What is Caroll’s CSR Pyramid?
First up, let’s define CSR. CSR stands for corporate social responsibility, it’s an umbrella term that refers to business practices that consider the effects a company has on society, its employees and other stakeholders. It incorporates the idea that companies should play a positive role in the community and also consider the environmental and social impact of their business practices.
By adopting CSR practises a company can achieve a balance of economic, social and environmental considerations, while at the same time addressing the expectations of the company’s stakeholders and shareholders.
Archie Carroll, the creator of Carroll’s CSR Pyramid, adopted a four part definition of CSR:
To be socially responsible a business must meet economic, legal, ethical, and philanthropic expectations given by society at a given point in time.
Caroll’s CSR Pyramid expands on this definition by using the shape of the pyramid to depict the importance of each of the CSR dimensions. It aims to help companies adapt their business practices so that their activities are not only profitable, but also ethical, legally compliant and socially responsible.
Let’s explore each level of the pyramid in a bit more detail.
Level 1 – the foundation of Caroll’s CSR Pyramid – economic responsibilities
According to Carroll’s CSR Pyramid, businesses profitability is the foundation of the pyramid, upon which all the other responsibilities rest.
Caroll argued that businesses have an economic responsibility to society. By providing goods or services they meet the needs of society, and in order to continue doing so the business must be able to make a profit on them.
There are many different stakeholders who may be relying on a company. For example, there may be shareholders who expect a return on their investment, employees who are relying on the company to provide them with fair pay in return for their work, and clients who are relying on them for their goods or services. If a company isn’t able to turn a profit, then the reality of the situation is that they’ll eventually be unable to sustain activity and will cease to operate. Therefore, according to Caroll’s CSR Pyramid, the foundation of a company is based on profitability.
What does this mean in practice?
Being economically responsible asks a company to create and sustain jobs in the community, and to offer beneficial (and non-harmful) products or services. It’s not simply about the bottom line, profit isn’t the only consideration, it also asks businesses to consider the far reaching benefits of any business decisions. For example, a cheap manufacturer may maximise a company’s profit margin, but if it’s taking advantage of cheap labour and maintains poor working conditions then harm is being carried out to the community.
Level 2 of Caroll’s CSR Pyramid – obey the law
The second level of Caroll’s CSR Pyramid covers the legal responsibilities of a company. Companies have a legal responsibility to comply with the relevant legal system’s laws, regulations and business practices – this can be internationally, nationally, regionally and even on a local level.
These rules of law establish how an organisation should conduct their business operations in a fair manner, and generally speaking cover requirements such as complying with employment laws, tax regulations, health and safety requirements, regulations controlling anti-competitive behaviour… the list goes on. Essentially it’s about conducting business practices in a fair manner.
What does this mean in practice?
At the very minimum this level is about protecting a company from legal implications such as penalties or prosecution. The best way for a company to ensure that it’s meeting all of its legal requirements is to maintain a culture of transparency through robust reporting. For example, environmental regulation increasingly requires companies to disclose information on levels of emissions.
Level 3 of Caroll’s CSR Pyramid – ethical responsibility
Sometimes the laws that apply to a company don’t go far enough, and ethical principles are needed to ensure that a company does the right thing.
The third level of Caroll’s CSR Pyramid is all about morals and ethics. Of course laws are often based in ethics as well but they can often lag behind a rapidly changing society. Take climate change for example – sustainability and mitigating harm to the environment was on society’s conscience before legal systems caught up and started to legislate on the matter. This is why businesses need to embrace activities, standards and practices that are based on ethical considerations, even where they haven’t been codified in law yet.
What does this mean in practice?
Ethical responsibilities ask a company to go above and beyond the minimum legal requirements and to do what is right and fair. An example of this could include opting to pay fair taxes instead of structuring the company in a way that means that it pays little or no taxes.
Another smaller-scale example could be adopting environmental policies that will cut down on a businesses emissions. This could be things like offering a flexible work from home policy to employees, or initiating a cycle to work scheme to help cut down on commuting emissions.
Level 4 of Caroll’s CSR Pyramid – philanthropic responsibility
The fourth and final level of Caroll’s CSR Pyramid is philanthropic responsibilities. This embraces voluntary responsibilities that go above and beyond society’s general expectations of what’s required of a business. It asks businesses to be good corporate citizens.
This might sound like businesses are being asked to go the extra mile here, and that philanthropic responsibility is something that’s not really expected of businesses. But nowadays people actively expect companies to give back to the communities that support them.
What does this mean in practice?
Companies should consider how they can actively improve the world around them by going above and beyond what is expected. There are so many examples of ways that companies can achieve this, but just for starters, here are a few to consider: sponsoring local initiatives, entering into charitable partnerships, donating directly to charities, or even establishing their own charitable foundation.
