Corporate Social Responsibility Reports - Essay Example

? Do corporate social responsibility (CSR) reports provide shareholders and stakeholders with useful information on corporate social and environmental performance or are they merely a public relations vehicle Contents Introduction 3 Discussion 3 Stakeholder theory 4 Legitimacy theory 5 Principal Agent Theory 6 Conclusion 7 Reference 8 Introduction Corporate Social Responsibility (CSR) reports are published by many corporations, but what constitutes a CSR report is still excusive. There are many names of CSR report such as environmental, sustainability, safety, health and community affairs report. Whatever the name this report goes by, they all attempt to serve a single essential goal which is to portray the relationship between an organisation and society. With this report the companies aim to improve the communications between the broader society and the corporate world. These are collectively called an accounting to the society. CSR report includes the financial facts that are the key interest of the investor. This report discusses the relations it has with all its stakeholders like employees, communities, customers, suppliers, governments and environment. In this report the stakeholders of firms can take look at whether the corporate social responsibility report provides the shareholders and all the stakeholders with useful information or it is just a public relation vehicle for the company. Discussion The readers of a CSR report expect that the company should go beyond simple community affairs in their report. Companies which are new to this CSR reporting may confine the CSR reports to reporting only the charitable giving and the volunteer programs. Corporations are now increasingly expected to issue the CSR repost to their stakeholders. A CSR report which focuses only on the community is too narrow to be considered as a comprehensive reporting on their commitments to the community through the CSR report (Brennan and Merkl-Davies, p. 121). Such Community affairs reports may be useful for the local communities which want to understand how the firms support their causes. But they fail to provide the others with substantive information which is necessary to assess the strengths and the weakness of a corporation to all its stakeholders. There are many accounting theories in this respect (Jackson, Davison and Craig, 2013, p. 109). Stakeholder theory This theory implies that a business has to interact with a number of parties in the environment. These groups or actors are known as the stakeholders. They can be investors, customers, political groups, employees, communities, trade associations, governments, suppliers etc. The communication between them is bidirectional in nature (Deegan and Rankin, 1996, pp. 50-69). It means that the business influences the stakeholders while the stakeholders also influence the business at the same time. Figure 1: Directions of influence between the business and the stakeholders Stake in a business is defined as the potential benefit which a company provides to the stakeholders. Business has to consider many people, groups or anyone who have interest in the business. This theory can be viewed as instrumental, descriptive or normative. Presence of any relationship between the stakeholders and the profitability denotes the instrumental nature of the theory (Hooghiemstra, 2000, pp. 55-68). Explanation of the past, present and future of the business and the stakeholders denotes the descriptive nature of the theory. Presenting the function of the business through codes of conduct denotes the normative perspective. According to several studies, it is unethical to focus only on the intent of the shareowners and not on the interest of the customers and employers. The central idea of this theory is that it is not only the shareowners but also the interest of cast set of stakeholders which needs to be satisfied by the managers. According to this theory, there is more than just profit maximizing ability of the firm (Mahoney, Thorne, Cecil and LaGore, 2013, pp. 350-359). The firm needs to take into consideration the interest of the stakeholders. Not all among the business class agrees that the interest of several stakeholders should be included into the CSR report. According to the perspective of shareholders value, the owners are the special stakeholders whose interest should be prioritized. A company’s primary goal is to increase the value of their investments or in other words to increase the wealth of the capital. By Shareholder value we mean that the short term or long term investments of the group of owners needs to increases in its value. The CSR report should not include any social or environmental aspect in to it (Merkl-Davies and Brennan, 2011, pp. 415-437). Managers only task is to increase the investments of the owners. Important point in this theory is that it is the owners who take the risk, invest his idea without any guarantee of return on their investment. Hence the owners should be given more importance over other stakeholders and hence not all the information should be included in the report. The management hence should not take into consideration the societal and environmental aspects into the report. The implementation of the CSR report also leads to increase in the cost and lowering of the performance (Medley, 1997, pp. 594-600). Legitimacy theory According to this theory there has to be interaction between the groups and the society. The originations are a part of the society and their existence signifies that they are considered legitimate in the society. If an organisation is