MPA701: Accounting. Assignment 1: Reporting on Corporate Social Responsibility. Student Name: Karl Johan Jarlow. Student ID

Transcription

1 MPA701: Accounting Assignment 1: Reporting on Corporate Social Responsibility Student Name: Karl Johan Jarlow Student ID Continually improving environmental performance while pursuing reliable and affordable energy (exxon.com/en/environment) Operating with ethics and integrity, Realising and respecting Human Rights Actively supporting communities, Contributing to local and national economies and beyond (bhpbilliton.com/society) We believe that the best way for BP to achieve sustainability success is by acting in the long-term interests of our shareholders, our partners and society. (bp.com/en/global/corporate/sustainability) [ Word count : 1312 (excluding tables and references) ] Page 1 12

2 Introduction The origin and concept of Corporate Social Responsibility (CSR) and its reporting have existed for a significant period of time since the occurrence of certain business practices that were considered detrimental to Society (Blowfield & Frynas, 2005). It s prominence grew in the 1960 s and 1970 s (Roberts, 1992) with the recognition that economic institutions have a significant influence in society. In the 21 st. Century the reporting of an organisations actions, outside purely financial accounting, has increased particularly due to increased media attention and now includes an organisations Environmental (Wolfe, 2016), Ethical (Williams, 2016), and Social actions (Takeda, 2016) commonly through a Sustainability Report. Of these actions, however, there is still no clear common benchmark as to what is reported and what should be reported partly due to Social Responsibility meaning different things to different people (Lund-Thompson et. al, 2014). The relationship between the social concerns of communities & the economic affairs of businesses. The social obligations of businesses to employees and the wider society. Businesses have the responsibility to the natural environment. The responsibilities of businesses should go beyond legal compliance & the liability of individuals. Table 1. Corporate Social Responsibility (Blowfield & Frynas, 2005) Carroll (Carroll, 1979) states that an organisations responsibilities should go beyond profits and legal obligations, and Lund-Thompson highlight the importance of stakeholders whilst Mitchell (Mitchell et. al., 1987) underlines the difficulty of identifying all the stakeholders and their differing interests and claims on the business. Author Gaurangkumar (2015) CSR concepts CSR is a process with an aim to embrace responsibility for the company s actions and to encourage a positive impact through its activities on the Page 2 12

3 Norman & McDonald (2004) Carroll (1979) Mitchell, Agle, & Wood (1997) Roberts (1992) Ullmann (1985) Guthrie & Parker (1989) environment, consumers, employees, communities, stakeholders, and all other members of the public sphere who may be considered stakeholders. Actions for social good beyond the interest of the firm. The success or health of an organisation should be measured by the social, environmental and ethical performance.. The ethical principles that ought to govern the relationships between the corporation and society the notion that corporations have an obligation to constituent groups in society other than stockholders and may go beyond that prescribed by law and union contract, indicating that a stake may go beyond mere ownership. activities as policies or actions which identify a company as being concerned with society related issues Social performance refers to the extent to which n organisation meets the needs, expectations, and demands of certain external constituents beyond those directly linked to the company s products/markets.. organisations aim to align the organisations activities to the social norms of the community it operates within. Table 2. A selection of CSR concepts. Corporate Social Reporting (CSr) Theories Literature research has identified a significant amount of Theories covering CSr focussing on why organisations have increasingly adopted reporting (table 3). Clarkson (1995) discusses the processes organisations go through that ultimately influence which strategy is implemented, but a number of authors suggest that there is no one agreed Theory that explains behaviour towards CSr. The most commonly used Theories are considered to be the Stakeholder, Legitimization and Institutional Theories. Theory Stakeholder Theory Legitimacy Theory Institutional Theory Rawlsian Description / Commentary Appealing to the interests of internal and external stakeholders. Multiple subgroups of stakeholders, political, social, employees, and activist groups. Stakeholders affect decision making by the organisation. Primary, secondary, voluntary, and involuntary stakeholders. Different stakeholders have different powers on the organisation. The organisation ensures operations are in line with the bounds and norms of Society in order to ensure the organisations survival. The organisation adjusts its operational stance with regards the Institutional pressures within the areas it operates with alignment with peers and organisational processes. The application of Justice in the sense that organisations have rights and responsibilities when operating in a Social context. Page 3 12

