Motivations for Corporate Reporting - Essay Example

Motivations for Corporate Reporting Motivations for Corporate Reporting Introduction “The main motivation for corporate reporting is to enhance corporate image and credibility with stakeholders” (Adams, 2002, 244-245). The improvement of financial systems of economy globally calls for better corporate reporting to meet the investors’ needs. Corporate reporting is basically and generally an indication of a company’s competitiveness and superior corporate governance. Various changes have been observed in corporate external reporting environment thus calling for fundamental changes in corporate reporting practices. Varieties of new information types are being demanded in the reports. The reports have to observe and adopt the International Financial Reporting Standards (IFRS) and have to be open and transparent on an unprecedented scale. This paper supports the assertion and offers a discussion that seeks to support the author. Discussion Among the many motivations for corporate reporting, may it be social or environmental, enhancing corporate image and credibility with stakeholders stand out. Good reports are being written in order to engage shareholders and other stakeholders and collaborating with them for an effective potential risk management and to build credibility and trust in the society at large. Corporate reporting is basically the presentation and disclosure aspects of different areas of reporting. These include integrated reporting, financial reporting, corporate governance, corporate responsibility, narrative reporting and executive remuneration. All these show the real performance of a business and should therefore be appealing to all stakeholders involved and for creating a good corporate image to the outer world and the surrounding. Good corporate reporting helps in restoring trust that had been lost. Every company needs to communicate more openly, effectively and clearly with investors and other stakeholders on how they plan and intend to grow sustainably. In today’s business world, stakeholders are demanding more transparency around all business strategy, business models and risks, a business’ commercial prospects and information on other institutions they engage with (Everingham & Kana, 2004). In agreement with Carol A. Adams (2002), enhancing corporate image and credibility to stakeholders is one of the main motivations of corporate reporting. Public relations and more specifically the concepts of image and identity is the central motivation for corporate reporting. A good report will enhance the image in showing how they manage their issues, their two-way symmetrical and asymmetrical communication, their auto communications and the level of their publicity (Adams 2002). A business’ reputation is very important in business as it explains why customers choose certain products and not others and can therefore make the difference between success and failure. In case of bad reports about any business, the today’s technology will broadcast the information to large audiences within a very short time. The blogs, mobile phones, internet and media will play a powerful role in either making or breaking a certain business. Reputation is therefore a key issue in reporting and a great motivator given that there is also the ever increasing shift towards greater corporate accountability and transparency. Creating a good image for the business will therefore help the organization to optimize the value of the shareholders through attraction of more clients and better members of staff. The enhancement of corporate image and credibility with stakeholders is vital for any kind of business. Stakeholders are basically all the people and institutions affected by a certain organization. Organizations could have 30-40 stakeholders or merely 12-15. This means that it is very possible to have good reputation with certain stakeholders and poor ones with others. Each stakeholder will judge an organization in their way and therefore good corporate reporting will help in getting good reputation with each of them. It is however hard to please all the stakeholders all the time since it is natural to consider some as opposed to others. The most important stakeholders however are the customers and the shareholders. It is very important to understand the stakeholders of a certain organization and understand the impact of each group on the organization (Adams 2002). Currently, majority of larger companies now disclose some information on social and environmental issues. In respect to performance reporting however, most companies will provide the general and unspecified disclosures. Though this is generally wrong it is basically for the shielding of reputation. Reputation is an asset that is easiest asset to loose and the most challenging to maintain. The stakeholders, having the ability to judge the quality of the disclosures, are allowed to take part in decisions regarding investments and transacting powers of the company (DiPiazza & Eccles, 2002). The competing theories for why companies voluntarily disclose their reports include legitimacy theory and accountability. Many studies will provide evidence in favor of legitimacy theory but in practice, it is difficult to distinguish it from accountability. Legitimacy theory is whereby firms seek legitimacy from their relevant publics by ensuring that the firm’s value system is consistent, with the values of the society within which it operates. The strategies of improving the image of an organization and gaining legitimacy include informing the public of actual behavior change or changing the perception of the public about their behavior without actually changing the behavior. They could also manipulate the perceptions of the public by deflecting attention from an issue of concern to another issue or change the external expectations of their behaviors. These strategies could be implemented by voluntary disclosures when there is some adverse alteration in the public’s perception of the firm. Accountability theories are often alternatives to legitimacy theories. They take the view that firms are actually aware and believe that they are accountable to a wider group of stakeholders and accept and recognize their responsibilities to them by voluntarily performing and disclosing their performance to them. The theory explains that the reporting is a firm’s willingness to discharge their responsibility to stakeholders. This goes in consistency to the stakeholders’ theory whose first branch adopts the view that all stakeholders are entitled to information since they have intrinsic rights which should not be violated. The companies are not however currently reporting to be accountable to stakeholders it is for the purposes of corporate spin and improving corporate image. The firms are disclosing their financial, social and environmental information in order to improve their image and build their theoretical arguments from the premise. Many companies will even manipulate disclosures in order to present a positive view of their organization and provide only the green wash in order to improve their reputation. They will only show how profitable the company is without any tangible reporting of either social or environmental impacts. The viewpoint is however cynical since distinguishing genuine and green washing reporting is no easy task and thus the need for empirical studies which will provide insights into the opinions of the reporters. Conclusion Community concerns and shareholders rights which are basically the enhancement of a firm’s image and credibility to stakeholders are the most important factors that influence the companies’ decision to report. These factors are also the main reasons why companies report. All organizations, of all sizes in different sectors and societies, will always find ways to successfully establish and nurture relationships with stakeholders upon which they are economically and socially dependent. Corporate communication and reporting is one of the most important methods of keeping in touch with the stakeholders and thus the importance of a good report. The status as well as the image of a business is affected by the kind of report it provides for its stakeholders (Roberts, Weetman, Gordon and Gordon, 2008). References Adams, C. A. (2002). Internal organizational factors influencing corporate social and ethical reporting: beyond current theorizing. Accounting Auditing and Accountability Journal. 15, 223-250. DiPiazza, S. & Eccles, R. (2002). Building Public Trust: The future of corporate reporting. New Jersey: John Wiley & Sons. Everingham, G. & Kana, S. (2004). Corporate Reporting. New Delhi: Juta and Company. Roberts, C., Weetman, P., Gordon, P. and Gordon, P. (2008). International corporate reporting: A comparative approach. London: Prentice Hall. Read More