Corporate social responsibility (CSR) and stakeholder theory help in guiding the development of a firm’s value. These two are strongly connected. For instance, when CSR is tackled, stakeholder theory is also typically addressed. In fact, it is difficult to satisfy corporate social responsibility without considering the stakeholders of the organization. In this way, efforts to improve the firm’s value are more successful if both CSR and stakeholder theory are applied at the same time.
Corporate Social Responsibility (CSR)
In describing corporate social responsibility, one should note of the three words in this term. The word “corporate” refers to the business organization. The word “social” refers to the citizenship of the firm in society. The word “responsibility” means that the firm is responsible for fulfilling something for society. Note that CSR does not specifically state that there are stakeholders. Instead, it just says that the firm has social responsibilities. Thus, CSR is the responsibility of the firm to society. With CSR, the firm should help contribute to the improvement of society or at least minimize negative effects on society. For example, the firm has the corporate social responsibility of making sure that it does not deplete natural resources it uses. The firm also has the social responsibility of contributing to the economic development of the community where it operates. Fulfilling these responsibilities contribute to the firm’s value.
Stakeholder Theory (Stakeholder Model)
Corporate social responsibility typically comes along with the stakeholder theory. The stakeholder theory states that the firm is not isolated or entirely separate from society. Instead, the firm is part of society. As a result, the theory argues that the firm has certain duties and responsibilities to the stakeholders, or the parties impacted by the firm’s business. For example, the firm has certain responsibilities to help promote better health of consumers. The firm also has the responsibility in promoting economic development of a community in exchange for getting profits from the consumers in the community. These responsibilities are typically viewed collectively as corporate social responsibility. The stakeholder model simply states that such responsibilities should address the concerns of the stakeholders. The main difference is that the concept of corporate social responsibility refers to the firm’s responsibility in general, while the stakeholder model refers to the responsibilities of the firm to specific parties also known as the stakeholders of the firm.
Why Corporate Social Responsibility and Stakeholder Theory are Important
Why are corporate social responsibility and stakeholder theory important for a firm’s value?
CSR and the stakeholder theory are important because they directly and/or indirectly relate to firm performance. In essence, the firm’s value increases when it is able to satisfy the interests of different parties based on the stakeholder model. For instance, one of these parties is the population of consumers. Consumers are typically interested in getting high quality and more healthful options. Using the stakeholder model would require firms to develop high quality and more healthful products. When this happens, consumers are satisfied and could become more loyal to the firm and its products. Thus, the firm’s value is increased not just socially, but financially, as well. In a similar manner, the firm’s value increases when it helps communities develop because community members would be more capable and willing to pay for more of the firm’s goods or services in return.
On the other hand, the concept of corporate social responsibility establishes recognition of the firm’s responsibilities in general. In satisfying these responsibilities, there is an increase in the firm’s value. The stakeholder model can be used to guide the firm in identifying and satisfying these responsibilities. Using CSR simply generalizes what the firm’s responsibilities are. However, using the stakeholder model in combination with CSR can focus the firm’s efforts in satisfying the concerns of the specific stakeholders. In this way, the stakeholder model helps guide the firm’s activities to satisfy the stakeholders and, as a consequence, increase the firm’s value.
The firm’s value increases when the firm becomes more effective in satisfying its corporate social responsibility or CSR. The firm’s value also increases when it effectively satisfies its corporate social responsibility to the specific stakeholders, based on the stakeholder theory (stakeholder model). Applying the stakeholder model combined with corporate social responsibility maximizes effectiveness and success in increasing the firm’s value.
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- Russo, A., & Perrini, F. (2010). Investigating stakeholder theory and social capital: CSR in large firms and SMEs. Journal of Business Ethics, 91(2), 207-221.