Why Does Report to Stakeholders Matter - Term Paper Example

Reporting to stakeholders: Corporate social responsibility Introduction When businesses promote their efforts at improving the social condition or changing the environment, they often publicise these activities in some form of corporate reporting. Corporate social responsibility involves a business having integrity, “thought to be one who will likely be honest and truthful; be fair, comply with laws, promote community interests and show consistency” (Sawers, 2007, p.42). Stakeholders, and not just shareholders, are interested in the CSR activities of companies because of the impact it can make in areas of consumer attitude toward the business and even at the cost level as some environmental efforts can strain operating budgets. Therefore, from not just the accounting viewpoint, reporting social responsibility efforts is of major benefit to the business. Why reporting? Marathon, a major petroleum company operating in diverse international markets, has developed a form of reporting which involves “using quantitative metrics and qualitative descriptions of policies, programs and practices to provide relevant and meaningful information about the company’s operations and non-financial performance” (marathon.com, 2008, p.1). Marathon operates in an environment where profitability is high, therefore society, at all levels and demographics, demand more responsible business behaviour. Marathon devotes a considerable amount of time and labour investment to produce corporate social responsibility reporting documents, which shows that the external consumer strongly influences how businesses are guided at the social level. In this large industry, reporting the efforts of the company give citizens information about the positive efforts of these companies to remind them that they are not only in business to achieve high financial profit. Therefore, Marathon and many of its other petroleum competitors have put dedicated corporate social responsibility reporting on their regular reporting activities. Blended with routine financial reporting in traditional accounting format, Marathon recognises that to keep a good image on its markets, it must include information about environmental, social and infrastructure improvements paid for by the industry. Cathay Pacific, another large company, “believes that reporting enables (them) to communicate their past performance and future commitments” (cathaypacific.com, 2008, p.2). As part of this reporting commitment, the company has included the efforts of a third party auditor called ERM to assist in verifying the contents of the report (cathaypacific.com). Using a third party organisation to assist in verifying the information shows that the shareholder, too, has a great deal of influence when demanding that accounting and CSR efforts have a blended reporting format. For example, environmental efforts occurring in one area of the world could be taking profits away from that division while other CSR efforts locally are producing better financial results. In this case, corporate social responsibility reports should include both social and accounting information so that investors know the real-time financial health of overseas business divisions. Without both the accounting information and plans for the timeline of what is occurring in areas of corporate social responsibility, investors cannot accurately predict whether a business will be a good long-term investment. This type of reporting used by both Marathon and Cathay Pacific is called triple bottom line reporting which blends “financial, environmental impact and social impact within a framework which is both transparent and auditable in the same way economic performance is” (rightscom.com, 2007, p.17). Transparency in business operations is one major reason why reporting to stakeholders has become so important, especially in the face of publicised issues with business ethics such as Enron. Traditionally, some businesses were governed by closed door policies and did not have much transparency beyond the regular accounting reporting. When there is a possibility that investments could be impacted negatively by ongoing corporate social responsibility efforts investors demand transparency. Using this triple bottom line approach gives stakeholders a snapshot of what is occurring within the business, timelines for ongoing spending on these activities, and the long-term impact on communities or infrastructures. Stakeholders have no better way to measure whether environmental impact costs will harm profit in the future without these types of reporting tools which blend all three factors. The demand for reporting which goes beyond accounting can also be seen by the rising amount of companies reporting their “social disclosures” on the Internet (Tagesson, Blank, Broberg and Collin, 2009, p.352). From the public relations view, online social disclosures represent an opportunity to give the business more visibility in their buyer markets while also letting citizens know that the company is operating in an ethical and intelligent manner. Each year, growth in global Internet use continues to rise, therefore using the Internet as a means to report CSR activities can be a chance to give the business a more positive image through marketing and promotion. Stakeholders are being satisfied this way also as it provides them with access to information instantly once it is published and it can be upgraded without a great deal of cost. Improving relationships with all stakeholders, not just investors, can be done using the Internet as a means to report regularly. At the ethical level, companies which advertise their products are experiencing more demand for reporting of their corporate social responsibility efforts. “There is criticism of the ethical values of advertising” causing some companies to begin describing their internal policies regarding how to advertise truthfully and without offering misleading consumer statements (Waller and Lanis, 2009, p.110). This criticism comes from the social level, an important stakeholder for any business selling a product. Reporting to consumer stakeholders about the company’s efforts to audit their advertising principles and behaviors shows buyers that the company stands behind their products and is genuinely attempting to offer a product which will provide value. A new standard of reporting Ethical reporting is about accountability, which is another reason why reporting CSR information and efforts, along with accounting data, is of such importance. All stakeholders want there to be a level of administrative and operational accountability at all levels to ensure that the company is operating properly. A non-government agency called the Institute of Social and Ethical Accountability in London has developed a new standard of reporting called AccountAbility 1000. The goal is to create a standard which “helps businesses define targets, measure progress toward those targets, audit and report performance, and establish feedback mechanisms” (Robins, 2005, p.107). This new standard system shows the importance of meeting the stakeholders’ demands for information outside of accounting