reporting Initiative (GRI), codes of conduct for companies (Global Compact)

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or qualifications, or AA 1000 Assurance Standard of the Institute of Social and
Ethical Accountability (ISEA).
Moreover, various practical tools exist to facilitate the integration of these standards
at different levels in companies. In general, standards began to emerge but are still
few, not standardized and little used.
2.2.1

Source of reporting

2.2.1.1

Global Reporting Initiative10

In 1997, the United Nations Environment
Programme (UNEP) and the Coalition for
Environmentally
(CERES)

Responsible

established

the

Economies

Global

Reporting

initiative. The goal is to develop guidelines and
standardization of norms for environmental and social reporting.
According to GRI’s vision, reporting on economic, environmental, and social
performance by all organizations is a doing as usual and comparable as financial
reporting. There are now thousand of companies that participate in the GRI, a excel
spreadsheet including list of these companies is available on the GRI website at,
allowing

the

general

public

to

view

this

information:

/>2.2.1.2

Global Compact

Launched in January 2000 at the World Economic Forum by Kofi
Annan, the Global Compact is a code of conduct, which includes 10
principles that businesses should commit to. Without the numeration,
two of these principles are about human rights, four about labour standards, three
about environmental and the last about fight against corruption.
2.2.1.3

Socially responsible investing (SRI)

CSR is sometimes linked to the concept of socially responsible investing11, which is
also known as ethical investing. This concept describes strategy for investment,
which demands to maximize both financial return and social good.
10

www.globalreporting.org/

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For some, the SRI is the same declination and speculative financial sustainability12.
Investors who proclaim this process such as banks, financial institutions and other
financial funds (retirement, employee savings, etc…) - usually define their own
commitments to CSR with a dedicated CSR communication (cf. Report on the RARE
2006 banking sector).
2.2.1.4

Other source for CSR reporting
SA800 Certification is the first international
certification on social responsibility: Social
Accountability International13. It is developed
by

the

International

human

rights

Premier

Global

organisation.
Green

Globe

Certification

is
for

the

Sustainability

–

a

programme for “benchmarking, certification
and performance improvement”, based on
Agenda 21 proposals from the 1992 Rio
Earth Summit14

The FTSE 4 Good Index measures the
performance of companies who meet globally
recognised CSR standards15

2.3 Related Theory
2.3.1

Carroll’s theory

Between many conceptions of responsibility, the first definition of CSR that I want
to present is Carroll’s. This concept has been served as the framework of many
Synthesis of responsible investment in the site PolitiquesSociales.net
2nd report Carayon September 2006 "On equal terms"
13 www.sa-intl.org
14 www.greenglobe.org
15 www.ftse.com/indices/FTSE4Good_Index_Series
11
12

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analysis and discussion as the concept is simple, easy to understand and has an
intuitively appealing logic.
In 1979, Carroll first announced the four categories of CSR, which is familiar
nowadays, in a paper on corporate social performance. There are economic, legal,
ethical and discretionary responsibilities, ordered layers as e figure below:
Discretionary responsibilities
Ethical responsibilities
Legal responsibilities
Economic responsibilities
Figure 2: Social Responsibility Categories (Carroll, 1979)

In 1991, Carroll revisited his four-part definition of CSR and organized the notion of
multiple corporate social responsibilities in a pyramid construct as per Figure below,
which, from the perspective of academic research and literature, is “one of the most
long-standing and widely cited definitions of CSR”.

Figure 3: The Pyramid of Corporate Social Responsibility (Carroll, 1991)

Over the 20 years since the time Carroll proposed the first model, mostly Carroll
himself has regularly revised his model in top management and CSR journals. He is
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motivated to assimilate various competing themes into his model, e.g. corporate
citizenship in 1998 and stakeholders in 2004.
This framework divides the various responsibilities that society demands businesses

to take for granted into four-part categories. Each responsibility is one part of the
total corporate social responsibility, providing us the complete definition.
2.3.1.1

Economic Responsibilities

The first and primary social responsibility of business is economic in nature.
Economic responsibility, expressed through performance and growth, is a
prerequisite because as we know, the primary motivation for enterprises is profit. We
cannot have a good and stable business without profit, and without understanding
profit there is no way to understand profitability of a company. Therefore, economic
function must be always top priority. The others must be based on corporate
economic responsibility.
2.3.1.2

Legal Responsibilities

Put it simply, legal responsibility is an element of the “contract” between society and
business.
The government has responsibility of “encoding” the social rules and ethics into
legal documents. So business can pursue their economic target fairly and comply
with the standard values of which society expects of them. Economic responsibility
and legal responsibility are two basic parts, which are indispensable for CSR.
2.3.1.3

Ethical Responsibilities

Ethical responsibilities are the supplementary behaviours and activities, which are
not necessarily codified into law but nevertheless are expected of business by
society’s member. Normally, law can only go back to reflect the changes in the rules

of social behaviour that is always new. Moreover, in ethical responsibility, there are
some “grey” regions in which right and wrong are not clear. So, “obey the law” is
only considered as meeting the minimum requirements of the society. Business also
needs to operate commitment outside the law. Ethical responsibility is voluntary but
is the centre of CSR.

