Concepts of Corporate, Social and Environmental Reporting - Essay Example

Word Count (1534) This paper looks at the assertions of Adams on the concepts of corporate, social and environmental reporting. Adams (2002) argues that the main purpose of corporate social reporting is to improve the credibility and image of the company with all its stakeholders. This essay uses three important theoretical frameworks to analyze this statement. The theories are, legitimacy theory, shareholders theory, and stakeholders theory (Belal, 2008, pp. 32). This paper takes a stand that it is difficult to analyze these assertions by Adams, without the use of a theoretical framework. Corporate social reporting is a concept that includes and involves the following roles (Zain, 2004), 1. Measuring the environmental and social impact that a corporate organization has on the society. 2. Assessing the effectiveness of corporate social (and environmental) initiatives; 3. Making a report, based on the corporate discharge of the environmental, financial, and social responsibilities. 4. External and internal audit systems that allow a detailed assessment of corporate resources and their economic and environmental impact. Social accounting on the other hand is an approach that organizations use to report its social and environmental activities. This type of reporting lays emphasis on the identification of a socially relevant behavior that business organizations need to pursue. Furthermore, social accounting involves the identification of the methods which an organization will use, for purposes of pursuing projects or programs that makes it achieve the status of a socially responsible corporation of business organization. Zain (2004) explains that social accounting involves the communication of environmental and social activities and impact of a corporate organization. It analyzes the impact of these activities on all the stakeholders of the company. This involves the shareholders, the government, its employees, and its customers Corporate social responsibility and sustainability have occupied a place of great importance in the arena of conducting business operations and activities. This is because an organization that is found practicing some elements of social responsibility can manage to improve its own brand name and image (Zain, 2004, pp. 16). For a business or corporate organization to achieve a competitive edge over its rivals, there is a need of the organization under consideration to have a positive brand name. It is this brand name that would make the customers to identify with the company. Developing social responsibility programs is one of the methods that can be used to create a positive brand name. Social accounting is an element of corporate social responsibility. There is increased research on this notion of corporate social reporting. Despite an increase in corporate social reporting, little information exists on the negative aspects of social corporate reporting (Laing and Perrin, 2011). This is due to the belief that corporate social reporting is a positive phenomenon, and business organizations normally benefit from it. Furthermore, there is a perception that in the current age and time, it is difficult for a business organization to succeed, without practicing some elements of corporate social reporting (Agyei-Mensah, 2013, 269). However, there is a need of regulating the manner in which companies provide a report of their activities. This is because companies may take advantage of lack of regulation, and provide inaccurate reports for purposes of misleading the public on the activities of the organization. According to the shareholders theory, any social activity of an organization exists outside the theoretical operations or scope of the firm under consideration. Firms cannot take into their domain social responsibility because participating in social responsibility instead of shareholder wealth maximization is in essence engaging in an exercise that should only be performed by governments, that is taxing people and allocation of the tax. The shareholders theory believes in the maximization of the shareholders wealth. This is in a legal manner, and a way that does not deceive the public (Allouche, 2006, pp. 37). The shareholders theory further asserts that business organizations will engage or carry out social activities that are beneficial to the shareholders of the company. These social activities must seek to improve the image of a company, and create a positive brand name, that can make the company achieve a competitive edge over its rivals. This in turn will make the shareholders maximize their wealth (Carnevale, Mazzuca and Venturini, 2012). This would be reflected in the increases of share prices, and an increase in the profits that the company makes. However shareholder payoff is a remainder pay; consequently taking care of shareholders results to taking care of all other stakeholders. The stakeholder’s theory is another theoretical framework that can be used to explain the importance of corporate social reporting to a business organization. According to this theoretical framework, the management of business firms has a moral obligation to take into account and applicably balance the interests of all stakeholders (Cañeque, 2000). The stakeholder theory has two perspectives: instrumental and normative. Instrumental stakeholder’s theory normally evaluates the methods and techniques that an organization should use in managing the company (Tschopp and Hamilton, 2012). This is with the intention of ensuring that the company manages to protect the various interests of its stakeholders. Instrumental stakeholder framework investigates whether there is a link between corporate environmental reporting and the achievement of various corporate performance goals. Normative perspective holds that all stakeholders have some value and no stakeholder has importance over other stakeholders (Elliott and Elliott, 2008, pp. 52). It is important to explain that this distinctive normative concepts, helps in giving shape