Motivation for Corporate Reporting - Essay Example

Motivation for Corporate Reporting al Affiliation The main motivation for corporate (social and environmental) reporting is to enhance corporate image and credibility with stakeholders. Introduction First, the definition of corporate reporting depends on the specialist that one consults. Nonetheless, the broad definition is that it is a disclosure and presentation of aspects that regard to corporate matters that major on measurements and accounting. There are different types of reporting; the first one is integrated reporting. Integrated reporting is the one that connects current decisions of a corporation with future prospects (Davies and Brennan, p. 122). The information that the organization uses to make the current decisions are risk, performance, and remuneration data. The motivation behind this type of reporting emanates from the fact that the organization or corporation is inseparable from the society and environment. The second type of reporting is financial reporting. Financial reporting is the center of reporting (Davies and Brennan, 2013, p. 122). It includes disclosure of financial models as well as statements that belong to the organization. The motivation behind this type of reporting is to enhance the financial credibility and transparency of the corporation. The third type of reporting is corporate governance. Corporate governance reporting is the one that gives a disclosure about how the management and other employees control the levels and processes of the corporation (Bebbington, Gonzalez, and Moneva, 2008, p. 346). The next type of reporting is executive remuneration. Executive remuneration reporting gives a report about how the corporation rewards the executive part (Bebbington, Gonzalez, and Moneva, 2008, p. 346). Then there is corporate responsibility reporting. Basically, this type of reporting communicates and discloses how the corporation manages and comprehends the impact of its operations on the environment, society, suppliers, clients and people (Bebbington, Gonzalez, and Moneva, 2008, p. 348)). The motivation behind the reporting is to give the stakeholders value. Finally, there is narrative reporting. Narrative reporting provides critical and contextual information about the corporation that is non-financial (Bebbington, Gonzalez, and Moneva, 2008, p. 348). The motivation behind borders on the fact that the corporation, as we’ll as the stakeholders need to fathom the future prospects, performance, strategy, and market position of the corporation ((Bebbington, Gonzalez, and Moneva, 2008, p. 349). Motivations for corporate reporting As one can notice, the different types of reporting present different motivations behind them. However, Adams (2002) states that the main motivation for corporate (social and environmental) reporting is to enhance corporate image and credibility with stakeholders. Whether one agrees with the statement or not, depends on the knowledge that he or she has regarding corporate reporting. It also depends on how one understands the different motivating factors behind corporate reporting. I agree with Adams (2002). The reason I agree with him is the fact that all the motivations for reporting peg on the two reasons. For example, the first motivation is to enhance the ability of the corporation to track its progress vis-à-vis the targets that it sets (Thorne, Mahoney and Manetti, 2014) p. 697). The question becomes, why should the corporation compare its progress with a target that it set? There are two reasons, to enhance the credibility it has with its socio-economic environment, especially with its stakeholders and to ensure that it maintains its image. The second motivation is to speed up the implementation of the strategy it has in the environment (Moir, 2001, p. 19). Again the question becomes, why? The answer is to ensure that it maintains the image that it has in its operating environment. While it remains that the core reason that a corporation exists is to make profit, it can achieve it if it has a poor image in the operating environment and if the stakeholders do not think it is credible enough to them. There are business scholars that argue that the core motivating factor behind every report that the corporation gives is to maintain its financial credibility (Hooghiemstra, 2014, p. 60). However, the reason behind the financial credibility motivation is to ensure that it has a credible image, and the stakeholders are happy. When it happens like that, then the corporation can continue making profit. Davies and Brennan (2013) argue that the main motivating factor behind reporting is improving the credibility of the corporation so that it is more transparent than its competitors. However, Thorne, Mahoney and Manetti (2014) demur with it by saying that that reason cannot be the main motivating factor because there is a reason the corporation must be transparent. The reason is to receive financing for its activities from shareholders and to improve its image in its operating environment. Its operating environment includes the people that it provides goods and services. Also, due to that fact, it has social responsibility towards it. I agree with the latter professional because a corporation can maintain credibility for no reason. It has to do it for the stakeholders and its environment so that it ensures that it operates continuously with the support. Furthermore, Moir (2001) states that the first reason for corporate reporting is to get an operating license. After it gets a license, then it must give periodical reports so that it maintains its corporate image and credibility with stakeholders. When it does so, it will operate smoothly without any hiccups and achieve the goals it set. Additionally, Thorne, Mahoney and Manetti (2014) agree with him by stating that by maintaining the regular or