5.3: Carroll’s Corporate Social Responsibility Pyramid

Carroll’s Pyramid is a widely used CSR framework for situating corporate social responsibility that categorizes a company’s responsibilities as a whole in four easy-to-understand levels. In this model, the focus is on managers, not owners, as the principals involved in the company’s relationships with its stakeholders. Owners are the stakeholders who invest risk capital in the firm in expectation of a financial return. Other stakeholders include employees, suppliers, and the communities in which the firm does business. Proponents of this model hold that customers, who provide the firm with revenue, have a special claim on managers’ attention.

The pyramid shown in Figure 5.2 provides Archie Carroll’s definition of CSR. The pyramid also helps businesses to understand their philanthropic, community outreach initiatives, donations to charities, or participation in social justice causes, ethical responsibilities, legal responsibilities, and economic responsibilities.

Economic Responsibilities

Economic responsibility refers to the practice of making financial decisions based on a commitment to doing good. To uphold economic responsibility, business leaders are challenged to think past operational cost savings and instead put their obligation to corporate citizenship at the heart of all financial decisions.^[1]

As a fundamental condition or requirement of existence, businesses have an economic responsibility to the society that permitted them to be created and sustained. At first, it may seem unusual to think about an economic expectation as a social responsibility, but society expects business organizations to be able to sustain themselves, and the only way this is possible is by being profitable and able to incentivize owners or shareholders to invest and have enough resources to continue in operation. In its origins, society views business organizations as institutions that will produce and sell the goods and services society needs and desires. As an inducement, society allows businesses to make a profit. Businesses create profits when they add value, and in doing this, they benefit all the business stakeholders.

Profits are necessary both to reward investors/owners and for business growth when profits are reinvested back into the business. CEOs, managers, and entrepreneurs will attest to the vital foundational importance of profitability and return on investment as motivators for business success. Virtually all economic systems of the world recognize the vital importance of businesses making profits to societies. While thinking about its economic responsibilities, businesses employ many business concepts that are directed towards financial effectiveness — attention to revenues, cost-effectiveness, investments, marketing, strategies, operations, and a host of professional concepts focused on augmenting the long-term financial success of the organization.

In today’s hypercompetitive global business environment, economic performance and sustainability have become urgent topics. Those firms that are not successful in their economic or financial sphere go out of business, and any other responsibilities that may be incumbent upon them become moot considerations. Therefore, economic responsibility is a baseline requirement that must be met in a competitive business world, and so economic responsibility is a critical part of corporate social responsibility.

Corporate citizenship is the extent to which a business meets its legal, ethical, and economic responsibilities. Investors are increasingly looking for companies with socially responsible orientations, which can lead to positive stock returns and increased confidence among investors.^[2]

Legal Responsibilities

Businesses have a legal responsibility to comply with laws and regulations at the local, national, and international levels. Society has not only sanctioned businesses as economic entities, but it has also established the minimal ground rules under which businesses are expected to operate and function. These ground rules include laws and regulations, and in effect reflect society’s view of “codified ethics”. They articulate fundamental notions of fair business practices as established by lawmakers at federal, provincial/state and local levels. Businesses are expected and required to comply with these laws and regulations as a condition of operating. It is not an accident that compliance officers now occupy an important and high-level position in company organization charts.

While meeting these legal responsibilities, managers must do the following:

• Perform in a manner consistent with the expectations of government and law
• Comply with various federal, provincial/state, and local regulations
• Conduct themselves as law-abiding corporate citizens
• Fulfill all their legal obligations to societal stakeholders
• Provide goods and services that at least meet minimal legal requirements

Operating a business in Canada involves adhering to various laws, regulations, and acts at the federal, provincial/territorial, and municipal levels.  Business law refers to rules, statutes, codes, and regulations established to provide a legal framework within which business may be conducted. Businesses are subject to many laws; some pertain to operations, while others pertain to human resources and sustainable practices. Legal compliance refers to conducting a business within the boundaries of all the legal regulations of that industry. Legislation governing business practice includes (but is not limited to) the following:

