Integrating CSR into Corporate Governance: A Stakeholder Approach

This report addresses the growing discord surrounding Corporate Social Responsibility (CSR) and its potential to become a superficial part of corporate strategy. It introduces a new conceptual framework for embedding CSR within corporate governance using a stakeholder systems approach. The framework integrates company, shareholder, and wider stakeholder concerns, delineating key stages of the governance process to align profit-centered and social responsibility objectives. By incorporating stakeholder evaluations and focusing on organizational justice, the model aims to balance effectiveness and equity expectations, turning values into processes for sustainable business practices. It emphasizes the importance of multi-stakeholder perspectives and linking macro-level CSR activities with micro-level consequences, ultimately seeking to reconcile the conflicts between CSR rhetoric and the reality of corporate governance systems.

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Embedding Corporate Social Responsibility in
Corporate Governance: A Stakeholder Systems
Approach
Article in Journal of Business Ethics · January 2014
DOI: 10.1007/s10551-012-1615-9
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Embedding Corporate Social Responsibility in Corporate
Governance: A Stakeholder Systems Approach
Chris Mason• John Simmons
Received: 26 April 2012 / Accepted: 30 December 2012
Springer Science+Business Media Dordrecht 2013
Abstract Currentresearch on corporate socialresponsi-
bility (CSR) illustrates the growing sense of discord sur-
roundingthe ‘businessof doing good’ (Dobersand
Springett,Corp Soc Responsib Environ Manage 17(2):
63–69,2010).Central to these concerns is that CSR risks
becoming an over-simplified and peripheralpartof cor-
porate strategy.Ratherthan transforming the dominant
corporate discourse,it is argued thatCSR and related
concepts are limited to ‘‘emancipatory rhetoric…defined
by narrow business interests and serve to curtail interests of
externalstakeholders.’’(Banerjee,Crit Sociol 34(1):52,
2008).The paperaddressesgapsin the literatureand
challenges currentthinking on corporate governance and
CSR by offering a new conceptualframeworkthat
responds to the concerns of researchers and practitioners.
The limited focus ofexisting analyses is extended by a
holistic approachto corporategovernanceand social
responsibility thatintegratescompany,shareholderand
wider stakeholder concerns.A defensive stance is avoided
by delineating key stages of the governance process and
aligning profit centred and social responsibility concerns to
produce a business-based rationale for minimising risk and
mainstreaming CSR.
Keywords Corporate governance Corporate social
responsibility Stakeholder systems
Introduction
Currentresearch on corporate socialresponsibility (CSR)
illustrates the growing sense ofdiscord surrounding the
businessof doing good (Dobersand Springett2010).
Centralto these concerns is thatCSR risks becoming an
over-simplified and peripheralpartof corporate strategy.
Rather than transforming the dominant corporate discours
it is argued thatCSR and related concepts are limited to
‘emancipatory rhetoric… defined by narrow business
interests and serve to curtailinterests ofexternalstake-
holders’ (Banerjee 2008,p. 52).The focalpointof criti-
cism on CSR is the boards of directors,as this key group
defines and implements corporate strategy,and serves to
safeguard theinterestsof key beneficiaries.Thus, we
contend that a gap in research knowledge exists relating t
CSR and its enactmentthroughcorporategovernance
systems. We respond to this gap by focusing on CSR’s role
in corporate governance by offering a new conceptual
framework.To addressthe limited knowledge we have
used a holistic approach to corporate governance and CSR
that integrates company, shareholder and wider stakehold
concerns.A defensive stance has been avoided by delin-
eating key stages of the governance process and aligning
profit-centred and social responsibility concerns to produc
a business-based rationale forminimising financialrisk
and mainstreaming CSR (Paulet2011;Katsoulakosand
Katsoulakos 2007).We have also addressed the discon-
nection of many salientstakeholders from company deci-
sions on CSR by incorporating stakeholder evaluation of
C. Mason (&)
Faculty of Business and Enterprise,Swinburne University
of Technology,Hawthorn Campus,Melbourne,VIC 3122,
Australia
e-mail: [e-mail]
J. Simmons
Liverpool Management School,University of Liverpool,
Chatham Street,Liverpool L69 7ZH,UK
123
J Bus Ethics
DOI 10.1007/s10551-012-1615-9

the effectiveness and equity of system outcomes ateach
stage of the governance model that the paper proposes.
