Corporate Social Reporting - Literature review Example

 Corporate Social Reporting Corporate Social Reporting is the method to inform the world about what is happening in a corporate firm (Cooper and Owen, 2007). More corporate companies are vouching for their accountability by presenting environmental, social and sustainability reports. The companies frequently change their functioning voluntarily by adopting institutional reforms to increase their transparency. Corporate accountability is simultaneously enhanced. The reporting also empowers stakeholders (Cooper and Owen, 2007). Following the downfall of Enron and similar companies losing their accountability, companies have resorted to the principle of reputation building in the recent past. Administrative reforms have helped firms to increase their organizational transparency (Powell, 1994 as cited in Cooper and Owen, 2007).Stakeholders are provided information and dialogue which influence the decisions and behavior of the firm. Accountability is demonstrated by the reporting. Standardized reporting practices confirm that accountability is heightened to the extent that organizational stakeholders are empowered to suggest reforms in the organization (GRI, 2002 as cited in Cooper and Owen, 2007). The principle of accountability is influenced by the principle of inclusivity which is the accountability to all stakeholder groups. The stakeholders’ views are also obtained at an engaging process where opinions are expressed freely without fear (AccountAbility, 1999, as cited in Cooper and Owen, 2007). GRI and AccountAbility claim that their standards of reporting are reliable (Cooper and Owen, 2007). AccountAbility has an Assurance Standard which assesses the reporting using principles of materiality, completeness and responsiveness. To uphold the principle of materiality, the assurance provider has to give a declaration as to whether he has included all the information deemed necessary by stakeholders to make “informed judgements, decisions and actions” (Cooper and Owen, 2007).However literature review indicates that engagement practices do not always raise the accountability of the corporate firms (O’Dwyer, 2005 as cited in Cooper and Owen, 2007). The pace of administrative reforms has speeded up in the UK. KPMG (2005 as cited in Cooper and Owen, 2007), a reporting organization which does so thrice a year and Salterbaxter, a consultancy, have both indicated that social and environmental reports are produced by companies. Draft regulations have been published by the Department of Trade and Industry in May 2004 for the Operating and Financial Review (OFR) and these are mandatory for all quoted companies. Cooper of the Aston Business School and Owen of the International Centre for Corporate Social Responsibility (2005) have critically evaluated the vast institutional reforms which go hand-in-hand with “leading-edge” reporting and the OFR regulations using reports from the 2003 ACCA UK Sustainability Reporting Awards Scheme.The OFR regulations were later scrapped. Looking into how the regulations were drawn up for assessment of the potential enhancement of the stakeholder accountability is another aim of this paper. The theory behindaccountability has also been considered. The study adopts an analytic framework. The analysis indicated that reporting related to OFR proposals had a bigger chance of not being effective similar to the voluntary disclosures in a special purpose report; both failed to produce action of the stakeholders (Cooper and Owen, 2007). In both, the administrative reforms were separately considered from institutional reforms. It was the institutional reforms that offered the accountability of the directors to the stakeholders. Where stakeholders do not have a legitimate voice, action is not expected: in a situation where enforceable duties are given only to shareholders. Corporate governance should be of a pluralistic nature if stakeholder accountability is to be established. Where employees have firm investments, they also have the same benefits as other stakeholders: representation in the governance of the company (Cooper and Owen, 2007). The stakeholder theory has been considered a dangerous concept by Sternberg (2004 as cited in Cooper and Owen, 2007). Philips et al (2003 as cited in Cooper and Owen, 2007) speaks of the shareholders as having limited liability and are not liable to the debts of the organization. The limited liability has validity in a court of law. The stakeholders do not however own any part of the company. The organic model of corporate behaviour is descriptive of large companies and managers: here the corporation and shareholders have different perspectives. The multiple benefits and objectives of stakeholders in the stakeholder model results in a diffuse accountability but the interests of the organization do not suffer (Sternberg, 2004 as cited in Cooper and Owen, 2007). The diffuse accountability is countered by a stakeholder statute which indicates objectives and responsibilities towards the stakeholders. The corporate lobby practices caution in delineating rights and power to stakeholders. Hierarchial and coercive power cannot achieve accountability through dialogue. One-dimensional power is used to reduce the prominence provided to stakeholders after protests to the OFR document (Lukes, 2005 as cited in Cooper and Owen, 2007). It focuses on the making of decisions on specific issues of conflict or policies of preference. The two-dimensional power is used when decisions are prevented from being taken on potential issues. The three dimensional power is used when potential issues are to be kept out of politics. Wider societal reform is necessary to increase stakeholder power in corporate organisations. A pluralistic approach to determining directors’ duties may have adopted enforceable accountability to a broad spectrum of stakeholders but this has been dropped. With the removal of OFR