Approaches in Social and Environmental Accounting - Essay Example

APPROACHES IN SOCIAL AND ENVIRONMENTAL ACCOUNTING Name: Course: Professor Name: Institution: City: Date: It is said that for a business to be deemed sustainable, the necessary requirement is for it to attain economic efficiency. However, this happens not to be the case when external stakeholders of the business are involved in the sustainability of an organization. In today’s economic environment, both the internal and external stakeholders demand the business to be responsible both socially and environmentally. These responsibilities are meant to balance with the financial performance of the company. However it is usually a challenge to determine what is the best approach to use in order to achieve the balance. This has led to numerous research among parties involved in the sustainably of an organization; with quite a number in the field of social environmental accounting. I therefore agree that for a business to be considered sustainable, it has to balance both the financial performance and its social responsibilities. However, the social responsibilities are usually complex to be evaluated for a fair determination since there are numerous approaches that can be used for effective evaluation. I hence agree with Brown and Fraser(2006) that ” While at one level there appears to be widespread agreement that CSR and SEA are worthy topics of attention, it does not take more then a surface review of the literature to realize that different groups have very different starting points”(p. 104). Hence this piece intends to analyze the subject on the aspects of business case, critical theory and stakeholder accountability. These approaches are meant to vividly make it clear on the conceptual landscape that Social Environmental Accounting operates on within an organization. Past cases that involved poor corporate social responsibility have brought to light the question; what is the best approach that can be used to evaluate the social responsibilities of an organization. Such a case is the Volkswagen scandal. According to Burki (2015) Volkswagen was sued on January 2016 by the Justice department on grounds of obstruction of regulator’s inquires, being stubborn on its efforts of restoring credibility and giving false information. This was after it stated that its emissions scandal was just a chain of mistakes which could be taken care of. This did not go down lightly. It all started in 2009 when it started fitting its cars with cheating device software. The software would cheat on tests which were meant to evaluate carbon emission. It was found out that the vehicles fitted with the software emitted up to a staggering 40 times the level required for pollution of Nitrogen oxide. The scandal brought to light an example of fraud in the corporate scene that harmed the society onto which the franchise was given license of operation. The three approaches of social environment accountability are as: Without a doubt, the business approach of evaluating a company in in its corporate social Responsibility and Social environment accounting initiatives is a paramount aspect of any organization. Those who advance the view of business case usually have the primary objective of knowing what they would gain or lose for themselves and the shareholders in case they carry out the initiatives. Proponents of the business case tend to deny there is a rift between a business and the society. It is therefore due to this that the management of the corporation use corporate social responsibility and social environment accounting to advance its economic interests. Besides extending the economic interests of an organization, the business based approach is seen as a way of managing threats that question the legitimacy of the organization. The threats of the organization are usually perceived and not real. The business approach is an instrument that is used to ward off stakeholders such as activists and Non Governmental organizations who have the capability of jeopardizing the activities of the organization (Doh & Guay 2006). Social environmental accounting in this case controls the perceptions of the organization if not convincing them. When others see corporate social responsibility and social environment accounting as a trade off against profits, proponents of the business case view it as a way in which organizations manage their social activities as a pillar in its operations. This helps the organization in promoting regulations that are not so stringent. Through this Community Social Responsibility is eventually seen as an option to regulation of business activity since future regulations are usually reference of the same. Also business case supporters argue that there exists a positive relationship between activities of corporate social responsibility and the financial performance of the organization (Waddock & Graves 1997). However, most of this depends on ethical investment. Considering the case of Volkswagen, it implemented its secretive software which boosted it to become the number one car maker in the world. Things began tumbling down when it was discovered that the software installed in vehicles hid the true emission rates. This just explains how important an ethical investment can be. Despite the advantages that can be brought by a business based approach, it also faces its downsides. It is believed that the pillars that drive the corporate social activities of an organization can cause the market economy to be undermined (Banerjee 2008). It is also likely to undermine the wellbeing of the community. In addition, managers who try to put a good image of the company raise the expectations bar of the public. An instance of a scandal can hit them so hard that it may be difficult to write it off. Finally, when there is increased social environmental accounting in an occasion of criticism, legitimizes stakeholder claims. At the end of the day, there can be redistribution of wealth and power to non shareholders leading to unsustainable development. Stakeholder accountability approach Beyond the shareholders of a certain company, there are usually agents who have an interest in both the decisions and the operations of the company. According to Freeman (1999) a stakeholder is an individual or group who benefits or is harmed from the corporate actions or whose rights are respected or violated by the subject company. These stakeholders are creditors, employees, community or suppliers. The stakeholder approach requires that companies have a responsibility both socially and environmentally of considering the interests of all parties which are affected by their operations. It is therefore to be noted that the management of the organization should not only take acre of the welfare of the shareholders but also anyone who is culpable of being affected by the firm’s decisions. This view is in contrast with the classical view of stakeholder approach which claims that the ultimate objective of the company is to make only the principal stakeholders and the companies flourish. There have been interesting classifications of stakeholders in the recent past. According to Clarkson (1995) the classification of stakeholders is in the primary category or the secondary category. He further states that primary stakeholders are the agents who have a direct participation