Corporate Governance and CSR: A Combined
Stakeholder Perspective
Corporate governance is conceptualised as the creation and
implementation of processes seeking to optimise returns to
shareholderswhile satisfying the legitimate demandsof
stakeholders (Durden 2008).Aligned with this,we have
adopted Sachs etal. (2006) approach thataligns a stake-
holderperspectiveof CSR and corporategovernance.
Viewing corporate governance through a stakeholder lens
broadenstraditionalshareholder-centricand hub-spoke
approachesto organisation–stakeholderrelationships
(Andriof et al. 2002). It facilitates consideration of a wider
rangeof corporategovernanceissues,contributesto
stakeholdermanagementdecisionson ‘who and what
really counts’ (Mitchell et al. 1997), and extends company
directorduties to include formalconsideration ofstake-
holder perspectives and agendas.Stakeholder approaches
also facilitate a heightened awareness ofCSR, business
ethics,and business practices thatenable more informed
decisions on stakeholder salience (Fassin 2010) and more
robust CSR evaluations (Fassin and Buelens 2011).
Greater recognition of stakeholder perceptions of CSR
may also addresses issues identified in recent research, that
stakeholder engagement in corporate governance is largely
characterised by low powerand low influence (Spitzeck
and Hansen 2010); that the salience of a stakeholder group
is a potent antecedent of an organisation’s perceived social
obligation to them (Mishra and Suar 2010); and that gov-
ernance processes generally failto accord to stakeholder
expectations(Law 2011).Stakeholdertheory also high-
lights organisationaljustice,and the awareness ofstake-
holder perspectives on the equity of corporate governance
(Freeman 2010).It also challenges the primacy thatcor-
porate governance traditionally accordsshareholders,of
being residual risk-takers.
Consequently,we synthesised a key rationale as com-
prising the need forCSR analysesto adopta systemic
approach to balance shareholder and stakeholder interests,
and to incorporate methods of corporate governance cor-
responding with CSR.There is significant support for this
rationale.Existing research advocates conceptualframe-
works that include ethical standards,structures,processes,
and performance (Svensson and Wood 2011), or ones that
differentiate system principles,procedures and effective-
ness (Cegarra-Navarroand Martinez-Martinez2009).
However,we are mindfulthatreplacing a shareholder-
centric mode of corporate governance with one focused on
ethicalconcernsis unlikely to find favourwithin the
business community. Yet acceptance that a wider range o
stakeholders have legitimate expectations has resulted in
proposals to align profitcentred and socialresponsibility
modelsof corporate governance (Waring 2008),and to
balance‘shareholdervalue creation’with ‘stakeholder
value protection’ (Law 2011). Indeed, some studies sugge
that the maximisation of shareholder value may well entai
company directors pursuing a widerrange ofsocialand
economic objectives that are consistent with CSR (Tudgay
and Pascal 2006).
A broader-based auditof CSR can evaluate corporate
governance systems,policies,and outcomes in relation to
their contribution to business effectiveness, as well as how
well they meet stakeholder expectations of customer care
employeeinvolvement,appropriaterelationshipswith
government,and sustainability.The corporate failures and
malfeasance of the 1990s, together with their reappearanc
in the recentbanking crisis,have increased systemic risk
(Paulet 2011). This has prompted calls from sections of the
business community, politicians, and the general public fo
more timely,comprehensiveand rigorousmethodsof
corporate governance thataccord with CSR principles of
inclusivity, materiality, and responsiveness (Rasche 2010)
We have responded to these calls by offering a combined
systemsapproach thatseeksto reconcilethe conflicts
between CSR rhetoric and the reality of corporate gover-
nance systems and their capabilities.
A Stakeholder Systems Model of CSR: Overview
Limitationsin currentpractice ofcorporate governance
require a new conceptualframework thatbalances effec-
tiveness and equity expectations ofCSR. Our approach
therefore aligns with longstanding views thatthe purpose
of organisations is to delivereconomic and ethicalper-
formance to society (Sherwin 1983). Effectiveness has been
assessedbasedon CSR’s contributionto organisation
objectives,and equity expectationsby stakeholderper-
ceptions ofhow they are treated by the organisation in
CSR-relatedcontexts.Donaldsonand Preston(1995)
claimed that all stakeholder theories contain three separat
attributes.‘Descriptive’ in thatthey involve a description
of how organisations operate;‘instrumental’in thatthey
examine how stakeholdermanagementcan contribute to
the achievement of organisation goals; and ‘normative’ in
thatthey provide an ethicalrationale forapproaches to
stakeholder management (Fig.1).
