In 1991, Archie B Carroll wrote a paper that was destined to change the dynamics of ethics in business and reshape questions of corporate social responsibility. His paper The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders aimed at the ambivalence of high profile corporations towards ethics.
Long gone, Carroll argued, are the days of Milton Friedman (discussed in detail further on) when the ethics of the ‘unfettered free market’ represented the summa totalis of a firm’s worldly responsibility.
Indeed, following the formation of agencies like, for example, the Equal Employment Opportunity Commission (EEOC, 1964) and the Environmental Protection Agency (EPA, 1970), ethical responsibility became tied to legal responsibility.
To help firms process their responsibility concerning their shareholders (which, after the 1970s, appeared to include employees, customers, and even the environment), Archie B Carroll developed his famous pyramid of corporate social responsibility.
Table of Contents
- What Does the Pyramid of Corporate Social Responsibility Entail?
- The History of Corporate Social Responsibility
- CSR in the Late 19th Century
- The First Community Foundation
- Before 1970: Two Contrasting CSR Camps
- 1971: The Age of the Social Contract
- The Pyramid of Corporate Social Responsibility Today
- CSR: Other Interpretations
- The Future of CSR: A Conclusion
What Does the Pyramid of Corporate Social Responsibility Entail?
Carroll’s pyramid presents four dimensions of corporate responsibility, each ontologically exclusive while simultaneously building upon one another like a pyramid.
The four dimensions of Carroll’s pyramid of corporate social responsibility (CSR) are, in this order, economic responsibilities, legal responsibilities, ethical responsibilities, and finally philanthropic responsibilities.
Though these four dimensions of CSR first appeared in a 1979 paper, it wasn’t until Carroll’s 1991 paper that these were ordered into a pictographic.
At the base of Carroll’s CSR pyramid is the economic responsibility. This implies what our intuition could tell us easily anyway: the CSR pyramid is based on an economically profitable and sustainable business. Without sustainability, the point of whether or not a business is taking care of its shareholders is moot.
Connected to the idea of economic responsibility, however, is the next step of the pyramid. Legal responsibility is the due process of a firm’s operation whereby a business expects to be treated fairly in legal disputes concerning the growth and expansion of their business.
In developing countries without a powerful or fair legal framework, businesses find it more difficult to grow sustainably.
The next step of the pyramid is that of ethical responsibility. Now halfway up the pyramid, we move from notions of “what is required by society” to notions of “what is expected by society.” In countries like the United States, legislation increasingly ties ethical responsibilities to legal responsibilities, to the point that often these categories flow together.
Take the Consumer Product Safety Commission (CPSC), for example. This government agency exists to prevent products that present unreasonable risks to the public from getting into the public’s hands. Under CPSC, firms have a legal responsibility to do what many would say is ethically right.
The CPSC represents an extreme case, however. When ethical responsibility becomes a matter of a company’s discretion, public opinion can weigh heavily on a firm’s actions. As public opinion and sustainability are today inextricably linked, Carroll’s pyramid suggests that it behooves a company to “act ethically” even if it doesn’t seem to “make cents.”
Clearly, Walmart was doing well for many years with its payment structure, but in this case, public opinion outweighed corporate frugality (or miserliness, depending on who you’re asking).
The final tip of the CSR pyramid is that of philanthropic responsibilities. Considering proper economic development within the confines of a country’s legal framework, ethics and philanthropy follow one another, though philanthropy is, we might say, the most optional of the four segments of the CSR pyramid.
Philanthropic responsibility has been a part of ideas of business since time immemorial. Even the infamous “robber barons” of the early 20th century took pride in their philanthropic duty.
Think, for example, of the over $500 million Rockefeller donated to public causes following his stratospheric rise to financial power during the industrial revolution.
In this final step of the CSR pyramid, philanthropy moves from being a category of business operation “expected” by the public to that of an ideal “desired” by the public.
The History of Corporate Social Responsibility
While the framework of the corporate social responsibility pyramid is well-worked-out and generally well-understood by the executives of today’s corporations, corporate social responsibility has had a long and winding journey.
