Challenges Towards Social Responsibility Commitment Accounting Essay

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The question is - should the firms have a single-valued objective, if yes what should be it- value maximization or something else? Due to lack of clarity of mission provided by a single-valued objective function, companies embracing stakeholder-theory confusion, conflict, inefficiency which may lead to competitive failure. Firms need to best utilize scarce resource to yield better benefit at the cost of negligible social-impact. No single group of stakeholders should be more privileged than another (Jensen, 2011). Managers need to bind to obey the government-regulations, obliged to avoid fraud and respect cultural/ethical customs (MATWIJKIW & MATWIJKIW, 2009). To which extent firm engages with society is crucial decision - any inadequate participation may lead failure- we could refer the Shell business shutdown in Ogoniland in Nigeria in this context, where firms failed to maintain balance and engaged in political conflict at the cost of its business-prospect. Firms' CSR engagement should be restricted to meeting only the core economic/social rights of its business-landscape- do we consider terrorist-groups as stakeholders in modern-world?


Exploitation of CSR for personal gain

Stakeholder-theory (Donaldson and Preston, 1995) emphasizes on adequate cooperation among all stakeholders in the business-landscape- not only the shareholders' interest, during strategy-making. It leaves scope of ambiguity about focus of organisation. Stakeholder theory may politicize firms, leaving its managers empowered to exercise their own preferences in spending the firm's resources, (Jensen, 2011). Referring to earlier CSR efforts made by Shell in Nigeria- these CA and CD approaches were taken by Shell-mgmt without any discussion with local-people, it was a top-down approach where mgmt thought setting up a school, for example, would help localites. No participation from localites leads these towards failure (Amadi & Abdullah, 2011). It is not logically possible to speak of maximizing both market share and profits, it is impossible for a manager to decide on the level of R&D, advertising, or price reductions because he/she is faced with the need to make tradeoffs profits and market share, Jensen (ibid). Without providing a clear-direction, stakeholder-theory effectively leaves managers unaccountable for their stewardship of the firm's resources - this promotes the exploitation of firm's scarce resources for individual gain.

Strategic Management Accounting [SMA] focus - shareholder vs stakeholder

Unless a firm is able to survive, it will be incapable of satisfying any of it's stakeholders' aims. Managers need to maintain the balance while generating wealth [value to shareholders] at the expense of other stakeholders in the firm.

Organisational- changes may affect existing resources and the strategies to which they are committed. Shareholders, lenders, managers, employees and customers can all be affected; and their relative power and influence will prove significant. The power and influence of the leader is pivotal during this to persuade stakeholders are crucial.

SMA establishes the organisation mission, conducts position-analysis, identify and assess possible-options, select the best-option and evaluate performance, Atrill & McLaney (ibid). SMA is outward-looking, concerns for all stakeholders in its business-landscape, by using- competitor-analysis, customer-profitability analysis, shareholder-value analysis and competitive-advantage through cost-leadership. For a successful firm it need to establish a good understanding of its business-landscape and all stakeholders, towards this SMA contributes. Hence we could conclude that SMA focus on all stakeholders.

Towards aligning managers' interests to that of stakeholders'

Balanced scorecard could be used to align managers' with organisation's mission towards meeting stakeholders' concerns. BCS translates organisation's strategic mission [aiming stakeholder's wealth enhancement] into tangible activities- this ensures the mission is conveyed unambiguously among all [internal] stakeholders and they understood their responsibility. Later BCS enables management to monitor and evaluate performance against predefined target, Atrill & McLaney (ibid). BCS also captures customer satisfaction thus covers external stakeholders.

A firm which is owned by shareholders should aim at maximizing profits, thus enhancing shareholders' value. If it acts for a social purpose beyond its shareholder's interest managers are perhaps abusing scarce resource in an inefficient-way, Jensen (ibid). Government-firms [public-sector] may need to engage social-development initiatives, but over-emphasize of CSR-activities for a private-sector firm is harmful for both society and firm. Hence only CSR of a firm is to enhance its profits (Letza et al, 2004). Managers must keep this in mind while strategic-decision making.

NPV as an investment appraisal process and value-addition to stakeholders

Primary aim of business being increase owners' wealth, Atrill & McLaney (ibid), NPV could be superiors as an investment appraisal method as it directly relates to the primary focus of business - a positive-NPV increases wealth. NPV considers all of the costs/benefits of investment options; accounts for the time-value of money and all of the relevant cash-flows irrespective of their occurrence.

A firm would have two different stakeholder groups- a) primary - shareholders, investors, and b) secondary - local communities/government. Building better relationship with primary stakeholders enhances shareholder-wealth by helping firms develop intangible, valuable assets which ensures competitive advantage, (Hillman & Keim, 2001), where NPV plays pivotal role. Sustainable competitive advantage and continuous profitability of firm depends on its ability towards creating and distributing wealth/value sufficient for each primary stakeholder-group, (Clarkson, 1995).

Towards fulfilling secondary stakeholders' value-addition, NPV is inadequate, as it concerns with only tangible, financial benefits. NPV can't be used to measure intangible, nonfinancial benefits towards which CSR initiatives are aimed.