The stakeholder systems modelthatwe propose incor-
porates these three attributes. It can be used descriptively
identify particular stakeholder groups’ expectations of the
organisation,how organisations respond to these expecta-
tions,and theimplicationsfor both partieswith their
C. Mason,J. Simmons
123

expectations being met.It has an instrumental application
by demonstrating how effective stakeholder management
can make a significantcontribution to organisation effi-
ciency,effectiveness,and reputation.Normatively,it uses
equity as an ethical basis for stakeholder management, via
organisationaljusticedimensionsto assessstakeholder
satisfaction with CSR philosophy,process,and outcomes.
Current research identifies the challenge of turning values
into processes, and this remains a key barrier to sustainable
business practice (Ballinger 2011). By incorporating values
(organisationaljustice dimensions)into evaluation pro-
cesses(stakeholderperceptionsof system equity),the
stakeholder systems model represents both a rationale and
a method for achieving this.
Literature on the incorporation of values into manage-
ment control systems (MCSs) is limited and under-resear-
ched (Durden 2008). These issues centre on the omission
CSR measuresfrom conventionalMCSs, which in turn
creates uncertainty on who salient stakeholders are, their
expectations and how theirSR satisfaction can be mea-
sured.A SR MCS incorporates socialand environmental
considerations alongside financial,combines external,and
internalstakeholder perspectives on SR performance,and
recognises stakeholderexpectations when evaluating SR
outcomes (Durden 2008).The stakeholder systems model
we propose subsumes these features and builds on them i
the following ways.It identifies salientstakeholdercon-
stituencies,and delineatestheir expectationsof a SR
Fig. 1 A stakeholder systems
model of CSR
A Stakeholder Systems Approach
123

organisation;specifies the design,operation,evaluation,
and reporting stages of a SR MCS; links stakeholder per-
ceptions of whether their expectations have been met with
organisationaljustice dimensions;and relates an organi-
sation’scumulative evaluation ofSR outcomesto the
ways in which this information is disseminated.Thus,it
respondsto recentcalls to evaluate CSR from multi-
stakeholderperspectives(Mishra and Suar,2010),and
to link macro levelactivity (CSR)with its micro level
consequences(perceptionsof organisationaljustice)
(Rupp et al. 2006).
Stakeholder salience and organisationaljustice provide
the frame of reference that underpins the stakeholder sys-
tems model.The modelrepresents a holistic approach to
corporate governance and CSR thatintegrates company,
shareholder,and wider stakeholder concerns. It recognises
the paradox thatsociety is demanding more ofbusiness
while simultaneously trusting itless (Rake and Grayson
2009). The implication is that responsible CSR is no longer
aboutindividualprojects or programmes,butrather how
the totality ofbusinessactivity impacts on organisation
stakeholderssuch as customers,suppliers,employees,
communities, government, and the environment (Rake and
Grayson 2009).
The main stagesof the stakeholdersystemsmodel
therefore comprise the following. First, the model identifies
the stakeholder groups that seek recognition of their CSR
claims and agendas in the corporate governance process.
Second,it analyses the factors thatinfluence board deci-
sionson stakeholdersalience and delineatesthe stake-
holder constituenciestypically accordedsaliencein
corporategovernance.Third, it providesa method of
evaluating stakeholder satisfaction with CSR effectiveness
and equity at the strategy, operations, and outcomes stages
of the corporate governance system.Finally,it offers a
framework forincorporating stakeholderassessmentsin
overall company evaluation of CSR, as well as determining
how effectively such evaluation is actioned and commu-
nicated to stakeholders.
Organisational Justice and the Socially Responsible
Organisation
We have utilised organisational justice to develop an ethical
framework thatcan be applied in CSR contexts,drawing
from a Rawlsian view of justice as the pre-eminent value of
socialinstitutions (Ahmed and Machold 2004).Organisa-
tionaljustice has been defined as the study of fairness at
work,and the literature suggests it has three distinct com-
ponents:distributive,procedural,and interactionaljustice
(Palaiologos et al. 2011). Distributive justice relates to the
perceived fairness of the outcomes that individuals or groups
receive from an organisational system, procedural justice
the perceived fairness of the processes used to determine
outcomes ofthe system,and interactionaljustice is the
perceived fairness of the interpersonal treatment individua
or groups receive from the organsation.