• Income Tax Act, Excise Tax Act
• Bankruptcy and Insolvency Act
• Companies’ Creditors Arrangement Act
• Consumer Protection Act
• Consumer Packaging and Labelling Act
• Food and Drug Act
• Weights and Measures Act
• Contract law
• Textile Labelling Act
•  Hazardous Product Act
• Consumer Product Safety Act
• Motor Vehicle Safety Act
• Aeronautics Act
• Employment Standards Act
• Workplace Health and Safety Act
• Canada Labour Code
• Sale of Goods Act
• Intellectual property law (i.e., patents, copyrights, trade secrets, and trademarks)
• Personal Information Protection and Electronic Documents Act (PIPEDA)
• Competition Act
• Canadian Code of Advertising Standards
• Canadian Business Corporations Act (i.e., incorporation)

Employment-related legislation covers the following subjects: employment standards, human rights, federal and provincial privacy, occupational health and safety, workers’ compensation, and labour regulations.

The Employment Equity Act states that no person shall be denied employment opportunities or benefits for reasons unrelated to ability. It seeks to improve the employment conditions experienced by women, Indigenous peoples, persons with disabilities, and visible minorities.^[3]

The Canadian Charter of Rights and Freedoms is a binding legal document that protects the basic human rights of all Canadians, such as fundamental freedoms, democratic rights, mobility rights, legal rights, equality rights, and language rights. The Charter is often cited in legal cases pertaining to human rights issues. While the Charter allows all Canadians to express their thoughts and opinions freely, it also protects everyone’s right to be treated fairly, without discrimination.

The Canadian Human Rights Act extends the law to ensure equal opportunity to individuals who may be victims of discriminatory practices based on a set of prohibited grounds: race, colour, religion, national or ethnic origin, age, sex, sexual orientation, marital status, family status, disability, or conviction for an offence for which a pardon has been granted.^[4] It applies to all federally regulated activities, but each province and territory has its own anti-discrimination laws that apply to non-federally regulated activities.

Federally regulated organizations must comply with the Canada Labour Code, while other organizations are subject to the Employment Standards and Labour Codes of the individual provinces and territories. For example, in Ontario, under the Employment Standards Act (ESA), you can learn about your employee rights and obligations in this Employment Standards Act guide which describes the rules about minimum wage, hours of work limits, termination of employment, public holidays, pregnancy and parental leave, severance pay, vacation and more.

Ethical Responsibilities

The normative expectations of most societies hold that laws are essential but not sufficient. In addition to what is required by laws and regulations, society expects businesses to operate and conduct their affairs in an ethical fashion. Businesses have ethical responsibilities to ensure fair practices and treat customers, employees, and stakeholders with respect.

Taking on ethical responsibilities implies that organizations will embrace those activities, norms, standards and practices that, even though they are not codified into law, are expected, nonetheless. Part of the ethical expectation is that businesses will be responsive to the “spirit” of the law, not just the letter of the law. Another aspect of the ethical expectation is that businesses will conduct their affairs in a fair and objective fashion, even in those cases when laws do not provide guidance or dictate courses of action. Thus, ethical responsibilities embrace those activities, standards, policies, and practices that are expected or prohibited by society even though they are not codified into law. The goal of these expectations is that businesses will be responsible for and responsive to the full range of norms, standards, values, principles, and expectations that reflect and honour what consumers, employees, owners and the community regard as consistent with respect to the protection of stakeholders’ moral rights. The distinction between legal and ethical expectations can often be tricky. Legal expectations certainly are based on ethical premises. But ethical expectations carry these further. In essence, then, both contain a strong ethical dimension or character, and the difference hinges upon the mandate society has given business through legal codification.

While meeting these ethical responsibilities, managers must do the following:

• Perform in a manner consistent with expectations of societal mores and ethical norms
• Recognize and respect new or evolving ethical/moral norms adopted by society
• Prevent ethical norms from being compromised in order to achieve business goals
• Be good corporate citizens by doing what is expected morally or ethically
• Recognize that business integrity and ethical behaviour go beyond mere compliance with laws and regulations

As an overlay to all that has been said about ethical responsibilities, it also should be clearly stated that in addition to society’s expectations regarding ethical performance, there are also the great, universal principles of moral philosophy such as rights, justice, and utilitarianism that also should inform and guide company decisions and practices.

