In the modern business environment, the concept of Corporate Social Responsibility (CSR) has become a significant aspect of corporate governance. This concept is grounded in a theoretical framework that emphasizes the importance of considering the interests and impacts on various parties associated with or affected by a company’s operations. Understanding the foundational theory behind CSR is essential for comprehending how and why companies integrate social, environmental, and ethical concerns into their business processes. The concept of Corporate Social Responsibility (CSR) is based on which of the following theory?

Solution

The concept of Corporate Social Responsibility (CSR) is based on the Stakeholder Theory. Edward Freeman defines a stakeholder in an organization as any group or individual who can affect or is affected by the achievement of the organization’s objectives. This includes, but is not limited to, shareholders, customers, employees, suppliers, the community, the environment, and society at large. The Stakeholder Theory underpins CSR by advocating that companies have a responsibility to consider the impacts of their decisions on all these groups, thus integrating social, environmental, and ethical concerns into their business processes beyond their legal obligations.