The concept of organisational justice can be extended b
applying itto stakeholderperceptions ofequitable treat-
mentin an organisation context,together with stakehold-
ers’ attitudinaland behaviouralresponsesto such
perceptions.Componentsof organisationaljusticeare
related to stakeholder perceptions of equity in the above
three CSR domains,and are therefore utilised at different
stages of the stakeholder systems model.The distribution
of organisation resources as an outcome of CSR decision-
making determinesthe levelof distributive justice;the
equity of CSR systems relates to stakeholder perceptions o
procedural justice; and how fairly managers treat employ-
ees in the enactment of CSR systems determines their lev
of interactionaljustice (Erdogan etal. 2001).The use of
organisationaljustice alignswith equity theory in sug-
gestingthat stakeholdersreducetheir commitmentto
organisation systems they believe treat them unfairly (Flin
1999).It also aligns with psychologicalcontractresearch
thatindicatesstakeholdersupportis more likely when
factors thatgive rise to mutuality are presentin the cor-
porate governance system (Rousseau 2001). Organisation
justice dimensions therefore represent strong rationales fo
stakeholder viewpoints to be recognised as key measures
the equity of CSR systems.
A normative rationale for the stakeholder systems mode
is further developed by utilising Niebuhr and Gustafson’s
concept of ‘the responsible self’ (1963). This suggests that
individuals act responsibly if they consider the consequenc
of envisaged actions for those affected by them in a mann
analogous to the ‘ethical foresight’ capability identified by
Nijhof and Jeurissen (2006). We relate this to CSR contexts
by proposing the concept of ‘the responsible organisation’
Responsible organisations are those whose corporate gov-
ernance systems recognise relationships with a range of
stakeholders,and establish systems to facilitate fairdis-
course with them on potential strategy initiatives (Simmon
2008). Such organisations demonstrate ethical foresight b
anticipating thepossibleconsequencesof their actions
within their sphere of influence (Nijhof and Jeurissen 2006
While many organisations recognise instrumental ratio-
nales for dialogue with stakeholders thatcan facilitate or
impede organisation actions,the responsible organisation
goes further by acknowledging a duty of care for all stake-
holders,including those who are affected by organisation
decision-making butwho have limited scope to influence
this.The participatory stance of responsible organisations
towards stakeholders is similar to Kohlberg’s (1969) ‘just
community’ theory, where members engage in meaningfu
C. Mason,J. Simmons
123

dialogue overmattersof moralsignificance (Maclagan
2007). We recognise that this view of the corporation and its
role in society represents a challenge to currentbusiness
models. However, this view is supported by others who have
a similar vision of the ‘responsible and sustainable corpo-
ration’, and whose point of departure is also the company’s
relationship with its stakeholders (e.g., Lozano 2008).
Integrating Normative and Instrumental Expectations
of CSR
A longstanding dichotomy in CSR literature is the basis on
which organisationsshould managetheir stakeholder
relationships (Roberts 1992). One school of thought adopts
a normative approach and evaluates CSR on whetherit
represents SR behaviourtowards stakeholders,while the
other (instrumental) approach assesses the extent to which
stakeholder awareness of an organisation’s CSR activities
enhances corporate performance and reputation. Mindful of
the two perspectives, we suggest that they do not represent
a ‘zero sum game’ whereby acceptance of one obviates the
other. Ethical principles are compatible with profit seeking
aims, as long-term,sustainablebusinessperformance
necessitates regard for the organisation’s impact on wider
society and the environment (Jones 2012).
Some current research suggests that a CSR perspective
on business performance is bestachieved by considering
the voice of multiple stakeholders (Lozano 2005),which
we concurwith. However,a holistic assessmentwould
incorporate stakeholder evaluation of the effectiveness and
equity of CSR atthree stages:CSR strategy,CSR opera-
tions, and CSR results. Strategydecisionsdetermine
stakeholderperspectivesof the legitimacy ofCSR, the
implementationof CSR operationsshapesstakeholder
evaluation ofthe processesand how stakeholdersare
treated by them,and at the resultsstagestakeholders
evaluate how closely CSR outcomes match their expecta-
tions.While recognising effectiveness and equity expec-
tations ofCSR, we concentrate on the latter—a central
critique of CSR is thatit lacks any principle of justice to
guide the processof mediationbetweenstakeholders
(Koslowski 2000).