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2.3.1.4

Discretionary responsibilities

The last aspect of CSR: discretionary responsibilities are business charitable
activities, which are ahead of the expectations of society such as: contributions to
community projects, funding scholarships, donation to the poor people. The
difference between discretionary responsibility and ethic responsibility is that charity
is completely voluntary. If businesses don’t operate CSR to this level of discretionary
acts, they are still considered to be fulfilling all expectation of society.
2.3.2

Stakeholder theory

2.3.2.1

Triple Bottom Line

The term “triple bottom line” was created by John Elkington16, founder of the first
consulting firm in UK on sustainable development strategy SustainAbility in 1994. It
was then made the subject of a book by the same author in 1998.

By definition, triple bottom line is the transposition of the CSR concept by
evaluating the performance of the company in three ways:
-

Social: social consequences of business activities for all its stakeholders
(People)

-

Environmental: compatibility between the company activities and the
maintenance of ecosystems (Planet)

-

Economic (Profit).

The Trip Bottom Line concept expects organisation to be responsible to
stakeholders’ interest than to shareholders profit. In this case, "stakeholders" include
everyone who is concerned, either directly or indirectly, by the actions of the
enterprise. According to the stakeholder theory (which will be detailed in the next
section), the business should be considered as a vehicle for coordinating stakeholder
interests, instead of maximizing shareholder (owner) profit.

John Elkington has been described as "a dean of the corporate responsibility
movement for three decades" by Business Week.
16

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2.3.2.2

Diagram/schematic of theory

Figure 4: Stakeholder theory diagram17

2.3.2.3

Stakeholder theory

Enterprise is a series of relationships between different stakeholders. Each holds a
certain role to decide the success of the business. The main stakeholders are the
board of directors, shareholders, executives, customers, employees, creditors, trade
union and the community at large.
Any individual may be an element of multiple stakeholder groups, e.g. an employee
may also be a member of a trade union and live in the local community.
Without capital and shareholders, businesses would not be born. Without banks and
other lenders, businesses cannot guarantee the best of their ability to return. Without
customers, business activities could toward any objects? Without workers, businesses
cannot conduct business. Provider is clearly a factor to ensure the success of every
business. And if the community, the public opposed the enterprise, lost faith in the
name of reputation of the enterprise, the enterprise will soon loose his business. And
enterprises need to consider the physical and social environment, in which enterprise
are working, and ensure the implementation of anti-competitive behaviour.
In other word, enterprises should satisfy not only their shareholders, consumers and
employees but also the whole society. Consequently, we can detail corporate
responsibilities (in many ways to guarantee social welfare, stability and
development) as below:
17

Donaldson, T. & Preston, L. 1995

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-

Corporate responsibility for employees, including good salary, favourable
working conditions, opportunities for training and promotion

-

Corporate responsibility for their consumers by providing good and cheap
goods

-

Corporate responsibility for their owners by guaranteeing profit and
development

-

Corporate responsibility for creditors by paying off debt on time

-

Corporate responsibility for government and community by paying taxes,
profits, fees legally and providing equal employment opportunities in order to
improve social and political stability and economic prosperity

-

Corporate responsibility for social environment mainly by protecting and
treating environment in order to provide a better living place for residents

When enterprises grasp and meet the requirements of the stakeholders, they will
perform well their role in the modernizing and improving conditions for all
stakeholders in a sustainable manner.
2.3.3

Agency theory

In the 1970s, agency theory was born and then, it seems that the theory was
developed by Ross (1973), Mitnick (1973) and Jensen & Meckling (1976, as cited in
Eisenhardt 1989). Eisenhardt describes this theory as: "Specifically, agency theory is
directed at the ubiquitous relationship, in which one party (the principal) delegates
work to another (the agent), who performs that work. Agency theory attempts to
describe this relationship using the metaphor of a contract."
As simpler, principal-agent relationships occur whenever one party delegates
decision-making authority or control over resources to another. In corporate
governance, the management of agency relationships plays a significant role as
corporate governance is often defined as a principal-agent relation18.

18

Mantysaari, Petri (2008)

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