The Motivation for Corporate Social and Environmental Reporting - Essay Example

The Motivation for Corporate social and Environmental Reporting The Motivation for Corporate social and Environmental Reporting As a result of the increasing rate of globalization, greater social and environmental awareness as well as the development of more efficient communication, the notion that the responsibility of companies extends beyond their profit-related and legal obligations has managed to gradually gain new impetus (Blowfield and Murray, 2011). In order to succeed, it is import for all business organizations to ensure that they are seen to be acting in a responsible manner towards planet, people and profit. The main perspective that is taken in this nation is that for business organization or community to be sustainable, it must of necessity be financially secure while all along minimizing its negative environmental impacts. In addition to this, the business organization must act in conformity with the prevailing societal expectations. It is as a result of this reason that most business organizations now constantly tend to engage in corporate environmental and sustainability reporting. Adams (2002), argue that the primary motivation that drives companies to engage in corporate environmental and social reporting is the need for them to try and enhance not only the company’s credibility with stakeholders, but also the corporate image as well. This paper will seek to use a variety of accounting theories in a bid to try and respond to this statement. Definition of key Terms In order to critically analyze the statement by Adams (2002), it is necessary to first define all the key terms in the statement. Corporate social and environmental reporting (CSER) is largely described as being a process through which organizations can be able to successfully communicate their social and environmental effects to not only certain particular interest groups within a given society, but also to the entire society at large (Gray et al., 1996). CSER reporting also seeks to try and reflect on a number of environmental and social aspects upon which the activities of a given company have an impact. These might variously include; community involvement, employee related issues, environmental concerns as well as a large number of other ethical issues. In a nutshell, CSER refers to the disclosure of information pertaining to the interaction of a company or organization with the society. Discussion of The Motivation for Corporate social and Environmental Reporting using various Accounting Theories According to Dolphin and Reed (2009), the term image is often used as a synonym to the word reputation. They also argue that the corporate image is entirely based on an individual’s total experience of a company. In this regard, corporate image can be broadly defined as the sum of experiences that a person has had with a business organization of institution. On the other hand, Quilliam (2008), defines corporate credibility as the widespread reputation for expertise and honesty. Credibility is important to an organization as it has a large effect on the behavior and attitude of its customers. Gossy (2008) defines an organization’s stakeholders as any identifiable individual and group whose activities can impact the overall attainment of an organization’s objectives. Gossy (2008) goes on to further describe stakeholders as the individuals or groups that are affected by an organization attaining its set objectives.organization of institution.iness organization of institution. n be broadly defined as the sum of epxeriences ety.t in confo There are a number of accounting theories that can be used to respond to the statement by Adams (2002). Some of these theories include a number of system based theories such as the legitimacy theory, the stakeholder theory and the institutional theory. Legitimacy Theory: The Legitimacy Theory posits that all business organizations are essentially bound by what is a social contract that requires that the firms agree to continually perform a number of socially desired actions. By fulfilling this obligation, the theory further posits that business organizations will be able to receive ample approval for all their objects in addition to their receiving a number of other rewards, this will have the effect of guaranteeing the continuity of these business organizations. Corporate environmental and social reporting helps firms to demonstrate just how they are fulfilling their social obligations in line with the requirements of the legitimacy theory. According to Hoque (2006), the Legitimacy theory gives explicit consideration to the general expectations of society and answers the question as to whether an organization is actually complying with the societal expectations within the society it operates in. The importance of corporate environmental and social reporting in helping firms to enhance their credibility with stakeholders and improve the corporate image is further demonstrated by Hoque (2006) who points out that a general failure to comply with the expectations set by the community can, pursuant to the legitimacy theory, be predicted to have negative implications for the ongoing survival of a given organization. Stakeholder Theory: This theory looks at the existing relationship between a given organization and others in both its external and internal environment. According to the stakeholder theory, the sole purpose of a business organization is to try and create as much value as it possibly can for its stakeholders. The traditional shareholder view of a company was of the perception that only the stockholders and owners were important and the company had an inherent duty