Stakeholder Claims and Agendas
Stakeholder often seek to influence an organisation’s CSR
philosophy and practice,with particulargroupssuch as
local and nationalcommunities,the media,government
and government agencies being seen as having a lesser or
episodic impact(e.g.Simmons 2008).Broaderconsider-
ation of stakeholder expectations is appropriate,as Archel
et al. (2011)found in an empiricalstudy ofCSR pro-
grammes in Spain,where stakeholder consultations often
resulted in a silencing of divergent voices from the domi-
nantCSR discourse.Thus,we have guardedly theorised
broad interpretations of the stakeholder expectations,each
of which has the capability to exert instrumental or moral
leverage on the focal organisation.While recognising that
notall stakeholders prioritise CSR,studies show thatan
increasing proportion regard an organisation’s stance on
CSR as a significant influence on their relationship with it
(Drews 2010).
Externalconstituenciesincludeinvestorswho want
profitable and socially responsible investmentthatalso
enhances corporate reputation;customers who seek prod-
ucts,services,and supply chainsthathave ‘green’cre-
dentials (Hess and Warren 2008);suppliers thatseek to
work in partnership with companies that respect fair trade
principles and do notabuse their monopoly power;gov-
ernment, regulators, and auditors seeking compliance with
legislation and codes ofconduct,internalmonitoring of
CSR practice,and transparency in CSR reporting;and
communities and pressure groups that expect companies
recognise the impactof theirCSR decision-making on
employmentand the environment.Employees constitute
the organisation’s internalstakeholders,with expectations
of demonstrated SR in its people managementpractices
and in treating otherstakeholders in line with employee
social values (Cheng and Ahmad 2010). Research suggest
that employeedecisionson retention,motivation,and
advocacy are influenced by this evaluation (Drews 2010).
The significance ofstakeholderexpectations is deter-
mined via an evaluation thatassessesthe legitimacy,
leverage, and urgency of stakeholder claims (Mitchell et a
1997).Managementdecisionson stakeholdersaliency
mean thatcertain stakeholderperspectives are acknowl-
edgedas requiringreconciliationwith thoseof other
stakeholder groups.We have followed Papasolomou et al.
(2005) in focusing on three main categories of stakeholder
expectation thatare likely to be recognised by organisa-
tions: investors,customers,and suppliers; employees; and
socialand environmentalgroups.The precise nature and
saliency ofstakeholderclaims—andtheir organisation
responses(Laudal,2011)—areinfluenced by thesize,
industrial sector and resources of the focal organisation, th
CSR-related expectationslikely to emanate from stake-
holder are described below.
The CSR System: Stakeholder Expectations
Our focus on stakeholder enables a more holistic view of
CSR. Key stakeholdergroupsanticipatethe beneficial
impact of CSR in the following ways. Investor expectations
A Stakeholder Systems Approach
123

of CSR relate to itsanticipated impacton otherstake-
holders and the benefits that should accrue to the company
as a result,and are therefore similarto those ofsenior
management.Customerexpectations centre on the func-
tional, social, and emotional benefits of CSR in relation to
the products or services that they purchase (Becker-Olsen
et al. 2006). When these customer benefits are forthcoming,
they enhance brand attributes and value that are reflected in
greatercustomerattraction,retention,and trust—and in
new marketingopportunities.Employeesseek similar
benefits in an employment context, and studies suggest that
employee recognition of socially responsible people man-
agement practices are reflected in higher quality and lower
costrecruitment,and improved levels of staff motivation
and retention (Collierand Esteban 2007).Similarly,the
higherregard ofcommunities and environmentalistsfor
organisations they see as recognising theirsocietalobli-
gations is likely to resultin greater marketing opportuni-
ties, minimisingrisk, and as a meansof enhancing
company value (Petersen and Vredenburg 2009).Cumu-
latively, the expected benefits to organisations that succeed
in meeting CSR expectations of key stakeholder groups are
increased company revenue and profitability,lower costs,
easier access to finance,and a greater capability to inno-
vate.The CSR expectationsof noninvestorstakeholder
groups are now considered in greater detail.
As noted previously, customers anticipate-specific func-
tional, social, and emotional benefits or ‘value drivers’ from
theirpurchaseof CSR-enhanced productsand services
(Green and Peloza 2011).Functional value is the tangible
benefit the customer obtains from using such products and
services (for example,a hybrid car will deliver lower fuel
consumption).Socialvalue is the additionalbenefitcus-
tomers anticipate when others recognise that their purchase
accords with relevant social norms (e.g. anticipated positive
regard forinstalling solarpanels).Emotionalvalueis
achieved when the customer’s self-worth is enhanced by the
belief that their purchase will also benefit wider society or
the environment.Recentresearch suggests thatthe func-
tionalvalue componentis more influentialon customer
attitudes and behaviour than the indirect impact of social and
emotional benefits (Ferreira et al. 2010).
