The Main Motivation for Corporate Reporting Is to Enhance Corporate Image and Credibility with Stakeholders - Essay Example

The main motivation for corporate social and Environmental reporting number Word count: 1435 Introduction The concept of corporate social responsibility disclosure has developed over a long period. The development of the concept has occurred in three stages. The first stage happened between 1970 and 1980. During the period, the most disclosures were on areas such as the entity’s employees, products, and activities. The interest of the managers and other crucial company officials like chief accountants was not in the environmental implications of the company’s operating activities. The main reason for the lack of interest was the invisibility of any environmental influence. The second stage of the progress happened between 1980 and 1990. The increasing availability of accounting literature on the environmental effects of a company’s activities has attracted the attention of most institutions. The signs of the change were more conspicuous after most companies had specialized in the type of products and services to manufacture (Bayoud & Kavanagh, 2012, p. 1-4). During the second stage, the environmental disclosures were more common than the social disclosures. The increase in the concerns and disclosures were prompted by the growing interest in minimizing the damage to the environment. The stage was marked by the implementation of legally enforceable accounting standards, an increased formulation of various environmental legislations and the development of reporting frameworks (Bayoud & Kavanagh, 2012, p. 1-4). The last stage in the Corporate social responsibility disclosure happened between 1991 and now. This stage is characterized by more focus on crucial environment issues. In addition, the interests of various stakeholders such as the managers and accountants have been taken into consideration. This development stage has been dominated by environmental accounting with special focus directed toward social reporting (employee and ethical disclosures) (Bayoud & Kavanagh, 2012, p. 1-4). The main reasons for corporate social responsibility disclosures are controversial. On that note, this essay seeks to present discussions in disagreement with Adam’s statement “The main motivation for corporate social and environmental reporting is to enhance corporate image and credibility with stakeholders” Corporate social responsibility The advocates of corporate social responsibility have defined a wide array of aspects in which the concept applies. They involve the employee relation, corporate ethics, human rights, plant closures, the environment and relationship with the community. Therefore, the concept of social responsibility involves the putting efforts to solve the problems created, by companies, in the process of production of goods and services. Companies obtain the production inputs from the environment. An uncontrolled resource extraction result in depletion, which negatively affects the environment. For instance, excessive lumbering destroys the rain catchment areas. The activity negatively affects the environment by reducing the amount of rainfall. Little or no rainfall is a negative environmental phenomenon (Moir, 2001, pp. 3-5). Theories of corporate social responsibility According to Moir (2001, pp 8-9), the theories that explain the reasons behind corporate social responsibility are divided into three categories. That is, the stakeholder theories, the social contract theory, and the legitimacy theory. The stakeholder theory forms a basis of analysing the benefactors of the corporate social responsibility. A stakeholder is any person with a vested interest in a company’s existence and who influences or can be influenced by the company’s goals. The stakeholders are then divided into two groups. That is, the primary and secondary stakeholders. Primary stakeholders are the persons without whose support, a company’s existence is ruined. Such stakeholders are the employees, shareholders and investors, suppliers, the customers and the public. The secondary stakeholders on the other hand, are those persons whose contributions or the lack of which, do not affect a company’s existence. According to a research conducted, it has been concluded that companies are quick to respond to the interests of the salient stakeholders. For instance, when a company faces a strong demand from the public to compensate for the damages done to the environment as a result of its operations, the interest is promptly responded to. Therefore, it is true to conclude that the interest of salient stakeholders can motivate the company to act in a socially responsible manner (Moir, 2001, pp. 9-10). The theory of social contracts- the society is characterized by a series of contracts between the society and its members. It is argued that companies could decide to act socially responsible, not to further its commercial interest, but in response to the societal expectation. Therefore, the interest or the expectation of the society influences and motivates the companies to act socially responsibly. However, the theory doesn’t show other “behind-the-curtain” reasons for engaging in socially responsible activities (Moir, 2001, pp. 11-5). Legitimacy