From the first foundation of the idea of a business to where we are today, the idea of CSR has evolved greatly. The most progress first occurred during the industrial revolution.
CSR in the Late 19th Century
In June of 1889, Andrew Carnegie published an essay entitled “Wealth” for the North American Review magazine.
In this essay, Andrew Carnegie outlined what he deemed to be the moral, ethical, and even religious responsibilities of business owners. “The true Gospel concerning wealth,” as Carnegie termed it, included the great responsibility those with wealth have.
Specifically, Carnegie said, those that make money must give that money back to the community in ways that edify and make better the world around the wealthy.
Many of the wealthiest business owners followed Andrew Carnegie’s example. John D. Rockefeller, as we mentioned earlier, spent hundreds of millions of dollars before the end of his life founding Universities (like the University of Chicago), libraries, scientific organizations, and arts foundations.
It wasn’t until the 20th century, however, that ethics and morality became codified in business practices.
The First Community Foundation
In 1914, Frederick Goff founded the first community foundation. A community foundation is a public charity whose efforts support a specific geographic region – hence the “community” of the name.
Frederick Goff, who had amassed a great deal of wealth as a banker and achieved a great deal of community support as the mayor of Cleveland, was instrumental in founding the Cleveland Foundation.
The Cleveland Foundation, now the third-largest community foundation in America, was designed to support the community interest of Cleveland with thoughtful investment.
In the work of Frederick Goff, John D. Rockefeller, and Andrew Carnegie, the idea of a business owner’s responsibility began to expand beyond pure money-making.
Modern ideas of CSR, however, came into practice in the mid-20th century.
See Related: Capitalism and Homelessness: Is There a Correlation?
Before 1970: Two Contrasting CSR Camps
Before 1970, two major names in the idea of the ethics of a businessman effectively formed two contrasting CSR camps.
The Father Of Corporate Social Responsibility
The first name to know is Howard Bowen. Considered by many to be the father of modern Corporate Social Responsibility, Bowen related his ideas on a businessman’s ethics in his groundbreaking 1953 Social Responsibilities of the Businessman.
Social Responsibilities of the Businessman made a huge impact on the thoughts surrounding business ethics. By asking the question, “what ethical expectations can society put on businesses and those that run them,” Bowen implicitly makes the statement, “businesses have certain ethical responsibilities.”
Today, Social Responsibilities of the Businessman, despite its alarmingly patriarchal title by today’s standards, remains a seminal book in understanding the ethical expectations society places on businessmen and businesswomen.
It would not be an understatement to say that every work on CSR today must contend with Social Responsibilities of the Businessman.
Part of what makes Social Responsibilities of the Businessman so timeless is its reframing of the idea of business ethics in terms of strategic planning.
As Carrol’s much later pyramid of corporate social responsibility suggests, building a strong ethical and philanthropic reputation for your business can be part of an effective strategy for business growth in an increasingly socially conscious and self-aware society.
A Responsibility to Profitize
On the converse side of the debates about the social responsibility of the businessman came a voice from academic economics.
In his 1970 paper The Social Responsibility of a Business Is To Increase Its Profits, Milton Friedman argued that as far as social responsibility goes, a business exists purely to make a profit.
Idealistically (and, as many argue today, naively), Friedman contended that a business watching out for its bottom line will inevitably improve the society that he or she lives in.
Though Friedman represents just one point in a long and sprawling history of laissez-faire economics, we can trace his thoughts back to Adam Smith.
The Father of Modern Economics in many ways, proposed the fundamentals of modern capitalism for a captive audience. In particular, Smith writes, we don’t rely on the baker to provide bread from his own sense of goodwill. Rather, we rely on the baker to provide bread based on his own self-interests.
By taking care of one’s own interests, capitalism contends, all are made better, and society is made stronger.
Consider, for example, the idea of a lake that sits on the edge of a city. A factory in the city has a practice whereby they dump chemicals into the leak because this is the cheapest way to dispose of them. Many today would say, “we need legislation to prevent this factory from dumping chemicals into the lake.”