not behaving in the way it should, then the stakeholders will react in a different way so that the firm will continue to functioning the acceptable way. Hence legitimacy is important for a firm to survive (Mitchell, Agle and Wood, 1997). The organisation can influence a situation by the information which it reveals in their CSR report with respect to the environmental and social issues. If this information satisfies the society, the firm will be able to carry on their business (Ogan and Ziebart, 1991, pp. 387-406). The firm can choose to reveal or not reveal information which is sensitive to the society. They can also choose to whether they want to take any action or not in this regard. Stakeholders are defined on the basis of whether such information affects them. Presence of contract between them and the firm identifies them as a legitimate stakeholder. These stakeholders must obtain benefits through the activities of the managers. Hence organisations influence a society through the information it reveals in their CSR reports. It must include strategies like disclosure strategies and respond to the expectations of the society (Peck, and Sinding, 2003, pp. 131-146). Principal Agent Theory For any company the main communication medium to the society is financial reporting and disclosure. Through these reports the management supports the decision makers of the company. For capital market to operate efficiently, the disclosure of the organisations are very crucial. Such disclosures of the organisation takes several forms one being the CSR reporting. Whenever a firm takes part in CSR activities, it is important for them to communicate the same to the stakeholders. The CSR report should include the different types of risks facing the organisation. The need of the firm for financial reporting and CSR reporting is a result of the information asymmetry and principal agent conflicts between the stakeholders and the management. According to the principal agent theory, the society is the principal agent and the stakeholders are the agents (Mathews, 1997, pp. 481-531). Different stakeholders have different stakes in the forms and the importance depends on the concerning power towards the managers. The success of a firm depends on the satisfying the claims of the stakeholders. There exist different incentives for both the principal and the agent, which leads to the fact that an agent might not always act in the interest of the stakeholders. Hence information is needed for the principal to see whether the agents act according to the contract. As a result the CSR must include all such relevant information (Medley, 1997, pp. 294-301). Conclusion All the above theories show that companies involved in the CSR reports does not include all the details and publishes details according to their discretion. Through the CSR report the companies can drive the most important message to their important stakeholders and maintain transparency thorough this medium of communication. Whenever a company publishes a corporate governance issue which is sensitive to the industry, the company is perceived to be a responsible company and the stakeholders begins to rely on the business. But sometimes the companies don’t publish ethical issues which can have a negative impact on them. This might improve the profitability of the company but on a whole it does not serve the cause of disclosure in the CSR report. Hence the companies need to be transparent in this manner so that all the stakeholders can be aware of the findings within the organisation so that the company can improve on the image of the company. Reference Brennan, N. M. and Merkl-Davies, D. M. 2013. Accounting Narratives and Impression management. New York: Routledge. Deegan, C. and Rankin, M. 1996. “An analysis of environmental disclosures by firms prosecuted successfully by the Environmental Protection Authority”, Accounting, Auditing, and Accountability Journal, Vol. 9 (2). Hooghiemstra, R. 2000. “Corporate communication and impression management – New perspectives why companies engage in corporate social reporting”, Journal of Business Ethics, Vol. 27(2). Jackson, L., Davison, J. and Craig, R. 2013. Routledge Companion to Communication in Accounting. New York: Routledge. Mahoney, L.S., Thorne, L., Cecil, L. and LaGore, W. 2013. “A research note on standalone corporate social responsibility reports: Signaling or greenwashing?”, Critical Perspectives on Accounting, Vol. 24(5). Mathews, M.R. 1997. “Twenty-Five Years of Social and Environmental Accounting Research”, Accounting, Auditing and Accountability, Vol. 10 (4). Medley, P. 1997. “Environmental Accounting – What Does It Mean to Professional Accountants?” Accounting, Auditing and Accountability, Vol. 10 (4). Merkl-Davies, D. M. and Brennan, N. M. 2011. “A Conceptual Framework of Impression Management: New insights from psychology, sociology, and critical perspectives”, Accounting and Business Research, Vol. 41(5). Mitchell, R.K., Agle, B.R. and Wood, D.J. 1997. “Toward a Theory of Stakeholder Identi?cation and Salience: De?ning the Principle of Who and What Really Counts”, The Academy of Management Review, Vol. 22 (4). Moir, L. 2001. “What do we mean by corporate social responsibility?”, Corporate Governance, Vol. 1(2). Ogan, P. and Ziebart, D.A. 1991. “Corporate Reporting and the Accounting Profession: An Interpretive Paradigm”, Journal of Accounting, Auditing & Finance, Vol. 6(3). Peck, P. and Sinding, K. 2003. “Environmental and Social Disclosure and Data Richness in the Mining Industry”, Business Strategy and the Environment, Vol. 12 (3). 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