Corporate Reporting as a Foundation Corporation - Essay Example

THE MAIN MOTIVATION FOR CORPORATE [SOCIAL AND ENVIRONMENTAL] REPORTING ... IS TO ENHANCE CORPORATE IMAGE AND CREDIBILITY WITH STAKEHOLDERS (ADAMS, 2002: 244-245). DO YOU AGREE? USE A VARIETY OF ACCOUNTING THEORIES TO RESPOND TO ADAMS (2002) STATEMENT. Student name: Institution: Course name: Instructor name: Date due: Word count: 1,752 Introduction Corporate reporting is essential and very fundamental in any corporation. The primary motivation of the corporate reporting is to enhance the image of the corporate, as well as its credibility with the stakeholders. Stakeholders include customers, employees, the society as a whole, the suppliers as well as the shareholders. They, therefore, form the corporate. This paper discusses how corporate reporting, both social and environmental, is critical for the success of any given corporate. The primary motivation behind the social reporting is to improve the corporate image and win the confidence of the stakeholders in the firm. To properly illustrate the effectiveness of business reporting, various accounting theories will be used. Explanation as to why organisations engage in Corporate Social Responsibility reporting (CSR) will be made using political economy theory (PET), legitimacy theory and the stakeholder theory (Belal 2008: 11). Political Economy Theory (PET) This particular theory relates the actions of the stakeholders of an organisation to the prevailing political environment. The theory is built on economic, social and political framework, forming the basis on which corporates operate. The theory considers the interactions between the stakeholders in a neo-pluralistic manner. This means the powers of the stakeholders are measured differently depending on the individual powers of the stakeholders to influence the corporate decisions. The operations of the organisation will be directly affected by the political policies implemented in its area of operation. In addition, each of the stakeholders is bound by the political restrictions pertaining to the activities of the corporate. The CSR reporting makes the corporates answerable to the stakeholders. When there is jeopardy in the operations of the corporate, CSR reporting is used by the corporations to respond to the society (Belal 2008: 11). This theory ignores the class structure and the possible struggles existing within the society. PET helps in the interpretation of the social disclosures from the context of the social, political and economic perspectives. Social-political issues may have a big impact on the operations of the corporation. This is because the policies set has to be followed and the corporates have no control of these particular policies, as far as the corporate operations are concerned. Legal disclosures impose certain requirements on the way organisations are expected to operate. The state may for instance, require the organisations to include the marginalised such as women and the disabled in their staff. This may go contrary to the preferences of the organisation whose aim is to maximise the wealth of the shareholders (Belal 2008: 14). Based on this theory, organisations are motivated to embrace the social reporting to the society. The social reporting benefits the organisation by maintaining its reputation in the eyes of the stakeholders. The shareholders gain more trust in their organisations out of its good reputation, as developed from the social reporting. Building further on social reporting, organisations may adopt some strategies seeking to educate and inform stakeholders about the performance of the organisation. Another approach adopted would be to change the perception of the stakeholders without changing their actual behaviour. Seeking further legitimation, the organisation may decide to change the external expectations on performance (Belal 2008: 15). Thus employing social reporting, organisations can make positive disclosures that indicate their desire to maintain legitimation. As much as the organisations would like to provide social reporting to the stakeholders, especially the government and the shareholders, their hands are tied by the existing policies. Their operations cannot go beyond what is dictated in the set policies. For instance, the organisations cannot increase their profits at the expense of the environmental. They have to adhere to the guidelines provided as far as environmental conservation is concerned. This political theory, therefore, revolves around the corporate reporting based on the set policies within the area of operation of an organisation. Legitimacy theory Legitimacy theory is dependent on a social contract. It shows the relationship between an organisation and the society. The society holds its expectations on how the organisation should carry out its operations. Legal requirements constitute the explicit terms of this contract, with the community expectations constituting the implicit terms. Breaching the terms of the social contract can pose a big risk on the legitimacy of the organisation. The legitimacy theory, therefore, binds the organisation to conform to its social norms and expectations. The implication of this is that when the society is not satisfied with the operations of the organisation, it can revoke its contract with the corporate (Hoque 2006: 161). Withdrawal of the societal support means serious adverse implications for the organisation. For instance, when consumers reduce their demand for a particular product of the corporate, sales will go down, making it uneconomical for the corporate to continue producing the product. Other forms of social withdrawal may include supplies eliminating their services in terms of labour and financial capital to the business. Activists may also push the government to increase taxes on the corporate. Social withdrawal may also include government fines or laws prohibiting actions not conforming to the expectations of the society (Belal 2008: 16). All these activities mean a threat to the life of this particular corporate. This makes legitimacy very crucial to the organisations if at all they are to continue supplying essential resources and services. Measures taken to retain legitimacy by organisations include collaboration with other