proposals, it must be understood that stakeholder rights are no longer on the cards. A wide corporate accountability is not the norm now. Corporate social reporting studies indicate mainly the positive and negative impacts which the society encounters (Lewis and Unerman, 1999). However what is good and bad is relative, based on cultural or individual beliefs. What appears good at one point of time may be bad at another. Lewis of Sheffield University Management School and Unerman of the King’s College of the University of London have conducted a study on relativism and focused on ethical relativism (1999). Organisations forget their social obligations while attempting to influence the stakeholders with a false reality. The social impact of the organisation’s efforts at corporate social reporting is not the main aim. They attempt to legitimize their action of reporting conveying the picture of social responsibility even when the actual behaviour may not be with the same intention (Lindblom, 1994 as cited in Gray, 1995). The social contractual obligations expect the manager to heed what is expected as good and bad in the society but the manager forgets these for what the stakeholders think. The decision on good and bad depends on moral philosophy or ethics. If this moral philosophy or insight does not rightly assess the requirements, direction and purpose fails (Lewis and Unerman, 1999). Normative ethics provides guidance on the behaviour to be adopted in varying circumstances (Singer, 1993aLewis and Unerman, 1999). Meta-ethics involves the “philosophical study of the nature of moral judgement” (Harrison, 1955, as cited in Lewis and Unerman, 1999). The analysis of meta-ethics confirms the meanings of right and wrong. The whole argument points to the fact that “if ethics are relative, then CSR that is appropriate for one society or stakeholder group at one point of time might not be appropriate for other societies/ stakeholder groups or other times (Lewis and Unerman, 1999, p. 523). Just like ethical relativism, cultural relativism also plays a role. From this we can summarise by accepting that ethical relativism helps us confirm that corporate social reporting involves ethical values and that different corporations vary in practices based on the ethical values of the stakeholders. It is also worthwhile remembering that ethical values may not be the only consideration for the reporting. With time and occasion, changing values can change the reporting styles. A reflexive relationship between cultural and ethical values has been suggested. Lewis and Unerman have written this paper with three arguments in mind. The first is that CSR is linked to ethical values. The second is to reject the idea that ethical values are absolute and to reject extreme relativism which implies that no behaviour is morally wrong (Lewis and Unerman, 1999). The third argument involves a moderate form of relativism which is based on rational arguments of universal prescriptivism. Universal prescriptivism indicates that antisocial behaviour is immoral. The legitimation strategies are four in number (Lindblom, 1994 as cited in Lewis and Unerman, 1999). The organization changes its actual behaviour to suit the requirements of the key stakeholders, including passing that information to them. The second strategy is to refrain from changing its behaviour while at the same time trying to convince the stakeholders that it has changed its behaviour. In the third strategy the company does not change its behaviour and does not try to convince the stakeholders. Instead they redirect the stakeholders’ attention to other activities of the company which the stakeholders could consider as positive. The fourth strategy is to not change its behaviour but to keep having discourses with the stakeholders till they are convinced about the ideas and they change their expectations to match the company’s. The annual corporate report of the company is the most credible of the means to convince the stakeholder in all the four strategies. The managers who are socially responsible and using the CSR use the first technique (Lewis and Unerman, 1999). Managers who overlook the social contractual obligations they are bound by will be using the other three legitimation strategies. Two types of disclosures are provided in CSR: mandatory and voluntary. Legal and quasi-legal requirements govern the mandatory disclosures (Lewis and Unerman, 1999). Differences in mandatory disclosures of different companies do not necessarily reflect the differences in their values. The voluntary disclosures are mostly used to provide a positive image of the company. Lewis and Unerman (1999) conclude that moral values have different objective meanings. Values are based on culture-specific beliefs, conditions and practices. Subjectivism and relativism are not totally acceptable just as objectivism and absolutism cannot be accepted fully (Lewis and Unerman, 1999). Processes of reasoning and universal prescriptivism also limit the type of morally acceptable behaviour. However it is possible that a group of people in a society come to a consensus on morally acceptable behaviours and values based on common social and cultural experiences, the same dominating influences and the same vested interests. If any difference of opinion occurs on right and wrong values due to their different social environments, disagreement on moral code occurs. CSR can thus be influenced by the general moral principles of the stakeholders. Managers also function according to their moral values using different legitimation strategies. The values and strategies followed by managers in one country would vary from another. This does not mean that one is wrong and the other is right. Both would be right in their circumstances. Further research is possible by studying the reporting practices of multinational corporations (Lewis and Unerman, 1999). Adams et al (1998) have identified factors which influence