Perceptions of Corporate Social Responsibility

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26th Feb 2020 Business Assignment Reference this

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Previously, Corporate Social Responsibility (CSR) is voluntarily performed to gain competitive advantage in the market but the number of corporations performing CSR today is relatively high as more shareholders acknowledge its benefits. CSR reflects the commitment of organizations to conduct ethically towards the society and to ensure that their business strategies are established within the framework of environmental standards. CSR can be viewed from a broad context, as simple as organizing staff fundraising activities to raising human rights and social justice concerns. As vital as CSR is for the society, organizations may also benefit by encouraging good morale in employees to promote quality life and workforce. On the other hand, Social Environmental Reporting (SER) is a part of CSR but allows firms to disclose financial and non-financial materials consumed by the firm and concerns on social impacts, employment practices and environmental impacts. SER encourage broad understanding of accountability for shareholders as they take into account various type of accounting in performing this report. Companies may adopt several reporting guidelines in preparing SER. For instance, Global Reporting Initiative (GRI). Acknowledging the concern of majority shareholders regarding maximizing wealth and preserving company’s reputation, there are several incentives for shareholders to adopt SER. Companies may improve image management by securing negative impacts of business process towards the community while mitigating the criticisms of civil groups concerning this matter. Some companies may adopt SER to enhance their accountability towards stakeholders and the whole community. However, there are several drawbacks from adopting SER. For instance, the difficulty in making comparisons among organizations due to variation in voluntary reporting. There are also concerns on the lack of critical approach to professional claims regarding accountability and the materials disclosed. There has been a rising interest regarding CSR and SER among businesses, governments and public society which are perceived from broad approaches, specifically the business case, stakeholder-accountability and critical theory perspectives. This essay will critically discuss CSR and SER from 3 major approaches, which are business case, stakeholder-accountability and critical theory. The first approach, which is business case approach illustrates that CSR and SER are perceived as business opportunity to enhance shareholder wealth and improve image management. This approach does not take into account the conflict of interest that arise in business-society relationships (O’Dwyer, 2003). Therefore, it is clear that business case concentrates on stakeholder management while neglecting the fundamental of stakeholder accountability. This approach also focuses on the concept of ‘win-wins’ which drives firms to adopt CSR and SER only if it brings benefit for the business and the wide range of stakeholders. There are several economic factors identified with relation to business case approach on CSR. For instance, large accounting firms agree that business leaders are starting to acknowledge the benefits of social reporting for decision making as it helps organizations to alleviate risks and gain competitive advantage (Deloitte, 2002). Boiral (2013) states that information disclosed are often biased and lack of negative impacts in reporting such as illegal actions and corruptions are mainly due to preserve corporate reputation and to avoid banning activities by activists or NGOs. Cleary, CSR and SER help to protect companies from critique and providing accountability to stakeholders. Furthermore, business case commonly favour a ‘voluntarist’ approach as implementing regulation on CSR and SER would result it to be ‘costly’ and inflexible to assess. However, taking into account social considerations in business decisions and responding to stakeholders’ expectations would enlighten self-interest and may also alleviate future regulation prospects. Furthermore, some managers face legitimacy difficulty in preparing SER as the disclosed reports do not indicate actual performance and may provide misleading information for users (O’Dwyer, 2002a). Business case approach does not deliver positive changes as it primarily focuses on how CSR and SER enhance shareholder wealth and image management. Shareholder-accountability approach emphasize on the responsibility of accountants to be more transparent for ‘fair accountability in corporations’ (Briloff, 1966) and to promote democratic discussions from stakeholders. In relation to business case approach, SER allows managers to only disclose appropriate information that will enhance corporate image without taking into account transparency and accountability (Owen et al., 2000). It is noticeable that the concern that arise for firms is likely to be how the society perceive their business instead of how the business activities affect the society. Stakeholder-accountability literature is also vital for stakeholders to participate in discussions and debates to interact their opinions on business decisions. An effective method to engage democratic discussions by stakeholders can be achieved by presenting annual reports with access to raw data. Moreover, companies are encouraged to implement SER to provide accountable information for stakeholders to further understand and analyse in detail the performance for decision making as users have ‘information rights’. From this perspective, it is unlikely that CSR and SER would ensure companies are protected from critique