organisations deemed to be legitimate. For conformity to legitimacy, organisations will embrace social reporting to communicate their change of strategies. Social reporting also facilitates communication of such changes to shareholders and the society at large. This serves to improve the reputation and the image of the organisation (Belal 2008: 16). Legitimacy theory has been found to be successful in enhancing corporate social reporting for the benefit of organisations. The theory has received enormous media attention, out of its ability to provide the highest amount of corporate social and environmental disclosure. The legitimacy theory, therefore, remains popular as far as CSR reporting is concerned since it provides very useful insights into the practice of corporate social responsibility reporting. However, some aspects of the theory are still considered underdeveloped. For instance, the theory lacks to provide knowledge on whether a particular stakeholder group is more influenced by the legitimising disclosures than the other (Hoque 2006: 163). The theory is founded on the relationship of the organisation with the members of the public. For example, where the organisation fails to wake up to social responsibility, the society can force the closure of the organisation. The organisation is, therefore, required to assist the society in its area of operation, through activities such as supporting the needy children. Such activities need to be included in the social reporting for building the corporate image. Stakeholder Theory A stakeholder refers to the various interest groups who can make changes by investing, and can be financially affected negatively or positively by the organisation’s activities. The interest groups include pressure groups, employees, customers, suppliers, investors, the government and the wider society. The stakeholder theory, therefore, refers addresses the various parties affecting the organisation. The theory describes the rights of the stakeholders, their power and also the efficient management of the stakeholders. The interest of the stakeholders is of high value and should never be ignored. The theory focuses on the managerial decision- making (Phillips 2005: 11). The theory can be viewed from the normative, instrumental and descriptive perspectives. The normative perspective gives a description of how the management is supposed to deal with the stakeholders. The instrumental view provides a solution in case the stakeholders are treated in an unexpected manner by the management. Thirdly, the descriptive aspect mainly deals with the stakeholder management activities of the organisation that is the dealings of the management with the stakeholders (Phillips 2005: 11). It is however unfortunate that some companies just report what is pleasing in the eyes of the stakeholders, especially the government and the shareholders with the highest levels of influence. This makes it difficult to produce the desired effects of motivation to social reporting. Such cases have been witnessed especially in the environmental reporting. Companies are required to report constantly on their operations. For instance in Australia, there lacks a proper legislative rule requiring companies to report on how their actions affect the environment. The information presented seems only favourable to their reputation and upholding the corporate image. Inaccurate reporting was seen in a sample survey carried out in twenty companies. However, it was encouraging that the information presented showed more positive environmental reporting than the negative. Environmental offence was only witnessed in two of the twenty companies. This theory emphasises the importance of organisations to be responsible and provide accountability to all the stakeholders. Irrespective of the members’ power to impact on the organisation, they should be treated equally. The stakeholders are directly affected by the operations of the management. Wrong choices will have adverse effects on the life of the business. The theory emphasises the importance of corporate reporting as management tool for legitimising the relationships with all the stakeholder groups. Conclusion The discussion above shows the power of the theories in the corporate social responsibility reporting. The reporting is shown in the context of the social, political and economic framework. Based on the three discussed theories, it can be seen that credibility of the organisation is dependent on how well the management involves all the parties in ethical operations of the organisation. The legitimacy theory asserts that organisations employ corporate reporting as a way of legitimising the relationship with the society. It shows that the organisational activities go hand in hand with the social norms and expectations. The stakeholder theory demonstrates the importance of the organisations keeping the interests of all parties first and making adequate reporting so as to avoid ruining the image of the organisation. The corporate reporting is, therefore, done by organisations so to effectively manage its relationship with the powerful stakeholders. The stakeholders are the life of the organisation, and their interests have to be safeguarded at all times. Organisations are required to be responsive to the stakeholders’ needs and concerns, irrespective of their power. All in all, for social reporting, to achieve its goal, concerned organisations need to provide accurate and unbiased information. This is especially in reporting on environmental prosecution. Companies should avoid providing only information that saves their corporate image. By accurate social reporting, the concerned stakeholders will build more trust in the companies. The trust will contribute greatly in building but not just maintaining the corporate image, thus meeting the primary motivation of corporate social reporting. Bibliography BELAL, A. R. (2008). Corporate social responsibility reporting in developing countries: the case of Bangladesh. Aldershot, Hampshire, England, Ashgate. HOQUE, Z. (2006). Methodological issues in accounting research: theories, methods and issues. London, Spiramus Press. PHILLIPS, R. (2005). Stakeholder theory and organizational ethics. San Francisco, Berren- Koehler Publishers Inc. Read More