Friedman, however, would say, “We must allow the factory to do what works best for it.” Over time, a laissez-faire purist would argue, an environmentally harmful practice won’t allow the business to sustain itself. People may begin to move away from the town, for example, which would effectively reduce the potential employees for the factory and require the factory to shut down.
Looking after the lake, a Friedmanist might tell us, fits into the social responsibility of the business as it helps their bottom line.
On the other hand, a devil’s advocate might point out that only hindsight is 20-20, and while profit motivations might make the world a better place in the long run, in the short term, government non-intervention can lead to monopolies and the current carcinogenic drama now unfolding in Laredo.
See Related: What is Corporate Socialism? Definition & Examples
1971: The Age of the Social Contract
We can trace the modern era of the “social contract” for businesses to 1971. In 1971, the United States Committee For Economic Development published its Social Responsibilities of Business Corporations.
This study had begun in the late 1960s as a way of considering the economic objectives of large businesses and laying out a ground plan as to how these businesses might restructure their work to include social responsibility.
As researchers worked, however, the objective of the study transformed to an analysis of social problems extant in society which the efforts of large businesses might ameliorate.
Social Responsibilities of Business Corporations was wildly influential to businesses, corporations, and the public writ large.
As we’ve mentioned above, the “social contract” declared by the Committee for Economic Development forced the hand of many businesses through legislation. The EPA, Occupational Health And Safety Administration (OSHA), and the CPSC all have roots in the idea of a business’s social contract.
The Pyramid of Corporate Social Responsibility Today
Today, despite the still heavy reliance on the 1991 work of Archie B Carroll, there are present efforts to rework the pyramid of CSR.
Denise Baden, in a recent (2016) essay, “A reconstruction of Carroll’s pyramid of corporate social responsibility for the 21st century,” argues that in the 21st century, the model of “economics first” ought not to be considered the foundation of a business’s ethical pyramid.
Considering the increasing power of businesses in the 21st century, Baden contends, ethical responsibilities ought to rank number one and therefore be at the bottom of the pyramid. Legal, economic, and finally philanthropic interests, Baden writes, should follow in that order.
Obviously, this restructuring of the pyramid represents a massive, foundational restructuring of the way we think about business ethics. As this research is relatively new, there is no doubt still much room for debate.
However, in an earlier 2014 paper, Baden shows that ethical responsibility in Cuba can effectively follow an “ethics first” model and remain profitable.
CSR: Other Interpretations
Beyond the work of Baden, other thinkers in the field of business ethics restructure the conversation about CSR to different pillars.
Others replace the term “ethical” with “human rights.”
Still, others cite 3 branches of corporate social responsibility: environmental, social (ethics and human rights), and supply chain (transparent and responsible sourcing).
The Future of CSR: A Conclusion
In this article, we’ve covered the growth and development of ideas of CSR from its earliest conception to today. We’ve discussed Carroll’s pyramid and the four traditional dimensions (economic, legal, ethical, philanthropic).
Over the next few years, we’ll likely continue to see developments on the pyramid of corporate social responsibility. As the article has hopefully demonstrated, the world of CSR is a continually evolving, many-headed hydra. Even the works of Milton Friedman, though largely dismissed today, have their proponents in some serious online forums.
Over the next ten years, though, it’s probable that we’ll see a new and convincing study with implications similar to that of Carroll’s The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders. In this paper, it seems inevitable that the question of economic self-interest will fall away from its central place on the CSR pyramid, moving to a tertiary position if it appears at all.
Why? In the socially-conscious age, we’re currently amidst, transparency is no longer an option for businesses. Young people more and more are supporting businesses on ethical and moral grounds, rather than for the sake of convenience, quality, or other conventional models for business success.
In this global age that is in many ways the age of the influencer, private citizens will dictate more and more the success of a business.
At the same time, locality will continue to decrease in importance all while ethicality remains on the rise.
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Kyle Kroeger, esteemed Purdue University alum and accomplished finance professional, brings a decade of invaluable experience from diverse finance roles in both small and large firms. An astute investor himself, Kyle adeptly navigates the spheres of corporate and client-side finance, always guiding with a principal investor’s sharp acumen.
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