and substance to the descriptive and instrumental strands. This is because the normative approach is able to view the stakeholders of a corporate organization as responsible for creating a positive relationship between the corporate organization and all its stakeholders. Furthermore, this theory asserts that the managers of a corporate organization are accountable to all its stakeholders, hence the need of coming up with a corporate social report (Schroeder, 2006). This is a proof that the corporate instituion is responsible and accountable to its stakeholders. This theoretical framework argues that any social responsibilities pursued by a company, are aimed at satisfying the goals of its stakeholders (Higson, 2003). For example, costumers are willing to do business with a company that sponsors the needy. Shareholders and owners of a company want a positive brand image for the company, and this is because it will make it achieve a competitive advantage over its rivals. Engaging in corporate social responsibility and providing a report on the same, is a method of ensuring that the company protects the interests of its shareholders. The legitimacy theory is another theoretical framework that supports the assertions developed by Adams (2002) regarding the corporate reporting of an organization. The Legitimacy theory asserts that a social contract or agreement exists between firms and their constituents. This is because a corporate organization would agree to perform various socially accepted activities, in return for a positive brand image, and approval by all the stakeholders of a business organization (Raman, 2010). Legitimacy is a more general assumption or perception that the actions of an organization are proper, desirable, and appropriate within a given socially construed values, norms, definitions, and beliefs. In this theory, organizations have a number of legitimation strategies, to extend, maintain or defend their legitimacy. There are four major legitimating strategies or techniques that a business organization may engage in where their legitimating activities are under doubt. This is a concept referred to as the legitimation gap (Stickney and Brown, 2007). A legitimacy gap is anticipated when corporate performance does not match the expectations of the public and stakeholders. To close this gap a firm may: 1. Change its production, methods or goals to conform to the public expectations 2. Not change its output, methods or goals, but demonstrate the appropriateness of its output, methods or goals through education and information; 3. Alter public perceptions by conforming to the highest legislative levels; and 4. Alter societal expectations to align with the firms output. This Essay has described the available theories on social accounting. Corporate social responsibility reporting has become an essential part of a firms story telling. The theories examined emphasize on corporate social responsibility and are of the opinion that corporate social reporting is of growing importance .Although there are reservation on the true nature of accounting disclosure. The shareholders theory asserts that the main intention of a corporate social responsibility is to help shareholders maximize their wealth. This is because the company would manage to create a positive brand image, hence have a competitive advantage over its rivals. The best way to achieve a positive brand image is by engaging in social activities, and providing an accurate report on these activities. The stakeholder’s theory on the other hand supports the notion of social corporate reporting. This theoretical framework asserts that corporate reporting helps in providing information that is useful to all the stakeholders of the company. This is because stakeholders of a company normally want to engage with a company that serves its needs. Social responsibility is an activity that serves those needs. The legitimization theory asserts that, corporate companies provide a report, for purposes of achieving legitimacy to all its stakeholders. Bibliography: Agyei-Mensah, B. (2013). Adoption of International Financial Reporting Standards (IFRS) in Ghana and the Quality of Financial Statement Disclosures. International Journal of Accounting and Financial Reporting, 269-269. Allouche, J. (2006). Corporate social responsibility. Basingstoke [England: Palgrave Macmillan. Belal, A. (2008). Corporate social responsibility reporting in developing countries the case of Bangladesh. Aldershot, UK: Ashgate. Cañeque, F. (2000). Social Standards: Measuring and Reporting Corporate Social Performance. Corporate Reputation Review, 145-163. Carnevale, C., Mazzuca, M., & Venturini, S. (2012). Corporate Social Reporting in European Banks: The Effects on a Firms Market Value. Corporate Social Responsibility and Environmental Management, N/a-N/a. Elliott, B., & Elliott, J. (2008). Financial accounting and reporting (12th ed.). Harlow: Financial Times Prentice Hall. Higson, A. (2003). Corporate financial reporting theory and practice. London: Sage Publications. Laing, G., & Perrin, R. (2011). Attitudes on Financial Reporting Issues: An Australian Study. International Journal of Accounting and Financial Reporting. Top of Form Bottom of Form Top of Form Bottom of Form Raman, K. (2010). Corporate social responsibility: Comparative critiques. Basingstoke [England: Palgrave Macmillan. Schroeder, J. (2006). Brand culture. London: Routledge. Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Stickney, C., & Brown, P. (2007). Financial reporting, financial statement analysis, and valuation: A strategic perspective (6th ed.). Mason, OH: Thomson/South- Western. Tschopp, D., & Hamilton, T. (2012). The Potential Role for Corporate Social Responsibility Reporting in Trade Agreements. Social and Environmental Accountability Journal, 27-38. Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Zain, M. (2004). The Driving Forces Behind Malaysian Corporate Social Reporting. Journal of Financial Reporting and Accounting, 89-111. 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