# Corporate Social Responsibility

Business I · Business Administration · https://tryals.app/learn/business-i/corporate-social-responsibility

## The License to Operate

Who is the firm run for? Two classic answers frame the entire **Corporate Social Responsibility (CSR)** debate and set how firms treat society.

| View | Core Premise | Main Theorist |
| --- | --- | --- |
| **Shareholder view** | Increase profits within the rules; spending on social causes without a mandate is illegitimate. | Friedman, 1970 |
| **Stakeholder view** | Manage a web of relationships—shareholders, employees, customers, suppliers, communities. | Freeman |

The **stakeholder view** warns that any neglected group can revoke your **license to operate**. Reputation is built in years and spent in days.

**Carroll's pyramid** stacks duties: **economic** (be profitable, the base), **legal** (obey rules), **ethical** (do right beyond rules), and **philanthropic** (give back, the crown). Pitfall: you cannot build legitimacy at the top while cracking the base. Charity from a polluter is pure **greenwashing**.

## Tools and The Business Case

**Stakeholder analysis** maps groups by **power** (can they affect you?) and **interest** (do they care?): high-power/high-interest means manage closely; high-power/low-interest means keep satisfied. Positions move—yesterday's low-interest NGO is today's high-power litigant.

**Sustainability** extends the horizon through the **triple bottom line** (people, planet, profit) and **ESG** metrics (environmental, social, governance). 

**The business case**: CSR pays through risk reduction, talent attraction, brand trust, and cheaper capital. 

**The Pitfall**: CSR pays on long horizons, which is why quarterly-driven firms underinvest. Ethics scandals are governance failures before morality failures; incentives, controls, and culture decide what employees do when nobody watches.

## Practice questions

7 of this lesson's 13 practice questions, with answers. The full set is in the app.

### 1. An oil company runs prime-time ads about its wind farm, which produces 0.3% of its output, while lobbying against emissions rules. The precise term is…

A. The triple bottom line in action
B. Stakeholder management done well
C. Greenwashing, not operations
D. Philanthropic responsibility

**Answer:** C. Greenwashing, not operations

**Why:** Greenwashing is the gap between the story and the operations. Carroll’s pyramid worked upside down, buying crown-level image while the base misbehaves. Its market correction: ESG raters and regulators increasingly audit the gap itself.

Page: https://tryals.app/practice/business-i/corporate-social-responsibility/an-oil-company-runs-prime-time-ads-about-its-wind-farm-which

### 2. An energy firm advertises a wind farm producing 0.3% of its output while lobbying against emissions rules. What distinguishes this from genuine CSR?

A. That the firm operates in fossil fuels, which is incompatible with CSR
B. The communications budget exceeds the substantive commitment
C. That the wind farm is too small to matter environmentally
D. Nothing; any environmental investment counts as CSR regardless of scale

**Answer:** B. The communications budget exceeds the substantive commitment

**Why:** Genuine commitment shows up in capital allocation and political activity, so the tell is proportion and consistency rather than the mere existence of a green project. Scale alone would not condemn it, a small first project is how transitions start; contradicting it in the lobbying budget is what does.

Page: https://tryals.app/practice/business-i/corporate-social-responsibility/an-energy-firm-advertises-a-wind-farm-producing-0-3-of-its-output

### 3. Through which channels does the honest business case say CSR pays?

A. Lower risk of scandals, fines, and boycotts
B. Guaranteed higher profits next quarter
C. Attracting and keeping talent that screens employers
D. Cheaper capital as ESG funds screen investments

**Answer:** A. Lower risk of scandals, fines, and boycotts; C. Attracting and keeping talent that screens employers; D. Cheaper capital as ESG funds screen investments

**Why:** Risk, talent, and capital, all real, all *slow*. Option 4 is the overclaim that discredits the case: CSR is an insurance-and-reputation asset, and insurance never looks profitable the quarter nothing burns.

Page: https://tryals.app/practice/business-i/corporate-social-responsibility/through-which-channels-does-the-honest-business-case-say-csr-pays

### 4. ESG reports CO₂ per unit of REVENUE rather than total emissions. What does that choice of denominator allow?

A. Verification by auditors, which absolute figures do not permit
B. Alignment with the triple bottom line, which requires ratios
C. Comparison between firms of different sizes, which totals make impossible
D. A firm whose absolute emissions rise can still report improvement

**Answer:** D. A firm whose absolute emissions rise can still report improvement

**Why:** Intensity metrics are legitimate for comparison and misleading as progress. The ratio can fall every year while the absolute total climbs, which is why both are now reported.

Page: https://tryals.app/practice/business-i/corporate-social-responsibility/esg-reports-co-per-unit-of-revenue-rather-than-total-emissions-what

### 5. In Friedman’s shareholder view, a CEO donating corporate funds to personal causes is effectively spending other people’s money without a mandate.

**Answer:** True

**Why:** That is Friedman’s core argument: social spending is the shareholders’ (or the individual’s) choice, not management’s. The stakeholder rebuttal is not that he misdescribed the mandate, it is that neglected stakeholders eventually make profits impossible.

Page: https://tryals.app/practice/business-i/corporate-social-responsibility/in-friedmans-shareholder-view-a-ceo-donating-corporate-funds-to

### 6. Order the typical arc of a corporate reputation crisis.

**Answer:**

1. Misaligned incentives quietly produce misconduct
2. A journalist or whistleblower surfaces it
3. Denial, then the evidence wins
4. Fines, resignations, and customer exodus
5. Years of rebuilding what days destroyed

**Why:** Built in years, spent in days, rebuilt in decades, the asymmetry that makes reputation an asset class and prevention its only cheap insurance.

Page: https://tryals.app/practice/business-i/corporate-social-responsibility/order-the-typical-arc-of-a-corporate-reputation-crisis

### 7. Match each thinker or framework to its claim.

**Answer:**

- Friedman → The social responsibility of business is its profits
- Freeman → Manage the whole web of stakeholders
- Carroll → Four responsibilities stacked as a pyramid
- Elkington → People, planet, profit, the triple bottom line

**Why:** The debate’s four corners: profit purism, relationship management, the layered pyramid, and the triple ledger.

Page: https://tryals.app/practice/business-i/corporate-social-responsibility/match-each-thinker-or-framework-to-its-claim