periodical corporate reports, the corporation does not damage its reputation. Its reputation is very precious and determines whether it achieves the goals it sets or not. Also, by doing so, it does not risk any legal implications for its operation. When a corporation is ethical in its dealings, stakeholders will be happy and support it. Moreover, it will have a good image and operate in a good socio-economic environment because its reputation is not bad. Therefore, it reiterates the fact that Adams (2002) was right when he noted that the main motivation for corporate (social and environmental) reporting is to enhance corporate image and credibility with stakeholders. Additionally, there are two theories that one can use to explain what Adams (2002) stated and to support it. The first theory is legitimacy theory, and the second theory is stakeholder theory. Legitimacy Theory According to Deegan and Rankin (1996). Legitimacy theory first appeared in the writings of Pfeffer and Dowling in 1975. It is a theory that researchers in the field use to explain environmental and social disclosure practices. According to it, corporations maintain its ‘license to operate’ in a society when it complies with the needs and expectations of the society. The theory states that the society can allow a corporation to operate when it meets its expectations and stays within the ‘social contract’ that it ‘signs’ with the community. A ‘social contract’ represents both the explicit and implicit expectations that a society has with regard to how the corporation conducts its operations (Deegan and Rankin, 1996, p. 58). The notion that comes out of it is that as long as the activities of the company are consistent with the values that the society holds, it assures its survival and legitimacy. On the other hand, if the behavior of a corporation does not match with what the society or community expects, then its legitimacy or the legitimacy of its operations come into question. Deegan and Rankin (1996) notes that when the expectations of the society change, the corporation must also adapt to the changes. Thus, it is critical for an organization or corporation to be flexible enough to change with the trends that exist in the community. In case a threat arises between the two value systems of both the society and the corporation, then a threat arises to the legitimacy of the entity. Consequently, Deegan and Rankin (1996) states that it becomes resourceful for the corporation to manipulate or affect strategies that relate to different disclosures. What that essentially means is that organizations must avail periodical corporate reporting so that it maintains its legitimacy. The legitimacy here refers to its credibility and image to the society. One must note that the society is also a stakeholder. Stakeholders do not just refer to financiers of the corporation or the shareholders. In fact, the society that the corporation operates in is the biggest stakeholder. Stakeholder Theory Although it relates to legitimacy theory, it is different. The difference is in the issues that each theory considers. Whilst stakeholder theory incorporates the interaction between specific stakeholders, legitimacy theory incorporates only the interaction between the corporation and the society. Stakeholder theory states that when operating, corporations should have the interests of its stakeholders as the central focus. The theory also states that the interests of the stakeholders should be the guiding point of all the operations of the corporation (Bebbington, Gonzalez, and Moneva, 2008, p. 352). According to Hooghiemstra (2000), there are two branches of the stakeholder theory. The first one is ethical (normative) whilst the second one is managerial (positive). The ethical branch gives directions to the corporation on how to treat the stakeholders. In it, it considers their rights and concerns. Also, the corporation must respect the moral rights of the stakeholders. On the other hand, the managerial branch emphasizes the fact that managers must give a disclosure of information to stakeholders. Therefore, corporations have the mandate to give reports to stakeholders on a regular basis. Conclusion In a nutshell, I agree with Adams (2002) that the main motivation for corporate (social and environmental) reporting is to enhance corporate image and credibility with stakeholders. Whilst there are several motivations behind corporate reporting such as to enhance the financial credibility of the organization, to link the current decisions of the corporation with future prospects and even to compare the current performance with the target. There are others that the paper discusses. However, they are all pegged on credibility and image to stakeholders. References Adams, C. (2002). Internal organizational factors influencing corporate social and ethical reporting beyond theorizing. Accounting, Auditing, and Accountability Journal, 15(2), pp.223-250. Bebbington, J., Gonzalez, L. and Moneva, J. (2008). Corporate social responsibility reporting and reputation risk management. Accounting, Auditing, and Accountability Journal, 21(3), pp.337-361. Davies, M. and Brennan, N. (2013). Accounting Narratives and Impression management. New York: , Routledge Companion to Communication in Accounting. Routledge, pp.109-132. Deegan, C. and 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. Hooghiemstra, R. (2000). Corporate communication and impression management New perspectives why companies engage in corporate social reporting. Journal of Business, 27(1-2), pp.55-68. Moir, L. (2001). What do we mean by corporate social responsibility?. Corporate Governance, 1(2), pp.16-22. Thorne, L., Mahoney, S. and Manetti, G. (2014). Motivations for issuing standalone CSR reports: a survey of Canadian firms. Accounting, Auditing, and Accountability Journal, 27(4), pp.686-714. Read More