Corporate Social Responsibility Reporting - Essay Example

? Corporate Social Responsibility Reporting Corporate Social Responsibility Reporting Over the past a couple of decades, the number of companies preparing CSR in their reporting has been growing rapidly. There are a couple key reasons behind the reporting. Some of the companies prepare the reports to meet their stakeholders’ needs (Moir, 2001). Other key reasons behind the reporting are the legislative purposes, as well as, developing the brand names. For many years, companies observed environmental reporting for regulatory purposes, as well as, environmental and social issues i.e. the material costs relating to regulatory compliance. In the developed countries i.e. United States, Canada, and Australia among other countries, there has been a growing need for CSR reporting i.e. because of the stakeholders’ pressure and increased public awareness. Company’s shareholders, stakeholders and CSR reporting One of the key reasons why companies prepare the CSR reports is to offer useful information to the shareholders and stakeholders. This information translates into enhanced environmental and social conditions, because of the fact that stakeholders rewards the top performing corporations and punish the poorly performing corporate. Many investors and consumers are demanding environmental and social accountability amongst the companies, which has put pressure on them to execute CSR reporting. There has been a growing number of CSR reporting certifications i.e. ISO and SA8000 certifications, which reflects the growing need for reporting. They provide proof that CSR reporting offers valuable information to shareholders, and the companies’ stakeholders. Many companies view CSR reporting as an investment move as opposed to a cost. They conduct research relating to their stakeholders’ needs and report to them (Tschopp, 2012). There is a debate of whether CSR reporting offer useful information to the stakeholders or it is a public relations strategy. Many accounting theories i.e. the agency theory reflects on this issue. According to the agency theory, people inside and outside the company influence the companies, and the companies in turn influence them. These are the stakeholders. Every company interacts with its stakeholders on a daily basis in the normal course of its business. Stakeholders including the customers, suppliers, employees, the government and other regulators all have an interest in the companies’ operations. The key goal of CSR reporting is to help the stakeholders understand how the companies affect their environmental, economic, and social circumstances (Merkl-Davies & Brennan, 2011). Another key reason why companies report on their social responsibility is to grow the shareholder’s wealth. Many companies include the CSR reporting in their annual financial reporting. This contributes towards building the shareholder wealth. For example, a company that reports about its social responsibility reflects its accountability to the public. These markets the company to the investors thus growing the demand for its stock. The high demand for the company’s stock translates into the growth in the shareholders’ wealth (KPMG, 2008). All companies feel that they are accountable to their stakeholders and, therefore, they recognize the responsibility by performing CRS reporting. The ethics branch of the stakeholder theory states that stakeholders have intrinsic rights, which the companies should not violate. According to the theory, even if the company does not benefit economically by getting involved in social responsibility activities, it should still participate and report for the benefit of all the stakeholders (Mahoney, 2013). Different stakeholders are interested in different types of information from the CSR reporting. For example, the consumers are concerned about the quality of the goods that the companies are offering in the market. They would like to know if the products would meet their needs and boost their health. Consumers would shun products that might put their health at stake. Additionally, they are concerned about the pricing of the products offered in the market. For example, they would like to know if the products offer value for their money. They are always willing to purchase from those companies that offer high quality products at reasonable prices. Suppliers as well are interested in CSR reporting. For example, they would like to know if the company’s supply chain is efficient. In other words, they would like to know if the customers access the company’s products as soon as they need them. The suppliers would like to be associated with companies that meet the consumers’ needs and desires. Additionally, the suppliers are interested in knowing if the companies are offering healthy products to the consumers. The government is as well interested in the companies’ CSR reporting. For example, one of the key government’s interests entails knowing whether the companies’ comply with all tax laws. In other words, the government is interested in knowing whether the company pays taxes on time. The government and other stakeholders i.e. the consumers would as well be willing to know if the companies’ are complying with the environmental standards. Following the rapidly increasing global warming, global environmental organizations have set standards that all companies must comply with. Therefore, numerous stakeholders have an interest in knowing whether the companies comply with the standards (Deegan & Rankin, 1996). The