social disclosures in their study of 150 annual reports from six European countries. They found that super-large companies were more interested in disclosing several types of corporate social information. Environmental and employee information disclosure were related to Industry membership. However ethical disclosures did not have this relationship. Size and industry membership were significant in many countries. The disclosure amount and type of information varied. The legitimacy theory was not the sole reason for differences across Europe. Suggestions have been made by Adams et al for future research. Improvement of the quality and quantity of corporate social reporting is possible only by studying the amount and quality of disclosures and the factors related to corporate social reporting (Adams et al, 1998). Management and accounting practices are influenced by cultural characteristics. Environmental differences, green politics and the necessity for socially responsible corporations are all influenced by cultural variations. Historical events and social and political history are influences. However all cannot be blamed on the cultural features. Many multi-national companies which have employees from all over the world cannot be assumed to be different due to culture. Globalisation has actually overcome this reason through international harmonization (Adams et al, 1998). Years back, in the 1970s, employment issues were the main subject of discussion. Treatment of minority groups constituted the answer. The changing patterns of social reporting were studied by Gray et al in 1990. Countries existing close by differed due to culture, accounting systems, banking and finance systems. The corporate finance, the governmental regulations and the legislative systems contribute to the differences. Environment and other pressure groups could influence the CSR. Attitude of the society towards the legitimate roles of corporate companies is also thought of. Corporate social disclosure is based on reports on employees, environmental reporting and ethical reports. This study uses these varieties of reporting. Companies have many ways of reporting but the most reliable single source is the annual report and accounts (Adams et al, 1998). Alternative reporting is done through advertisements in newspapers and magazines, press releases and discussions. Meeting financial analysts or journalists is another method. The reports in the English Language were selected in this study. Reports of large companies were used as they contained plenty of information. The 1992 reports were used. Data was collected by content analysis using a questionnaire. Companies were segregated into four industrial groups: I-oil, chemicals, metal and power; II- manufacturing and autos, III- engineering and construction, IV- service, food and retail (Adams et al, 1998). Adam’s study is different from other studies in many ways. It studied reports of companies from six countries. All social information has been included apart from environmental information and this has been divided into 3 categories. This increased the possibility of more factors which influence industrial activities coming to light. Remediation activities of the industries may be affected by environmental information. The same can be said for recycling of raw materials and sustainability of operations. Industry membership has a relationship to disclosure of employee information. Health and safety considerations also could cause differences in provision of employee information. This goes for the extent of trade union development, media attention on some industries and the nature of the employment contract too. The study revealed some country-specific factors which wrought changes to ethical, environmental and employee disclosures (Adams et al, 1998). There was a high level of disclosure from German companies. This probably reflected the prolonged history of employee participation in management. Pressure groups which focussed on environmental issues were also strong in Germany. There was a disadvantage elicited in the process: the labour costs were high for lesser working hours. This affected competitiveness when compared with the other five countries studied. The position in the UK was the exact opposite. The workers were hardly given any rights.This was the only European Union member state which did not recognise the Community Charter of Fundamental Rights of Workers, 1989; the chapter on Social Policy or the European Works Council Directive (Adams et al, 1998). The green vote and social responsibility became established in the 1980s. Trade Unions have however been prevalent in UK for a long time. Ethical investment is also a feature in UK. Using the legitimacy theory we can consider companies in Germany as being socially responsible and reporting well while UK companies cannot be so considered. The UK companies could be reporting well for other reasons; financial executives in the UK believe the reporting is for improving the image of the companies. The report may be an advertisement for their social responsibility (Adams et al, 1998). The lack of Government interest in societal and environmental issues could have been the reason for UKnot signing the Social Charter. Voluntary disclosures could help allay greater control from stakeholders. The Government too may use these reports as excuses for not passing relevant legislation, thinking just like the companies. Voluntary disclosure may not stress the social responsibility and accountability but just demonstrates the anti-legislation stance. This could be another way of reinforcing the ideology of free-market. The political economic theory explains the corporate social disclosures as a means of doing away with legislation (Adams et al, 1998). Haniffa and Cooke (2005) conducted a study to understand better the potential effects of both culture and corporate governance on social disclosures. This study revealed