and providing accountability to stakeholders. Moreover, this also shows that positive changes are encouraged as this approach does not align with the main focus of accounting which is the primacy of shareholders and capital markets. On the other hand, poor quality of the current SER is criticized based on the negligence of ‘true accountability’ (O’Dwyer, 2003) and it is unlikely that improvements can be made without the interference from government bodies to impose disclosure regulations such as audit requirements. Therefore, regulations are crucial to promote balanced reporting and to avoid possible risks of ‘greenwash’. Besides that, critical theory approach criticizes stakeholder-accountability approach with relation to CSR and SER while emphasizing the difficulties in attaining ‘real accountability’. It is noticeable that traditional accounting and SER only prioritize the wealth of shareholders and selective disclosures. Walker (2002) states that public stakeholders still face difficulties with the imbalanced power in the current accounting systems. Therefore, CSR and SER should reveal the contradictions and exploitation (Brown & Fraser, 2006) incentive in the capital market to ensure stakeholders are well educated on this matter and to improve imbalanced power distributions. Unscrupulous corporate agendas arise from voluntary CSR and SER among firms. The undeniable gap between the materials disclosed and the actual reporting of firms can easily be exposed with the adoption of ‘anti-reports’ or ‘shadow’ reports from alternative sources such as the media for the society to acknowledge the impacts of the business activities (Dey, 2003). From this perspective, it is unlikely for CSR and SER to defend companies from critique and providing accountability to stakeholders. Taking into account various accounting allows stakeholders to further understand CSR and improve the perspectives of powerful individuals in making decisions hence, encouraging positive changes. However, it is vital to have legislation on securing information rights and active engagement from stakeholders even though this matter is unlikely to be a primary concern in the current governance structure. Clearly, societal improvement can only be achieved with substantial change in capitalism and more balanced power distributions. In my opinion, the most appropriate approach towards CSR would be the stakeholder-accountability approach as well as taking into account certain concerns raised by critical theorists. It is fundamental that firms acknowledge stakeholders’ ‘rights to information’ (Accounting Standards Steering Committee, 1975) and promote sustainability reporting as it enhances transparency and accountability for stakeholders. To achieve sustainability reporting, firms must comply to the principles set by GRI which includes materiality, sustainability context and stakeholder inclusiveness (Boiral, 2013) hence allowing accountants to enhance trustworthiness, improve firm’s social legitimacy and gain assurance from stakeholders (Power, 1997; Gilbert & Rasche, 2007). Therefore, it is undeniable that adopting CSR and SER bring positive changes with relation to business management and the concern for stakeholders. Contrarily, the primary focus of most companies, in reality, is their reputation rather than attaining ‘sustainable development’. Companies today practice SER by strategically disclosing only the information that serves the purpose of preserving their ‘social license’ and deceiving uninformed stakeholders. Several companies may also take advantage of CSR and SER to distinguish themselves as leaders of the capital market. There are also concerns on the dominance of business case approach that is currently controlled by powerful individuals (Brown & Fraser, 2006). However, this approach acknowledges that companies are able to operate only if they are accountable for the resources permitted and external stakeholders are protected against possible corporate power exploitations (Brown & Fraser, 2006). Therefore, regulation is vital to ensure that individuals with power are not protected from critique and become more responsible and accountable towards stakeholders. In addition, critical theory approach emphasizes that GRI helps to improve sustainability reporting but the reliability and transparency of the reports remain controversial. Organizations tend to adopt sustainability reporting as a respond to external pressure or to gain business interest rather than genuine intention to achieve transparency and accountability (Laufer, 2003; Cho et al. 2010; Adams, 2004; Gray, 2006; Milne et al. 2006). Therefore, it is possible to put an end to this concern raised by critical theorists by implementing ‘anti-reports’ in accordance to the rapid growth of internet usage in this modern era. In conclusion, this essay critically portrays how CSR and SER are perceived from three significant perspectives. Business case approach shows that companies voluntarily adopt CSR primarily to enhance business wealth. Stakeholder-accountability on the other hand focuses on transparency and accountability to stakeholders as they have ‘rights to information’. However, critical theory criticizes the fundamental of ‘real accountability’ in reporting. The stakeholder-accountability approach appears to be the most appropriate approach, as well as considering the concerns raised by critical theorists. However, radical measures such as regulations and ‘anti-reports’ should be implemented to prevent exploitation of power and to promote an effective CSR. Consequently, CSR and SER may promote positive changes in the near future and also prevent companies to be protected from critique and delivering accountability to stakeholders.

Reference List

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