Employees expectsimilar CSR values to those of cus-
tomers.A recentstudy attests thatemployees seek func-
tional,economic,psychological,and ethical benefits from
their employing organisations (Simmons 2009). Functional
benefits are obtained if employment provides challenging,
stimulating and fulfilling work;economicbenefitsare
derivedfrom competitivecompensation;psychological
benefits accrue from employee involvementin a valued
work role;and ethicalbenefits are anticipated from the
equitabletreatmentemployeeshope to experience.
Cumulatively,provisionof thesebenefitsis seen as
indicative of a socially responsible employer,and the sig-
nificance of employee expectation of socially responsible
behaviour by their employer is supported by a recent stud
identifying this as a main driver of CSR practice (Mont and
Leire 2009).
Community and environmentalgroup expectations of
socially responsible practice arebroaderthan those of
investors, customers, and employees. Moreover, the diffus
or nonhuman nature of these stakeholders means that the
interestsmay be advanced by ‘stakewatchers’,such as
regulators,pressure groups,or activists who legislate or
lobby on their behalf (Fassin 2010).Some of their expec-
tations span community and environmental constituencies
and communityconcernrelatesto particularlocal or
nationalcontexts,while the focus of environmentalists is
unlikely to be constrained by national boundaries.
Both stakeholder groups seek organisation compliance
with relevantlegislationand regulation,timely, and
transparent disclosure of information, scope for their views
to be taken into accountin organisation decision-making,
and safe practice, for example regarding effluent and wast
disposal.However,community pressure groups are likely
to have more specific expectations of companies on issues
such as nonpredatory pricing, the availability of capital for
smallbusinesses,and a generalised expectation thatcom-
panies willavoid the extremes oftax avoidance by rec-
ognising fiscalobligations.In contrast,those representing
environmentalinterests expecttheir broader and transna-
tionalconcerns such as sustainable resource acquisition,
utilisation and disposal to be respected by the organisation
Community influence on socially responsible practice may
also take the form of media,a rating agency or regulator
attention that can act as significant drivers for organisatio
to enhance their CSR performance (Mont and Leire 2009;
Fassin 2010).
The CSR System: Philosophy and Strategy
Having identified the expectations of key stakeholders, we
now propose that the degree of salience accorded to these
groups willdrive the developmentof CSR-focused phi-
losophy and strategy.At a board level,such key decisions
such be taken mindfulof the disparate and potentially
competing demands of these groups.We argue thatsuch
decisions invite consideration of stakeholder perceptions o
organisationaljustice—meaningthat the organisation’s
treatment of different stakeholder groups is contingent on
the just distribution ofresourcesamong thosegroups
(distributivejustice),equitablemethodsof determining
these groups(proceduraljustice),and fairtreatmentof
groupmembers(interactionaljustice)(Erdoganet al.
2001).In the model,the equity ofCSR philosophy and
C. Mason,J. Simmons
123

strategy isassessed by stakeholderperceptionsof their
procedural justice.
The CSR System: Process and Operations
More and more companies claim to be ‘doing the right
thing’ in relation to CSR and corporate governance, yet for
many the impactis restricted to an espoused philosophy
that has limited influence on business operations (Roberts
2001).Infusion of CSR into allaspects of business oper-
ationsrequiresthe integration ofhard wiring and soft
wiring approaches (de Wit et al.2006).
Hard wiring is grounding CSR in organisation systems
and protocols. Examples of these include the criteria used for
employee selection,promotion,and reward; promulgation
of codes of ethics and codes of conduct;the use of CSR
parameters in new productdevelopment;socialdue dili-
gence assessment of business projects; and regular reporting
on the socialand environmentalimpactof the business
(Greenwood 2001).Softwiring relates to the infusion of
CSR into cultural aspects of the business (de Wit et al. 2006).
Examples include senior managers acting as exemplars of
socially responsible business practice;sustainability as a
core cultural value in ‘the way things are done around here’;
supportfor CSR initiativesthatgo beyond the formal
boundaries of the organisation, facilitating socially respon-
sible supplier and logistics practices; a willingness to choice
influence orchoice editcustomertastes;and the use of
opinion surveys for periodic monitoring of staff attitudes
(Rodrigo and Arenas 2008).