a relationship between corporate social disclosure and the ethnic background of the Malay directors (Haniffa & Cooke, 2005). The variables of size, profitability, multiple listing and type of industry were found to be related to corporate social disclosure. Ethnicity is representing culture here. Malaysians are influenced by ethnicity, education and the company they are working for (Chuah, 1995 as cited in Haniffa and Cooke, 2005). If racial groups choose to maintain their own ethnicity, societal values may not be representative of the values of the nation. Racial differences go in line with national and socio-economic differences. Corporate governance, ownership structure and the constituents of the board are the significant people of the top management who scrutinize the disclosures in the annual reports. These results may be interpreted for other countries whichhave racial and business policies like Fiji, India and Hong Kong (Haniffa and Cooke, 2005). Social disclosures are made using any of four theories: social contracting theory, legitimacy theory, accountability theory and decision usefulness theory (Tilt, 1994 as cited in Haniffa and Cooke, 2005). The study by Haniffa and Cooke on corporate social disclosure (CSD) practices in two time periods, 1996 and 2002, was to decide about the existence of differences in the extent and variety of social disclosure and also to elaborate the variability in CSD. Assessment was to be made whether culture and governance structures explain the practices. The legitimacy theory was chosen. 139 companies on the Kuala Lumpur exchange were selected for their disclosures. The relationship between the patrons (government) and clients (businessmen) accounted for the immense economic growth and high standard of living. The National Economic Policy assisted alongside. Similar relationships are found in Japan and South Korea (Haniffa and Cooke, 2005). The racial background positively contributed to the disclosure and governance practices in Malaysia. Organisational legitimacy is described as “a generalised perception or assumption that the actions of any entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions” (Suchman, 1995, as cited in Haniffa and Cooke, 2005). Congruency between the actions of the organization and the public values or values of stakeholders is sought for in this theory. Disparity will produce a “legitimacy gap”. The organizational legitimacy indicates the social worthiness of the organization. The outcome would be an inflow of labour, capital and customers. The company will be coordinating with society. Attempts would be made to close the legitimacy gap if any. The organization needs to convince society about its social responsibility. Haniffa and Cooke have spoken about the four legitimation strategies of Lindblom (1994) just as Lewis and Unerman (1999) have done. Dowling and Pfeffer (1975 as cited in Haniffa and Cooke, 2005) have identified 3 modes of actions whereby legitimacy can be enhanced: 1) adapting outputs, changing operation methods to satisfy legitimacy definitions 2) attempting to change definitions to suit prevalent practices, outputs and values through communications 3) attempting to identify with those symbols or institutions which are believed to be strong for social legitimacy. Gray (1995 as cited in Haniffa and Cooke, 2005) attempted to link the four strategies of Lindblom with the 3 modes of action of Dowling and Pfeffer yet keeping within the legitimacy theory. CSD has increased over the recent years due to “increased legislation, risk, pressure groups, ethical investors, relevant events, awards, economic activities, media interest, societal awareness and politics” (Haniffa and Cooke, 2005). Malaysia saw reforms in corporate governance following the problems created due to the close relationship with the government associated with poor reporting. The reforms improved the situation. The races remain within their groups to retain their ethnic identity in Malaysia, a multi-racial country (Haniffa and Cooke, 2005). Obviously values differed between the groups. The Government National Economic Policy attempted to overcome the differences but this policy was actually meant for uplifting the bumiputras by giving them concessions and business contracts. This was really “ an institutionalized positive discrimination” in favour of the bumiputras. It largely affected CSD and other behaviours of the corporate world. More Corporate social disclosures were evident in the Malay group of businesses. This group also appeared to have a say in Government matters. This study proved that ethnicity of the major stakeholders influenced corporate social disclosures. In a board, the Chairman may be more powerful than the members while directorship provides equal status for all directors. Disclosure practices will depend on whose influence works in the company. Problems would arise when two or more people of similar power attempt to reign or try to enforce his opinions: this is called interlocking. Nonexecutive directors appear to have more influence as they represent the stakeholders. The ownership structure of the company, depending on how many major shareholders are in charge, will influence disclosure patterns. Foreign investors in Malaysia have caused a higher disclosure of information. Larger companies have more activities that affect the society and they are under greater scrutiny. Legitimising their activities would be their main agenda hence more disclosures are expected. Profitability seems to have little relationship with CSD. Highly geared companies disclose more through CSD (Haniffa and Cooke, 2005). Powerful consumer and interest groups could influence the CSD. The industry type is another factor which influences CSD. Dawkins and Ngunjiri (2008) worked on the emerging market economy in South Africa. They compared the corporate social responsibility reporting of 100 companies in the Johannesburg Stock Exchange in