4 Social Contract Theory Habermasian Considers the political role and codes of conduct of organisations and their power to affect the communities in which they operate. A focus on the ethics and political aspects on the application of CSR policies. Table 3. Summary of CSR Reporting Theories, adapted from Frynas & Stephens (2015), and Fernando & Lawrence (2014). Stakeholder Theory Stakeholder Theory identifies CSR reporting that is aligned towards different stakeholder groups rather than society as a whole (Mitchell et. al, 1987; Fernando, 2014; Clarkson, 1995). Organisations have to balance the conflicting and differing demands of multiple stakeholders, with planning and reporting policies needing to be aligned with these groups (Ansoff, 1965 ; Freeman, 1983). There are narrow and broad views of stakeholders that have different relationships with the organisation including claimants, influencers, external, internal, voluntary and involuntary each with differing powers and sometimes conflicting drivers. The Theory suggests that CSr attempts to satisfy the most influential and powerful stakeholders. Legitimacy Theory Legitimacy Theory is focussed more on the organisation ensuring that they are viewed as operating within the laws and social norms of society and their boundaries. Acting in what society identifies as socially acceptable behaviour (O Donovan, 2002; Fernando & Lawrence, 2014) with explicit and implicit expectations within a social contract where Society allows the organisation to operate. Organisations assess these boundaries and adjust their operational strategy such that they remain accepted within the community that they operate in. If the organisation is not perceived to have the same value system as those within which community they operate in it would lose (Deegan, 2009) the opportunity to operate. Guthrie & Parker (1989) identify that disclosures are reactive rather than Page 4 12

5 proactive, in order to legitimize corporate actions and remain in the acceptable boundaries. Institutional Theory Institutional Theory is based on the idea that organisations will adjust their reporting strategies in response to their peers in the Industry in which they operate including suppliers, competitors, and regulatory agencies. DiMaggio & Powell (1983) suggest that there are inter organisational influences and organisations commonly adopt institutional practices and policies that are found across their Industry & peer group. Although these Theories are separate, Fernando & Lawrence (2014) have developed a framework that combines all three and show that these separate CSr theories can be seen to complement each other and due to Modern Day Corporations having a Global footprint, a single independent CSr theory is not extensive enough. The Costs & Benefits of CSR reporting The increase of implementing CSR strategies and their reporting has not as yet been proved definitively to enhance the financial performance of Corporations (Cooper & Uzun, 2015; McWilliams & Siegel, 2000). Ullman however (Ullman, 1985) suggested that CSR reporting is positively correlated with economic performance. Elliott (Elliott et. al, 2014) states that on a fundamental value basis organisations with clearly implemented and reported CSR policies are valued more highly by investors. There have also, however, been suggestions that reporting has simply been a process of greenwashing or to ward off grass root activists (Ullman, 1985; Fry & Hock, 1976). Reporting CSR policies and processes is undoubtedly costly in dollar terms with significant amounts of time and effort being needed to collect, assess, assimilate and Page 5 12

6 report CSR data (Currie, 2013). McWilliams & Siegel (2015) suggests that investment in CSR promotes product differentiation at the product and firm levels. CSR related processes, product and communications are known to improve an organisations corporate image and improve their market position through intangible gains and brand image (Trotman, 2016). This is important as consumer society has itself become more environmentally conscious. CSr has been identified as helping lower the cost of a borrowing and assist in financing, (Cooper & Uzun, 2015; Clarkson et. al 2008) and also help to drive innovation (Currie, 2013). Gazzola highlights benefits in competitiveness, investment and growth, through business creativity (Gazzola, 2012). However Clarkson (Clarkson et. al 2008) also identifies that improved reporting does increase the the probability of criticism, sanctions, or attack. Limitations include the difficulties in deciding what and how much detail to report as different stakeholders value different types of information. Satisfying all stakeholders information desires would be cost inhibitive however reducing the information asymmetry does benefit the organisation (Clarkson et. al 2008). Changing social norms also cause issues as reporting would need to be evolutionary due to changing social norms. Updating mandatory standards continuously would be costly to regulators and auditors. Corporate Social Responsibility Reporting. The size, position and influence of Corporations has changed significantly in the last two hundred years (Globalreporting, 2016). Standards of living have improved but has come at a cost due to the negative effects through environmental damage, social impacts, and ethical shortcomings in some cases. Some Corporations are now Page 6 12

7 so large that their revenues are larger than the GDP of certain small Nation States. Nation States where leaders are elected through a democratic process, while the Boards of Directors, and the power bestowed upon them, have a large influence on many aspects of the World, be it socially, politically, economically, or environmentally. The Triple Bottom Line reporting and voluntary Sustainability reports are not enough. Even as a firm believer in open markets free from excessive Government regulation, the size, influence, and power of organisations mean that CSr now HAS to be mandatory. The impacts on the natural environment, social systems, and ethics (political lobbying) has to be reported in order to ensure that they operate within the social value systems of the communities they operate within. Although Mandatory reporting IS definitely required there are some, less strong arguments, for non-mandatory or voluntary reporting. Even if specific reporting standards were developed and implemented the auditing of these details would likely be very difficult. Ascertaining that the CSR/Sustainability report is a fair representation of the organisations Social and Environmental impact would be very difficult for the Auditor especially for large International organisations. Even if mandatory reporting is implemented, how can a stakeholder really believe that all the required and correct information is reported? Also what information should be reported in a socially changing World? Different stakeholders want different information. How much detail? What aspects should be reported? Not having mandatory reporting would also remove the possibility of the readers consideration that if there is reporting, they must be reporting everything, and so they must be OK. A false sense of belief in the organisations actions. How can any International standards for CSR reporting be successfully developed when current issues like climate change agreements are still not fully agreed upon between Nations as it is? Page 7 12