The CSR System: Outcomes and Implications
Performance measurementhas been defined as ‘the com-
parison ofresultsagainstexpectationswith the implied
objective oflearning to do better’(Rouse and Putterill
2003, p. 275). This broaderperspectiveincorporates
financialand nonfinancialaspectsof performance,and
incorporates stakeholder expectations in the evaluation of
performance measures(Rouse and Putterill2003).Four
key perspectives on CSR outcomes are considered here:
investors,customers and suppliers,employees,and com-
munity and environmentgroups.Even thoughthese
stakeholder evaluation domains are considered separately,
it is recognised thatthere is significantinterrelationship
between them.Ethicalconcernsaboutbusinesspractice
involve a basic dislocation arising out of phenomenological
beliefsand experiencesthat‘thingsare out of place’
(Beverungen and Case 2011). This multi-source evaluation
represents ‘‘a broader view of corporate accountability in
which there are as many bottom lines as there are stake-
holders’’ (Pava 2011,p. 53).
The evaluation processes and outcomes are now consid
ered in more detail.Investors and customers seek confir-
mation of the functional,emotional,and social benefits of
CSR-related purchases,while both customer and supplier
commitment is influenced by whether the company is view
as evidencing sustainable manufacturing, service provision
and supply chains.The positive regard of customers and
suppliers is manifested in increased sales, loyalty, coopera
tion, and advocacy (Cuganesan 2006). Employees evaluat
the ethicality of the people management practices that th
experience (Collierand Esteban 2007),while employee
evaluation isalso influenced by theirperception ofthe
impactof the organisation’s wider CSR practice on cus-
tomers,communities,and the environment(Rupp etal.
2006).As noted above,favourable employee evaluation
resultsin enhanced attraction,loyalty,and commitment
(Davies and Chun 2002).Community and environmental
group evaluation isbased on the company’sperceived
alignment with industry, national or international standard
whether itembodies responsible and sustainable business
practice; the timeliness, transparency, and responsiveness
its reporting practices; and whether the organisation is con
sidered to be a ‘good neighbour’ by communities that coe
alongside it. Positive community and pressure group evalu
ation enhances organisation reputation and ethical capital
and the equity of CSR outcomes is assessed by stakeholde
perceptions of their distributive justice.
The CSR System: Company Evaluation and Reporting
We suggestthatresponsible organisationswill draw on
stakeholder perspectives in their cumulative evaluation of
CSR, and utilise these to assess CSR’s influence on the
organisation’sefficiency,effectiveness,equity,environ-
mental impact, and external reputation. Using these in tur
the efficiency ofCSR can be assessed by the extentto
which CSR principles and standards are incorporated into
organisation controland performance managementsys-
tems; CSR effectiveness by an overall cost-benefit analysis
of its organisational impact over an appropriate timescale;
CSR equity by utilising stakeholderperceptionsof the
justiceof CSR processes,interactions,and outcomes;
CSR’s environmental impact by the level of sustainability
in the organisation’s resource acquisition,utilisation and
disposal;and CSR’s externalreputation influence by the
extent to which its ethical capital has been enhanced acro
stakeholder groups.
An organisation’s obligations in relation to CSR remain
pertinent,comprising the dissemination of information to
and dialogue with key stakeholder groups.Dissemination
A Stakeholder Systems Approach
123

involves reporting back to stakeholder constituencies via a
CSR version of the Balanced Scorecard(Kaplanand
Norton 1992). Dialogue is via organisation commitment to
involve stakeholders in the actions itintends to take as a
result of evaluating CSR.
Conclusion
Throughoutthis paper,we have proposed a conceptual
modelthatrepresentsa rationale forand a method of
embedding CSR in corporate governance.Adoption of a
stakeholder perspective identifies the limitations of current
CSR approaches, recognises the need to incorporate effec-
tiveness and equity assessments of CSR impact, and delin-
eates key stakeholderconstituencies and the factors that
determine their salience.The CSR-related expectations of
four stakeholder constituencies—investors,customers and
suppliers,employees,and community and environmental
groups—have been identified,and we contend thatthese
drive the development of CSR philosophy and strategy.