How should a business apply Caroll’s CSR Pyramid?
A Corporate Social Responsibility (CSR) strategy is an important consideration and something that will not only benefit the environment and local communities, but also the business itself through increased profits, better brand perception and stronger employee retention. However, it can be difficult for a company to know where to start.
Creating a CSR strategy can seem like a very involved process, requiring metrics and data from across the business, the assessment of supply chains, and input from a variety of different stakeholders. Caroll’s CSR Pyramid aims to help an organisation implement an effective CSR strategy by providing a framework that helps organisations to clarify their responsibilities.
So, how exactly should a company apply the four principles of Caroll’s CSR Pyramid?
Firstly, it’s important to engage all four levels. Even though Caroll’s CSR Pyramid views economic responsibility as the foundational responsibility, the pyramid should be viewed as a whole and a company should aim to work on all four areas simultaneously. It’s not enough to simply turn a profit.
Hand in hand with this, is the requirement that companies consider more than their shareholders – they should also look to consider all stakeholders. This means everyone from their investors and shareholders who are relying on the company to make them profit, to employees who are looking for a fair wage and a safe environment in which to work, to the consumer who will eventually purchase the goods or services. A company should look to treat all of these stakeholders fairly through its CSR policy.
???? One helpful option that can also be considered by a company looking to create a CSR strategy is the creation of a dedicated CSR role (or even a department). This person(s) would be responsible for ensuring that the CSR policy is implemented in a sustainable way, and for tracking its progress across the business.
Criticisms of Caroll’s CSR Pyramid
Some people wonder if Caroll’s CSR Pyramid is really as relevant now as it was 30 years ago? … Well, the answer is yes, Caroll’s CSR Pyramid is still relevant today. However, that’s not to say that it doesn’t face criticism or challenges. In this section, we’ll look in a bit more detail at what these are:
Some critics note that Caroll’s CSR Pyramid fails to effectively tackle conflicting obligations. It’s highly possible that an organisation finds itself in a situation where ethical considerations are at odds with economic opportunities. For example it may be that a potential new contract, supplier or investor does not align with the company’s ethical stance. Caroll’s CSR Pyramid places economic responsibility as the primary responsibility and critics argue that by placing economic considerations before legal and ethical responsibilities, companies may be more likely to sacrifice social and environmental concerns for economic ends.
Another criticism levelled at Caroll’s CSR Pyramid is that ethics should be given greater weight. Thanks to globalisation many companies now operate across a variety of jurisdictions with different legal systems and regulatory standards. Therefore, a company may find itself in the situation where it can meet the legal requirements of a territory, yet these legal requirements might fall short of the legal requirements (or morals) of another country, leaving ethics to fill the gap. In effect, this means that the social responsibility of a company is heavily reliant on level 3 ethics if it wants to ensure consistency across countries. Some argue that this means that ethics should be given more importance in the CSR pyramid.
❗️ Even though Caroll’s CSR Pyramid places a hierarchy on the different considerations that make up a CSR strategy, companies should be wary to prioritise profits at the expense of other levels of the pyramid. Companies who are found to be falling short on their corporate social responsibility obligations risk being called out and ruining their reputation. This is especially true when it comes to environmental policies. Where this is found to be not much more than a facade, companies will be accused of greenwashing – something that can permanently damage their brand identity.
???? A successful company CSR can only be achieved when all four levels of Caroll’s CSR Pyramid impact a company’s activities.
The benefits of Caroll’s CSR Pyramid
The four part definition of Archie B. Caroll’s CSR Pyramid was first published in 1979 (before finally being expanded on and taking its well known pyramid form in 1991), and yet it has endured over the years. To this day, Caroll’s CSR Pyramid is one of the most popular corporate theories of CSR thanks to its simplicity and ability to withstand the test of time.
But this is not the only reason, recent studies have shown that companies practising CSR are more successful. They demonstrated higher profit margins, increased valuations, and lower risk (ie. they deliver more stable returns, even in tough economic conditions). CSR can even boost brand awareness and contribute to product or service differentiation meaning that it can help a company to stand out from the competition.
By focusing on ethical and philanthropic responsibilities such as sustainability, or ‘going green’, companies can also reap direct financial benefits from cost cutting. Reducing carbon emissions and switching to renewable energy can lower the cost of utility bills, as can improving supply chain and production efficiencies.
The fact of the matter is, in today’s society we expect more from our businesses. Companies need to be good corporate citizens. Profits are no longer the singular indicator of success, and an organisation’s survival may very well depend on its ability to adapt to this more socially conscious market. Caroll’s CSR Pyramid, while not perfect, is incredibly useful and helps companies to integrate corporate and social responsibilities into their organisation’s activities.
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