8 Conclusion In a World of increasing Corporate power and influence, together with increasing Global inequalities, mandatory reporting of CSR is required. Although there are difficulties in developing and agreeing International standards this should not be the reason for not doing so. As Governments are answerable to their voters, Corporations are answerable to ALL their stakeholders whether they be internal or external. There has to be a change in the information asymmetry of CSr. As the IRRC (Integratedreproting.org) recommends, organisations need to create an integrated report that includes the accountability and stewardship of all capitals, financial and non-financial, including natural, social and environmental assets. Page 8 12

9 References Ansoff (1965). Corporate Strategy (New York, McGraw-Hill, 1965) Blowfield, M., & Frynas, J.G. (2005). Editorial: Setting new agendas Critical perspectives on corporate social responsibility in the developing world. International Affairs, 81(3), , Carroll, A.C. (1979). A three dimensional conceptual model of corporate performance. Journal of Management Review, 1979, Vol.4, No.4, p , Cooper, E. W., & Uzun, H. (2015). Corporate Social Responsibility and the Cost of Debt. Journal of Accounting and Finance. Vol. 15(8), Clarkson, Max.B.E. (1995). A stakeholder framework for analysing and evaluating corporate social performance. Academy of Management Review. Vol. 20. No.1 p , Clarkson, P.M., Li, Y., Richardson, G.D, Vasvari, F.P., (2008). Corporate Social Responsibility and the cost of debt. Journal of Accounting and Finance. Vol.15 (8), Currie, D. (2013). Sustainability Reporting Challenges and Benefits. Probonoaustralia. Deegan, C. (2002). The legitimising effect of social and environmental disclosures: A theoretical foundation. Accounting, Organizations and Society, vol. 31, no. 8, Deegan, C. (2009). Financial accounting theory, McGraw-Hill, North Ryde, NSW, Australia. Page 9 12

10 DiMaggio, J. & Powell, W.W. (1983) The iron cage revisited: Institutional - isomorphism and collective rationality in organizational fields. American Sociological Review, vol. 48, No. 2, Elliot, W.B., Jackson, K.E., Peecher, M.E., & White, B.J. (2014). The Unintended effect of corporates social responsibility performance on investors estimates of fundamental value. The Accounting Review, Vol. 89. No.1 p , Fernando, S., & Lawrence,S (2014). A Theoretical framework for CSR practices: Integrating Legitimacy Theory, Stakeholder Theory and Institutional Theory. Journal of Theoretical Accounting Research. Fall 2014, Vol 10 Issue 1, p Freeman, R. (1983). Strategic Management a Stakeholder Approach. Advances in Strategic Management (1983) pp.31-60, Fry, F., & Hock. R.J. (1976). Who claims corporate responsibility? The biggest and the worst. Business and Society Review/Innovation , Gaurangkumar, B.C. (2015). Cost benefit analysis of Corporate Social Responsibility (CSR). Advances in Management, Vol.8, No.5. May Gazzola, P. (2012). Social performance enhances financial performance. Benefits from CSR. Annals of the University of Ordea, Economic Science Series. 2012, Vol 21 Issue 1, p Globalreporting (2016). Guthrie, J. & Parker, L.D. (1989). Corporate Social Reporting: A rebuttal of Legitimacy Theory. Accounting and Business Research. Vol 19. No. 76. P Page 10 12

11 Lund-Thompson, P., Lindgren, A., & Vanhamme, J. (2014). Industrial clusters and corporate social responsibility in developing countries: What we know, what we do not know, and what we need to know. Journal of Business Ethics (2016) 133: p9-24. Mc. Williams, A., & Siegel, D. (2000). Corporate Social Responsibility and financial performance: Correlation or misspecification. Research notes and Communications. Strategic Management Journal. Vol 21. p , Mitchell, R.K., Agle, R, A. & Wood, D., J., (1987). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 1987, Vol. 22, No , Norman, W., & MacDonald, C. (2004). Getting to the Bottom of Triple Bottom Line. Business Ethics Quarterly, Vol. 14, Issue. 2, p , O Donovan, G. (2002). Environmental disclosures in the Annual Report: Extending the applicability and predictive power of legitimacy theory. Accounting, Auditing and Accountability Journal. Vol. 15, No. 3, Roberts (1992). Determinants of corporate social responsibility disclosure: An application of Stakeholder Theory. Accounting, Organisations and Society. Vol 17, No. 6, pp , Takeda. (2016). CSR Programs Focusing on Maternal and Child Health. Businesswire, News, November Trotman, K., Carson, E., & Gibbins, M. (2016). Financial Accounting : An Integrated approach. Edition 6. ISBN Ullman, A, A (1985). Data in search of a Theory: A critical examination of the relationships among social performance, social disclosure, and economic Page 11 12

12 performance of US firms. Academy of Management Review, 1985, Vol 10, No.3, , Williams, A. (2016). Ethical Funds failing social responsibility tests. Financial Times, Ethical & Responsible Investment, October 31, Wolfe, R. (2016). Letters: Big business and social responsibility. Financial Review, Opinion, Letters to the editor. November 2, Page 12 12