South Africa with those in Fortune Global 100. Environment, human relations, community, human rights, and dimensions were considered. The analysis showed that the companies in South Africa had a greater tendency for corporate social responsibility reporting (CSRR) than the Fortune Global 110 companies (Dawkins and Ngunjiri, 2008). It creates the impression that well-established powerful peer companies may be less willing to show their social responsibility. Emerging market economies like that in South Africa,which has the 10th largest stock market in the world, may be more than willing to submit the disclosures. Stakeholders and consumers are more interested in companies which demonstrate their social responsibility by the submission of disclosures. Disclosures are presented in different formats. The "triple bottom line" or the Global Reporting Initiative or Social Accountability International are the different reporting formats (Dawkins and Ngunjiri, 2008). Four dimensions of corporate social reporting have been identified: economic, legal, ethical, and philanthropic. Economic profitability provides stakeholders with a never-ending flow of products and services. Legal compliance does not completely protect stakeholders. To make up for this, ethical and philanthropic dimensions are used. Conclusions Corporate companies are vouching for their accountability by presenting environmental, social and sustainability reports. Organizational transparency is increased by administrative reforms. Stakeholders are provided information and dialogue which influence the decisions and behavior of the firm (Cooper and Owen, 2007). The principle of accountability is influenced by the principle of inclusivity which is the accountability to all stakeholder groups. The stakeholders’ views are also obtained at an engaging process where opinions are expressed freely without fear. Engagement practices do not raise the accountability of the corporate firms. Corporate governance should be of a pluralistic nature if stakeholder accountability is to be established (Cooper and Owen, 2007). Wider societal reform is necessary to increase stakeholder power in corporate organisations. Organisations attempt to legitimize their action of reporting conveying the picture of social responsibility even when the actual behaviour may not be with the same intention (Lindblom, 1994 as cited in Gray, 1995). Ethical relativism helps us confirm that corporate social reporting involves ethical values and that different corporations vary in practices based on the ethical values of the stakeholders. Cultural relativism also influences CSR. The legitimation strategies are four in number (Lindblom, 1994 as cited in Lewis and Unerman, 1999). The annual corporate report of the company is the most credible of the means to convince the stakeholder in all the four strategies. The managers who are socially responsible and using the CSR use the first technique (Lewis and Unerman, 1999). Subjectivism and relativism are not totally acceptable just as objectivism and absolutism cannot be accepted fully (Lewis and Unerman, 1999). However it is possible that a group of people in a society comes to a consensus on morally acceptable behaviours and values based on common social and cultural experiences, the same dominating influences and the same vested interests. Super-large companies are more interested in disclosing several types of corporate social information. Further research is possible by studying the reporting practices of multinational corporations (Lewis and Unerman, 1999). Improvement of the quality and quantity of corporate social reporting is possible only by studying the amount and quality of disclosures and the factors related to corporate social reporting (Adams et al, 1998).Environmental differences, green politics and the necessity for socially responsible corporations are all influenced by cultural variations. Globalisation has actually overcome differences due to culture through international harmonization (Adams et al, 1998). Industry-specific and country-specific factors affect CSR. Using the legitimacy theory we can consider companies in Germany as being socially responsible and reporting well while UK companies cannot be so considered. CSD has increased over the recent years due to “increased legislation, risk, pressure groups, ethical investors, relevant events, awards, economic activities, media interest, societal awareness and politics” (Haniffa and Cooke, 2005). . Larger companies have more activities that affect the society and they are under greater scrutiny. Legitimising their activities would be their main agenda hence more disclosures are expected (Haniffa and Cooke, 2005). The racial background positively contributed to the disclosure and governance practices in Malaysia.Emerging market economies like that in South Africa, which has the 10th largest stock market in the world, may be more than willing to submit the disclosures (Dawkins and Ngunjiri, 2008). References: Adams, C.A., Hill, W. & Roberts, C.B. (1998). Corporate social reporting practices in Western Europe: legitimating corporate behaviour. British Accounting Review, Vol. 30, p. 1-21 Academic Press Limited Cooper, M. & Owen, D.L. (2007). Corporate social reporting and stakeholder accountability: The missing link. Accounting, Organisations and Society, Vol. 32, p. 649-667 Dawkins, C. & Ngunjiri, F.W. (2008). Corporate Social Responsibility Reporting in South Africa: A Descriptive and Comparative Analysis. The Journal of Business Communication. Volume: 45. Issue: 3Association for Business Communication Haniffa, R.M. & Cooke, T.E. (2005). The impact of culture and governance on corporate social reporting. Journal of Accounting and Public Policy, Vol. 24. P. 391-430, Elsevier Inc. Ltd Lewis, L. & Unerman, J. (1999). Ethical relativism: A reason for differences in corporate social reporting. Critical Perspectives on Accounting, Vol. 10, p. 521-547. Read More