to ensure that it constantly puts their needs first. The shareholder theory argues that there are a number of other parties that are important to a business, these include; its supplies, shareholders, communities, customers, trade unions, government bodies, communities, financiers, trade associations and political groups. In order to succeed in attaining this objective, companies need to engage in corporate environmental and social reporting as this will have the effect of helping the managers to keep the interests of these parties well aligned and headed in the same direction. This will in turn have the effect of helping the business organizations to enhance their credibility with stakeholders and improve the corporate image. Institutional Theory: According to institutional theorists, the institutional environment can be able to strongly influence the overall development of an organization’s formal structures. They also argue that the influence of this environment an often be more profound than market pressures. The institutional theory is designed to help business organizations to focus on the more resilient and deeper aspects of a given social structure. It critically considers the processes that are involved in causing the structures, norms, rules, schemes and routines to eventually become established as the key authoritative guidelines for social behavior. According to Hoque (2006), the modern definition of institutional theory stems from the assumption that all the various intra-organizational procedures and structures, including accounting are quite often shaped by a number of various external factors as opposed to their being influenced by cost-minimizing objectives. As such, organizations operating in similar environmental settings are generally assumed to be subject to a number of comparable demands that are targeted towards what is generally deemed to be appropriate behavior. This includes their choices and the designs of their internal procedures and structures. Corporate environmental and social reporting enables organizations to identify and adopt these structures. By adopting these structures, business organizations are able to enhance their credibility with stakeholders and improve the corporate image. Positive CSR Theories: The positive CSR theories are important in the disclosure of voluntary information. They aid in the specifying of the reasons for disclosing a given CSR report. These theories include a number of theories that are help in explaining and predicting circumstances. According to Deegan and Unerman (2006), positive CSR theories are of great aid in helping business organizations to focus on the existing relationship between the companies and their stakeholders. There are three main positive CSR theories, these are political theories, instrumental theories and integrative theories. These theories encourage business organizations to engage in corporate environmental and social reporting so as for them to not only enhance their credibility with stakeholders but also to greatly improve the corporate image. Conclusion After having read the relevant literature on the subject, I believe that the statement made by Adam’s arguing that argue that the primary motivation that drives companies to engage in corporate environmental and social reporting is the need for them to try and enhance not only the company’s credibility with stakeholders, but also the corporate image as well, is essentially true. This is because a number of theories such as the legitimacy theory, the institutional theory, the institutional theory as well as positive CSR theories encourage business organizations to ensure that their policies remain socially and environmentally conscious. It is clearly evident that the sole reason as to why companies and organizations engage in corporate environmental and social reporting is for them to satisfy the postulations that are made by these theories. The acknowledgement of the need for corporate social responsibility (CSR) implies that there is a need for business organizations to recognize the importance of disclosing information that is related to such responsibilities. According to Gray et al., (1996), the concept of social accountability only arises in the event that a company is deemed to be socially responsible. This responsibility requires that a company either refrains or undertakes particular actions with the aim of enhancing the organization’s credibility with stakeholders and improving itscorporate image. However, there are a number of other reasons as to why organizations can engage in Corporate social and environmental reporting, this includes community concerns and shareholders rights. Bibliography Adams, C. 2002, “Internal organisational factors influencing corporate social and ethical reporting beyond theorising”, Accounting, Auditing, and Accountability Journal, Vol. 15 No. 2, pp. 223-250. Blowfield, M., & Murray, A. 2011. Corporate responsibility. Oxford: Oxford University Press. Deegan, C. M., & Unerman, J. 2006. Financial accounting theory. Maidenhead: McGraw-Hill Education. Dolphin, R., and Reed, D. 2009. Fundamentals of Corporate Communications. Routledge. Gossy, G. 2008. A Stakeholder Rationale for Risk Management: Implications for Corporate Finance Decisions. Wiesbaden: Betriebswirtschaftlicher Verlag Dr. Th. Gabler / GWV Fachverlage. Gray, R., Kouhy, R. and Lavers, S. 1996.  Accounting and Accountability: Changes and Challenges in Corporate Social and Environmental Reporting. Hemel Hempstead: Prentice Hall Europe. Hoque, Z. 2006. Methodological issues in accounting research: Theories, methods and issues. London: Spiramus Press. Quilliam, E. T. 2008. 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