employees as well would like to know the company they are associated with. They would like to know how a company treats its consumers and employees. Every employee would like to be associated with a company that takes care of the interests of its workforce and, the company that complies with both legal and ethical standards. However, other theories show that the main purpose why companies report about their social responsibility activities is to build their image. For example, the legitimacy theory states that companies seek legitimacy from the society. This is by ensuring that the values within the company are in line with the societal values. A company may employ four strategies to boost its image. One of the four strategies is by informing the public that they have changed their behavior through CSR reporting. For example, a company that suffers from a bad image after its products adversely affecting the health of the consumers may report to the public about the changes it has introduced to its products to ensure that the consumers’ health is not at stake. The second strategy is by the company changing the public perception, without necessarily changing its behavior. The third strategy involves the company manipulating the public perception by shifting attention from one issue to another. The fourth strategy entails a move by the company to change the external expectation of its behavior. Any company could implement each of the four strategies through CSR reporting (Hooghiemstra, 2000). According to this theory, a company will always employ disclosure to build its image anytime legitimacy crisis faces it. For example, when a negative change relating to the company’s public perception occurs, it will always use disclosures i.e. CSR reporting to mange its image. For example, following the 1989 oil spill in Alaska, many oil companies got involved in environmental disclosures. This was part of the companies’ efforts to manage their reputation. This is because of the fact that the bad news of the oil spill puts the company’s legitimacy at stake. Therefore, to avoid bad publicity the companies responded by reporting on their social responsibilities as far as environmental conservation is concerned. In case of any negative event within the company or an industry, companies are always willing to make disclosures, to avoid an adverse effect. The legitimacy theory has two approaches including the reactive approach and proactive approach. According to the reactive approach, companies act in terms of managing their image if they are aware that their reputation is at stake. For example, if an event that may adversely affect the company’s image has occurred, the company may respond by reporting through CSR as part of its efforts to manage its image (Brennan & Merkl-Davies, 2013). On the other hand, according to the proactive approach, a company would not necessarily wait until a crisis has occurred for it to respond. It may release environmental and social performance information before such an event for it to protect its image. The proactive approach reflects the fact that any company has a supportive attitude towards the environment and social disclosures. It as well reflects that companies see value in voluntary disclosure of information even through they are not, faced with a crisis (Dobbs, 2000). Conclusion From the above discussion, it is clear that CSR reports offer useful information, relating to the companies environmental and social performance, to the stakeholders and shareholder, as well as, used for public relations. Stakeholders including the employees, consumers, suppliers and the government among others are interested in the companies’ reports on their social responsibilities. CSR as well contributes to the growth in the shareholder wealth. Additionally, CSR reporting contributes to the management of the companies’ image especially following a crisis that may put their reputation at stake. References List Brennan, N. & Merkl-Davies, D., 2013. Accounting Narratives and Impression management. Routledge Companion to Communication in Accounting, pp. 110-130. Deegan, C. & Rankin, M., 1996. An analysis of environmental disclosures by firms prosecuted successfully by the Environmental Protection Authority. Accounting, Auditing, and Accountability Journal, 9(2), pp. 50-67. Dobbs, S., 2000. Motivations for Corporate Social and Environmental Reporting. http://www.utas.edu.au/__data/assets/pdf_file/0011/188426/Dobbs_VanStaden.pdf ed. s.l.:s.n. Hooghiemstra, R., 2000. Corporate communication and impression management – New perspectives why companies engage in corporate social reporting. Journal of Business Ethics, 27(2), pp. 50-70. KPMG, 2008. KPMG International survey of corporate responsibility reporting 2008. http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Press-Releases/Documents/Corporate_Sustainability_Report_US_Final.pdf ed. s.l.:s.n. Mahoney, L., 2013. A research note on standalone corporate social responsibility reports: Signaling or greenwashing. Critical Perspectives on Accounting, 24(5), pp. 349-350. Merkl-Davies, D. & Brennan, N., 2011. A Conceptual Framework of Impression Management: New insights from psychology, sociology, and critical perspectives. Accounting and Business Research, 41(5), pp. 410-450. Moir, L., 2001. What do we mean by corporate social responsibility. Corporate Governance, 1(2), pp. 15-22. Tschopp, D., 2012. Drivers of corporate social responsibility reporting; Case studies from three reporting companies. Saint Leo,: Saint Leo University,US. Read More