Philanthropic Responsibilities

Corporate philanthropy includes all forms of business giving. Corporate philanthropy embraces a business’s voluntary or discretionary activities. Philanthropic responsibility is a business’s commitment to improving society through charitable activities, community support, and social initiatives. It’s a key aspect of corporate social responsibility (CSR), and it emphasizes that businesses should not only focus on profit-making.

Philanthropy or business giving may not be a responsibility in a literal sense, but it is normally expected by businesses today and is a part of the everyday expectations of the public. Certainly, the quantity and nature of these activities are voluntary or discretionary. They are guided by businesses’ desire to participate in social activities that are not mandated, not required by law, and not generally expected of businesses in an ethical sense. Having said that, some businesses do give charitably, partly based on ethical motivation. That is, they want to do what is right for society. The public does have a sense that businesses will “give back,” and this constitutes the “expectation” aspect of the responsibility. When one examines the social contract between business and society today, it is typically found that the citizenry expects businesses to be good corporate citizens just as individuals are. To fulfill its perceived philanthropic responsibilities, companies engage in a variety of giving forms — gifts of monetary resources, product and service donations, volunteerism by employees and management, community development and any other discretionary contribution to the community or stakeholder groups that make up the community.

Although there is sometimes an altruistic motivation for business giving, most companies engage in philanthropy as a practical way to demonstrate their good citizenship. This is done to enhance or augment the company’s reputation and not necessarily for noble or self-sacrificing reasons. The primary difference between the ethical and philanthropic categories in the four-part model is that business giving is not necessarily expected in a moral or ethical sense. Society expects such gifts, but it does not label companies as “unethical” based on their giving patterns or whether the companies are giving at the desired level. As a consequence, the philanthropic responsibility is more discretionary or voluntary on the business’s part. Hence, this category is often thought of as good “corporate citizenship.” Having said all this, philanthropy historically has been one of the most important elements of CSR definitions, and this continues today.

In summary, the four-part CSR definition forms a conceptual framework that includes the economic, legal, ethical, and philanthropic or discretionary expectations that society places on businesses at a given point in time. And, in terms of understanding each type of responsibility, it could be said that the economic responsibility is “required” of business by society; the legal responsibility also is “required” of business by society; the ethical responsibility is “expected” of business by society; and the philanthropic responsibility is “expected/desired” of business by society. As time passes, what exactly each of these four categories means may change or evolve as well.

The pyramid should not be interpreted to mean that business is expected to fulfill its social responsibilities in some sequential, hierarchical fashion, starting at the base. Rather, business is expected to fulfill all responsibilities simultaneously. The positioning or ordering of the four categories of responsibility strives to portray the fundamental or basic nature of these four categories to a business’s existence in society. As said before, economic and legal responsibilities are required; ethical and philanthropic responsibilities are expected and desired. The representation being portrayed, therefore, is that the total social responsibility of business entails the concurrent fulfillment of the firm’s economic, legal, ethical, and philanthropic responsibilities. Stated in the form of an equation, it would read as follows:

Economic Responsibilities + Legal Responsibilities + Ethical Responsibilities + Philanthropic Responsibilities = Total Corporate Social Responsibility.

Stated in more practical and managerial terms, the CSR-driven firm should strive to make a profit, obey the law, engage in ethical practices and be a good corporate citizen. When seen in this way, the pyramid is viewed as a unified or integrated whole.

Media Attributions

“Figure 5.2: Carroll’s Corporate Social Responsibility Pyramid” is adapted from Article: Carroll’s Corporate Social Responsibility Pyramid in Fundamentals of Business: Canadian Edition, © Business Faculty from Ontario Colleges and eCampusOntario Program Managers, licensed under CC BY-NC-SA.

“Taxes, Tax evasion, Police image” by Alexas_Fotos, used under the Pixabay license.

Image descriptions

Figure 5.2

A triangle is divided into four horizontal sections, each labelled with different levels of responsibilities, forming a hierarchy. The base section is the widest, labelled “Economic Responsibilities,” with the notes “Be Profitable” at left and “Required by society” at right.

The second section is “Legal Responsibilities,” with the notes “Obey laws and Regulations” at left and “Required by society” at right.

The third section is “Ethical Responsibilities,” with the notes “Do what is just and fair. Avoid harm” at left and “Expected by society” at right.

The topmost section is “Philanthropic Responsibilities,” with the notes “Be a good corporate citizen” at left and “Desired by society” at right.

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