theory- asserts that legitimacy is a universal assumption that corporations’ actions conforms to various social aspects such as norms and beliefs. Therefore, actions, by the corporations, against the set social rules pose legitimate threats. However, there are four strategies that can be used to remedy a legitimate threat. They are as follows: first, assure the affected stakeholders that actions must be taken to improve the situations, second, alter the company’s view of the situation, third, shift attention away from the issue, and induce the expectation being socially responsible (Moir, 2001, pp. 12-13). Other theories explaining the reasons why a corporation might be obligated to act socially responsibly as presented by Garriga & Mele (2004, pp. 2-11) are the instrumental theories, the political theories, the integrative theories and ethical theories. The instrumental theories view corporate social responsibility as a tool used to improve the economic performance and to create value for the shareholders. The profit maximization with adherence to the legal and ethical construction in a country is the only responsibility of the corporations. Thus, the Institutions can achieve their maximize profit goal and at the same time meet the needs and interests of various stakeholders (Garriga & Mele, 2004, pp. 2-11). The political theories (second) assert that corporations have social power derived from the society. The social power is subject to change with changes in various economic and political factors. Therefore, the corporations are expected to responsibly use their social powers since it can be forfeited in the long run upon misuse. On the hand, the corporation, as a citizen, should act in a manner that demonstrates social responsibility. Therefore, according to this theory, businesses are motivated to act in a socially responsible manner in order to preserve their social powers and meet their obligations as citizens (Garriga & Mele, 2004, pp. 2-11). The integrative theory (third) asserts that the survival and existence of businesses depend on the society. Institutions obtain the raw materials and the skills required in the production process from the society. In addition, the Society provides funds and capital to the corporations. Therefore, it should be among the corporations managers’ top priority to incorporate the societal needs and interests by ensuring that companys operations conforms to the established social values in various localities. Ethical theories (fourth) assert that the basis association between the businesses and the society is defined by a set of ethics. That is, there are various ethical standards within which, the corporate activities are carried out. Therefore, companies are motivated to act socially responsible due to the set ethical standards (Garriga & Mele, 2004, pp. 3-11). The empirical analyses According to motivations Thorne, Mahoney & Manetti (2014, pp. 16-17), a research conducted on 56 companies in Canada involving 57 respondents, 32 companies (large companies) agreed to be issuing a standalone corporate social responsibility and 25 did not prepare the report. The research indicates that the large companies were issuing environmental reports due to the scrutiny by the shareholders, which in turn, creates a favourable image for the company. On the contrary, Deegan & Rankin (1996 8-13) presents the results of a research conducted on Australian companies that have experienced a law suit. The companies admitted to presenting environmental reports in order to create a favourable corporate image. In addition, the research uncovered an element of unreliability of such reports. Conclusion The theories briefly discussed above mention various reasons behind the corporate social responsibility reporting. None of the above-discussed theories justify image and credibility as the reasons behind environmental reporting. Despite the fact that theories have no empirical basis, quite a number has set the course for argument in this essay. Even though the research conducted by Deegan & Rankin (1996 8-13) show that Australian companies prepare environmental reports to favour their corporate image, the reliability and accuracy of such reports are questionable. Notably, the Research done by Thorne, Mahoney & Manetti (2014, pp. 16) concludes that most large firms in Canada prepared environmental reports in response to stakeholders’ scrutiny. Therefore, the assertion of the theories combined with the empirical study conducted in Canada confirms the disagreement with Adams’ statement. List of References Bayoud, N.S. & Kavanagh, M. 2012. The Importance and Benefits of Corporate Social Responsibility Disclosure in the Libyan context: Evidence from managers, Institute for Business & Finance Research, 7 (1), pp. 84-95. 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, Vol. 9 (2), pp. 50-67 Garriga, E. & Mele, D. 2004. Corporate Social Responsibility Theories: Mapping the Territory, Journal of Business Ethics, 5 (3), pp. 51-71. Moir, L. 2001. What do we mean by corporate social responsibility? Corporate Governance, 1 (2), pp. 16-22. Thorne, L., Mahoney, L.S., Manetti, G. 2014. Motivations for issuing standalone CSR reports: a survey of Canadian firms, Accounting, Auditing & Accountability Journal, 27 (4), pp. 686-714. Read More