and AccountAbility 1000 can be used as a benchmark by other companies who might not have the internal expertise necessary to report CSR effectively. AccountAbility 1000 shows businesses how to monitor their internal organisation, measure its efficiency in areas of CSR, and then how to best report these efforts in formats meaningful to consumers or investors. Businesses all around the world, of many different sizes and industries, operate in areas where there are unique cultural values and they must provide products or services which are useful to these areas. It was only recently when a general, standardised accounting standard was accepted by most developed countries around the world, however it has provided the ability for investors and other stakeholders to understand the information by becoming familiar with a particular reporting format. Creating a standardised, international guideline such as the AccountAbility 1000 system can have the same social impact for all stakeholders simply by familiarising them with the structure and presentation of the reporting. This would satisfy their emotional demands and their demands for corporate social responsibility information at the same time. Reporting on environment When reporting on the efforts of the business to alter or improve the environment, such as reducing carbon footprint or reducing waste outputs, the business is providing a corporate social service to the local community where it operates. In many industries, the consumer is the end user of the final product or service, therefore their sales contributions are very important to the accounting bottom line. Environmental advocacy efforts, such as building a nature conservatory, can be reported in a way that lets the consumer follow these efforts from start to finish, giving them a more interactive experience with business activities. Introducing the project or goal, introducing the members involved and their unique roles within the effort, and discussing accounting figures associated can let all stakeholders feel like a part of the business. At the promotional level, reporting to stakeholders in this way could be higher sales from more satisfied consumers who feel loyal to the company or simply make the process of dealing with local government representatives easier to manage. Environmental issues do not necessarily have to be simply about the expenses versus the profit in these efforts, but can be an ongoing public relations tool which builds a better local or international reputation for the company (Waller and Lanis). Reporting on the financial efforts of CSR activities is important too, since many of these efforts can be costly. For example, a local regulation might force a business to build a certain waste reduction incinerator to lessen environmental impact and the business cannot escape these new laws on environmentalism. In this case, investors deserve to know that these expenses are occurring in real-time, before they learn when browsing through the company’s annual report. These types of expenses are critical to profit and the value of the company’s shares, therefore reporting environment, at the cost and accounting level, should be ongoing as part of corporate social responsibility. Reporting to stakeholders about the environment can also have positive impacts on the internal staff as well, such as getting them interactive with volunteerism and meeting the community through company-sponsored events. The goal of most businesses is to have a dedicated and motivated workforce who can offer positive assistance in meeting corporate goals and project deadlines. Reporting the efforts of the business to improve employee morale, or giving workers acknowledgement for the outstanding contribution to community involvement, can let all stakeholders know that the company cares about its employees and wants to promote their involvement with community efforts. Giving staff members recognition through this reporting shows that the company has high focus on human resources and provides an environment where workers can grow and achieve. An investor and a regular citizen stakeholder would be concerned about this at the personal job level and in matters of potential positive public relations achieved by these promotions. Conclusion Reporting to stakeholders, blending accounting with corporate social responsibility is an effort which is driven by external social demand and also as an opportunity to expand the company’s positive image across the world. Shareholders, especially, want knowledge of what is occurring within the business and how these efforts toward CSR can benefit their share values. General citizens want to be more involved with companies and reporting to shareholders gives them a window into the modern business and lets them feel a part of the effort or plan. General stakeholders who simply are interested in what is going on in their local community in terms of development and growth can have reporting data via the Internet or any other reporting method in real-time. Businesses seem to be recognising the potential profit and reputation value of reporting to all varieties of stakeholders and are building tools which can be used by many different industries to provide standardised reporting. Giving consumer stakeholders and investor stakeholders truthful and real-time information into how the company blends its environmental and social activities with matters of cost is the best tool to show the total health of the business. Therefore, reporting current and ongoing corporate social responsibility efforts to all stakeholders can bring very high value to the company and is definitely worth the labour and financial investment to perform. Blending with general accounting information, there can be no questions about transparency or accountability. References Cathaypacific.com. 2008. Our reporting approach, continuity and change. Corporate Social Responsibility Report 2008. Accessed 16 Nov 2009 from http://downloads.cathaypacific.com/cx/press/CSRreport_en2008.pdf. Marathon.com. 2008. Living our Values – 2008 Corporate Social Responsibility Report. Accessed 17 Nov 2009 from http://www.marathon.com/content/documents/social_responsibility/living_our_values_reports/lov_report_2008_final.pdf Rightscom.com. 2007. Publishing Market Watch – European Commission. Accessed 18 Nov 2009 from http://www.rightscom.com/Portals/0/Corporate%20Social%20Responsibility%20Report.pdf Robins, Fred. 2005. The Future of Corporate Social Responsibility. Adelaide Graduate School of Business. Accessed 19 Nov 2009 from http://www.palgrave-journals.com/abm/journal/v4/n2/pdf/9200125a.pdf Sawers, A. 2007. Importance of being honest, Financial Director, London. June, p.42. Tagesson, T., Blank, V., Broberg, P. and Collin, S. 2009. What explains the extent and content of social and environmental disclosures on corporate websites: a study of social and environmental reporting in Swedish listed corporations. Corporate Social Responsibility and Environmental Management, Chichester. 16(6), p.352. Waller, D. and Lanis, R. 2009. Corporate social responsibility (CSR) and disclosure of advertising agencies. Journal of Advertising, Armonk. 38(1), pp.109-120. Read More