The paper’ssystemicapproach linksemergentCSR
strategy to its enactmentthrough CSR processes,which
then resultin a range ofCSR outcomes.Organisational
justice concepts are deployed to evaluate stakeholder per-
ceptions of system equity at each stage—with procedural,
interactional,and distributivejusticerelatingto CSR
strategy,process,and outcomes,respectively.We contend
that stakeholder groups compare CSR outcomes with their
expectations,and thatthese assessments have attitudinal
and behaviouralimplications.Subsequentorganisation
evaluation of CSR should draw on the same of its stake-
holders,and the resultantassessmentwill inform ofany
required revision to its CSR stance.Organisationalobli-
gations in relation to CSR continue via an acceptance of
the need to report back to stakeholders on CSR outcomes,
togetherwith a commitmentto remain in dialogue with
them on actions that the organisation may take as a result.
The significance ofour stakeholdersystems modelis
that it representsa formalised processof stakeholder
engagement that enables organisations to take stakeholder
views into accountwhen evaluating theirCSR-related
activities.Most organisations interactwith a network of
stakeholders to acquire resources and obtain legitimacy.
However, researchers have challenged the assumption that
stakeholder engagement is a responsible practice, as it may
or may not involve a moral dimension (Greenwood 2007),
and may or may not facilitate sustainability.
These concerns raise questions about the criteria for the
morally acceptable engagementof stakeholders(Noland
and Phillips 2010), and how to assess the extent to which a
business is socially responsible. Noland and Phillips (2010)
attested thatthe social and environmentalimpactthat
business organisations have on society implies thatthey
engage with stakeholders who have a legitimate stake in
the business.They thereforecompared two modesof
stakeholderengagementthatthey termed ‘Habermasian’
and ‘EthicalStrategist’.They believed thatwhile the
Habermasian approachis purerin a moral sense,its
requirementthatCSR decision-makersprioritise ethical
purity overcostand alignmentwith strategy rendersit
impracticalin a business context.Moreover,ethicalstrat-
egistsarguethatthe Habermasian distinction between
morality and strategy is misguided.
Conceivably a good strategy necessarily incorporates
moralconcerns,as the sustainability ofthe organisation
requires the creation of relevant value for all stakeholders
So how then can an organisation demonstrate that it creat
CSR value for its stakeholder constituencies? We contend
that stakeholderperceptionsof the ethicalityof CSR
strategy,process,and outcomeswhich ourstakeholder
systems modelprovides,are measures of corporate social
performance.Moreover,if an organisation modifiesits
CSR philosophy and practice as a resultof such stake-
holderfeedback,this evidences the leverage thatethical
stakeholder engagement can exert.
Our stakeholdersystemsmodelon CSR is also sup-
ported by two furthercritiquesof the prevailing CSR
orthodoxy.Rasche (2010) proposed a method of incorpo-
rating SR into organisations through a multi-stakeholder
consultation process that is underpinned by core values of
stakeholderengagement:inclusivity,materiality,and
responsiveness.Inclusivityrequiresrecognitionof an
organisation’saccountability to stakeholders—including
those who impact on it and those who are impacted by it.
Materiality isacceptance ofthe need to determine the
significanceof CSR-related issuesto stakeholders,by
identifying theirexpectations,and perspectives.Respon-
siveness is a commitment of accountability to stakeholder
in relation to CSR policy,process,and performance,as
well as through transparent,timely and dialogic commu-
nication processes. Scherer and Palazzo (2007) questioned
the adequacy of dominant approaches to CSR, by claiming
thatthey failto consider thatthe genesis,processes,and
consequences of CSR initiatives are shaped and delivered
by politicalprocesses.They attested thatthe descriptive
approach of most CSR fails to integrate more critical per-
spectives,which reinforces ‘business as usual’ stances of
researchersand practitioners.Instead they arguefor a
processof deliberative democracy,to give stakeholders
greater involvement in the formulation of an organisation’
CSR stance,as wellas in the periodic evaluation of CSR
system outcomes. Their view is grounded in the belief that
the legitimacy ofthe decisionsthatorganisationsmake
depends on the discursive quality of the decision-making
process.
C. Mason,J. Simmons
123

While we do notfully agree with these critiques,we
contend that the stakeholder systems model of CSR exhibits
significant commonalities to them.Finally,our model has
relevance to those in the research community who wish to
identify stakeholderperceptions ofpower,effectiveness,
and equity in CSR,and the extent to which these are met.
Organisations can make similar use of the model to audit
their CSR policy, practice, and outcomes, and to undertake
the organisation development that the results imply.
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