Corporate Governance & Accountability (Research Paper Sample)

Corporate Governance & Accountability Name: Institution: Course: Date: Table of Contents TOC \o "1-3" \h \z \u Part A: Corporate social reporting: a tool to discharge corporate accountability or to enhance managerial capture? PAGEREF _Toc378026344 \h 31.0.Introduction PAGEREF _Toc378026345 \h 31.1.Legitimacy theory on corporate social reporting PAGEREF _Toc378026346 \h 31.2.The stakeholder theory of social accounting PAGEREF _Toc378026347 \h 51.3.The Business Case Perspective of CSR PAGEREF _Toc378026348 \h 61.4.Managerial Capture in CSR PAGEREF _Toc378026349 \h 81.5.Institutional theory on social reporting PAGEREF _Toc378026350 \h 10Part B: Sustainability Reporting and Assurance Statement PAGEREF _Toc378026351 \h 11i.The different engagement techniques and their usefulness PAGEREF _Toc378026352 \h 12ii.How British American Tobacco has assured its sustainability/social reports and the quality of assurance PAGEREF _Toc378026353 \h 142.0.Conclusion PAGEREF _Toc378026354 \h 153.0.Reference List PAGEREF _Toc378026355 \h 17 Part A: Corporate social reporting: a tool to discharge corporate accountability or to enhance managerial capture? 1 Introduction Business organizations have a societal role that has undergone tremendous change over the years (Deegan & Unerman, 2010. From the catchphrase that businesses have no social obligations to realizing and understanding the critical value of being responsible socially, corporate social reporting has come a long way. Deegan, Rankin, & Tobin, (2002) describe CSR as a corporate self-regulated process incorporated into the business model, in which an organization monitors and sees to it that it is in continuous compliance with the essence of social and environmental norms. Presently, big companies in the US, Europe, and Australia are voluntarily publishing distinct sustainability reports alongside the mandatory financial reports (Cooper & Owen, 2007). British American Tobacco is a good example of such companies. Building on the applicable social accounting constructs and related studies, this paper assesses whether CSR is used astool for discharging corporate accountability or enhancing managerial capture. 1 Legitimacy theory on corporate social reporting In many countries, corporate social reporting remains a voluntary activity while in few others such as the Netherlands and Denmark regulations have been set requiring business organizations to make public disclosures on social and environmental issues (Cooper & Owen, 2007). Still, despite the voluntary element, the trend towards social disclosure is growing. An important question therefore is why many organizations are choosing to report on environment and social issues in the absence of any regulations. The legitimacy theory is one of the strongest possible theoretical explanations. The legitimacy theory points out that corporate social disclosure responds to environmental factors whether political, social, or economical, and that such disclosure helps in legitimizing actions (Deegan & Unerman, 2011). In such a case, it strongly appears to be a way through which organizations attempt to be accountable for their actions to various stakeholders. The basis of the theory is the conception that businesses operate in the society through a social contract established with its stakeholders (Tozer & Hamilton, 2007). Such is a contract in which an economic organization agrees to perform actions that are socially desirable in exchange for stakeholders' approval of the business's objectives as well as its survival. The legitimacy theory therefore views CSR as the understanding by a business organization of the need to disclose adequate social information to its stakeholders as prove of being an ideal corporate member of the society. According to Gray (2001) when a business is continuously accountable to its stakeholders, it enhances its legitimacy. This view concurs with Frost (2007) who sees legitimacy as a condition which becomes present when the value system of an entity corresponds to the value system of the wider social system in which the organization is part. This means that the organization's legitimacy is threatened when there is actual or possible disparity between the organizational and societal value systems (Deegan & Unerman, 2011). An organization will therefore inevitably turn to CSR as a way of discharging corporate accountability for its activities and thus enhance its legitimacy. Deegan (2006) sees the motivation of organizations to disclose or report information regarding their CSR activities as a way of accounting for the organization's responsibility. Here, enhancing the organization's legitimacy is seen as an important factor. Essentially, an organization will use CSR as communication tool educate or manipulate the public perceptions regarding the actions of the organization. A mail survey by Frost and Wilmhurst (2000) investigated the motives among various Australian companies for corporate social reporting. In the survey, the respondents were mainly company CFOs who were asked to rate the significance of 11 distinct CSR motivating factors. The results provided a limited level of support for the motivation to enhance legitimacy through accountability to stakeholders. Whereas limited support for such accountability was established in this particular research, Deegan, Rankin, and Tobin (2002) establish robust support for the same. In their investigation of BHP, they found strong backing for their hypothesis that ‘the extent of environmental and social performance attributes is linked to the level of the company's social corporate disclosures'. They established that CSR was important for the company's legitimacy as it was a way of accounting for its social issues to stakeholders. The studies on the legitimacy theory therefore strongly, though variably, view CSR as way of honoring an organization's corporate responsibility. 2 The stakeholder theory of social accounting The stakeholder perspective extends the arguments of legitimacy theory, and explicitly regards corporate social reporting as a tool for effectively dealing with a company's stakeholders. Adams, (2004) points to the inclusivity element of the theory that entails the incorporation of the needs and aspirations all the groups of stakeholders at every stage of the auditing and accounting process in order to improve accountability. Gray (2001) also notes that the basic objective of CSR is to discharge accountability to all stakeholder groups. Such accountability involves identifying the responsibilities of the company and then communicating the information about the responsibilities to everyone who needs and has the right to the information (Cooper & Owen, 2007). In interacting with various stakeholder groups, an organization needs follow a systematic approach that ensures CSR meets the needs of the different stakeholders. According to Unerman, Bebbington, and O'Dwyer (2010), a company should identify the broad stakeholder groups that impacted by the organization or impact the organization. Each stakeholder group is then subdivided in pertinent subgroups, for instance, different types of NGOs. The next step entails the prioritization of the stakeholder groups to form the foundation of a social account for which the information should be provided to provide accountability (Gray, Owen & Adams, 1996). Gray's position is therefore strong in its regard of CSR as a tool for discharging corporate accountability. According to Gray (2001) different stakeholder groups require varying types of information and that such information is what defines the fundamental aspects of the relationship between the organization and its stakeholders. The understanding that the different stakeholder groups need varying types of information is important for ensuring that all the groups are getting fair treatment by the organization. In apparent support of Gray's view, Deegan (2006) points to the normative or moral (ethical) branch of the stakeholder theory which suggests that all the different stakeholder groups possess the right to fair treatment by their organization of interest. In other words, all stakeholders deserve accountability from the organization. ‘Fair treatment' in this regard entails an organization communicating to the various stakeholders the information that specifically addresses their interest or needs (Unerman, Bebbington, & O'Dwyer, 2010). In doing so, an organization better positioned to offer accountability to its customers through CSR. 3 The Business Case Perspective of CSR Whereas the position of stakeholder and legitimacy theories is that business embrace CSR for accountability to stakeholders (Deegan 2006; Gray, 2001) the business case construct opposes offers another motive which has prevailed and become well established in academic literature (Kolk, 2005). Various scholars have however developed views, based on this perspective, that sharply conflict. The general agreement among most of the scholars who have informed this perspective is that businesses focus on CSR because reporting on environmental and social issues helps them to achieve economic success in the long-term. A rather strict articulation of the motive in this perspective is that the basic responsibility of a business organization is to make profits within the confines of law, and that social issues should be addressed by other organizations (Carroll & Shabana, 2011). This means that companies are not motivated by accountability stakeholders on social matters and will only commit to reporting on social activities if the bring profits to the company; and such reporting must conform to the company's core business. All in all, the element of accountability is still strongly present, though a business is only willing to be accountable to social a...