with the organization and their engagement makes the organization unable to survive without. These include the employees, government, shareholders amongst many others. The secondary stakeholders on the other hand are those affected by the operations of the business but are not directly involved with the operations of the organization. Stakeholders are usually called upon to be the watchful eye of the organization. In that light, corporations should also be open and transparent in order to promote a democratic environment. In accounting, the accomplishment of social objectives has been ignored with respect to financial performance accomplishments. Accounting in its own way is a fundamental skill that helps in bringing control- even in the society aspect. From accounting, accountability is ensured. In order to achieve accountability of the stakeholder, the records of the organization must be kept in the open so that transparency is achieved. It is in such times that organizations are becoming larger and larger by day. Corporate social responsibility advocates that the bigger the company, the bigger the helping hand that it has (Hopkins 2012). The organizations are additionally seen as agents meant to bring about change in the society. The change cannot be effective when the internal structure of the organization is rotten. It is therefore prudent for the organization to bring about change starting from within. Accounting within the organization should be a paramount institution that needs to undergo change if the whole organization is to be a reflection of change within the society. For the case of Volkswagen, the stakeholder accountability had been undermined. All this started at the top when effective stakeholder management at the top was missing. The stakeholders were not considered in boardroom discussions in an instance where their participation was very important. Critical theory approach The critical approach is meant to attack the stakeholder accountability in evaluating the corporate social responsibility and social environmental accounting in initiatives. This is because the proponents of the approach are oblivious of the fact that real accountability can occur even if radical change is not there in a society that is capitalistic. This is because the capitalistic values and views are such that corporate social responsibility and social environmental accounting are likely to fall prey to the business aspect. Rather than causing liberation, the activities of the business are likely to just cause wonder. There is also criticism on the proponents of Social Environmental accounting since they engage with thinkers who sit on the fence. This is unlike critical theorists who transform with ongoing social struggles. These thinkers who sit on the fence are viewed as conservative since they emphasize pragmatism and moderation. Critical theories view corporate social responsibilities and social environmental accounting is viewed as agents of change, capable of using influence to change the status quo. Critical theorists believe this can be done when social conflicts are highlighted by the organization rather than being downplayed (Kurucz, Colbert &Wheeler 2008). This explains how important social environmental accounting is good in exposing the ills of the capitalistic system. The internet’s advent in the recent past has increased the pressure on multinationals besides providing access to information (Blomström & Sjöholm 1999). This is because a company that s criticized can be affected more readily and on a global scale, thanks to the internet. The social environmental accounting is more likely to strengthen than weaken the inequitable distributions of power. This tries to explain why the critical theorists are wary of partnerships than can be formed between the organization and the stakeholders. Social environmental accounting can be used as scapegoats too by powerful groups who may claim that its existence is a proof that the organization is willing to take in criticisms (Mathews 1997). In conclusion, In order to comprehensively understand corporate social responsibility and social environmental accounting requires the assessment of the questions: are organizations social institutions? And if so, how far should they extend their responsibilities in the wide spectrum of the society, and the responsibilities should be discharged in what manner? To whom are organizations responsible in order to make them accountable? The research paper has considered how social environment accounting is viewed within the different scopes of reference. In the business case its main purpose has been perceived as an extension of management muscle in creating a bigger shareholder value. It has been touted to result in win-win situation if only good ethics are applied. In the stakeholder accountability, it has been perceived that its main purpose is to increase the transparency and accountability of the organization while in the critical theory; it has been viewed as able to expose the contradictory aspects of a system that is capitalistic. Here, it has the ability to point out degradation of the environment and social inequities. From my perspective on evaluation of the approach that is best used to approach corporate social responsibility and social environment accounting, the business case seems to be the strongest approach. The business approach seems to overlap both the stakeholder accountability and critical theory approaches in terms of financial accounting. Ultimately, all these approaches suffer difficulties of accounting measurement in the measurement of social responsibility and therefore there is no sure or acceptable degree of objectivity. List of references Brown, J and Fraser, M. Approaches and perspectives in social and EWnvironmental Accounting: an overview of the Conceptual Landscape. Business strategy and the environment. 15, pp 103-117. Burki, T.K., 2015. Diesel cars and health: the Volkswagen emissions scandal. The Lancet Respiratory Medicine, 3(11), pp.838-839. Banerjee, S.B., 2008. Corporate social responsibility: The good, the bad and the ugly. Critical sociology, 34(1), pp.51-79. Blomström, M. and Sjöholm, F., 1999. Technology transfer and spillovers: does local participation with multinationals matter?. European economic review, 43(4), pp.915-923. Clarkson, M.E., 1995. A stakeholder framework for analyzing and evaluating corporate social performance. Academy of management review, 20(1), pp.92-117. Doh, J.P. and Guay, T.R., 2006. Corporate social responsibility, public policy, and NGO activism in Europe and the United States: an institutional‐stakeholder perspective. Journal of Management Studies, 43(1), pp.47-73. Freeman, R.E., 1999. Divergent stakeholder theory. Academy of management review, 24(2), pp.233-236. Hopkins, M., 2012. Corporate social responsibility and international development: is business the solution?. Earthscan. Kurucz, E.C., Colbert, B.A. and Wheeler, D., 2008. The business case for corporate social responsibility. Mathews, M.R., 1997. Twenty-five years of social and environmental accounting research: is there a silver jubilee to celebrate?. Accounting, Auditing & Accountability Journal, 10(4), pp.481-531. Waddock, S.A. and Graves, S.B., 1997. The corporate social performance-financial performance link. 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