Motives For Contributing In Corporate Social Responsibility Accounting Essay


Businesses have been traditionally seen as economic entities run to improve value for their shareholders. Nevertheless, there has been a drastic change with regards to the role of businesses. When operating in this competitive world, further to the primary objective of increasing shareholders‟ wealth, companies are also accountable to the public at large (Waddock, 2004:5). The responsibility towards the society is called Corporate Social Responsibility (CSR). The word CSR has no particular categorization but all of them unite towards the initiative that businesses have an extensive responsibility towards the society and the environment, in addition to their legal obligations.

CSR reporting is the way companies express how they have discharged their duty towards the society. Different terms are employed to explain reporting in this area: CSR reporting, sustainability reporting and triple bottom line reporting. Since the past twenty years, users of accounting information have claimed information on the impact of a firm's activities on society coupled with information relating to economic activities (Samy, Halabi, Khan, 2009:344). Financial statements reveal an inadequate representation of the affairs of a business since they can only capture measures which have a monetary value and it is now perceived that the health of a business can no longer be explained thoroughly through financial metrics (ACCA, Accountability and KPMG, 2009). CSR coverage fairly bridges this gap by reporting on non financial matters.

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Range of CSR Practice: The areas covered by CSR can be classified under the following:

Customer care

Contribution to society (donations, scholarship…)

corporate governance and business ethics

Environmentally friendly business

No discrimination in hiring workers & ongoing training

Labour and Human Rights

Incorporate views of employees into decision making process

Implementation of internal corporate culture

CSR in Mauritius

For years there has been no proper guidance in consideration with reporting of CSR issues in annual reports until the adoption the Code of Best Practice on Corporate Governance for Mauritius in July 2003. The Code is unbinding but in 2009 the Financial Reporting Act 2004 was revised. It now requires all Public Interest Entities (PIEs) to implement the Code of Corporate governance on a comply or explain basis. This implies that the Code is now mandatory for PIEs. Section 7 of the Code includes sustainability reporting that involves businesses to report (within the annual report) to stakeholders on issues linked to: environment, ethics, health and safety and social problems. These are the only guiding principles given by the code. Organizations are uncertain as to what and how to disclose. Thus, it is important to estimate the motivations for CSR reporting in the absence of any legal compliance for certain organizations (apart from PIEs) to do so.

Motives for contributing in Corporate Social Responsibility

Having examined the theoretical structure of CSR, with regards to the various interests in driving CSR then follows. There could be a number of incentives for managers to decide to engage in CSR. Some may comprise:

Creation of Value

Some areas of research saw social reporting as a tool of accountability and the creation of value (Gray, 1996; Mayo 1996). From this view, social reporting could increase the 'voice' (Hirschman, 1970) and the contribution of the stakeholders. Hence, social reporting could be employed as an instrument to facilitate changes in the mechanism of governance and to predict external changes.

To uphold positive public image and reputation enhancement

With regards to the Legitimacy Theory, it could be advocated that businesses perceive social and environmental accounting to be useful as a tool to enhance the image of the company (KPMG survey, 2004)

The need to fulfill legal requirements

For example, Mauritian Corporate Code of Governance has encouraged lots of firms to start reporting on their social practices.

Improve relations with stakeholders

By giving more focus to various stakeholders, the organization establishes trust and loyalty among them. During the responsibility practice, businesses are trying to assess how the different stakeholders identify them and they can take immediate remedial actions where they get negative responses. By initiating an optimistic image, these companies also bring the government on their side and gain many facilities. Therefore they are able to circumvent any issues from the part of stakeholders. By maintaining a good relationship with employees, firms may cut wage-related costs, raise productivity and prevent negative campaigns. Customer loyalty can assist firms to increase market advantage and simultaneously increase profitability. The community and environmentalists also help firms in maintaining their profitability and growth. Similarly, with view to maximize the benefits of CSR, firms must have an excellent and balanced relationship with the various stakeholders concerned. Any inefficiency with any one of the above will hamper the forecast of the firm's plans.

Use CSR as a risk management tool

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CSR can be used to identify practices or situations that can cause liabilities to the firm. Whilst operating intensively with different stakeholders, management can easily sense any issues. It is likely to solve the problem at an early stage and this saves a lot of legal actions and/or negative public exposure that could have happened.

To gain market advantage

By using the positive image that management has been able to attain through CSR, the firm can achieve a larger market share as well as discover new and overseas markets. Consequently, these businesses are competent enough to surmount all the challenges of a new market.

Managing the supply chain

Nowadays, lending institutions and suppliers are asking their clients to regularly provide information about their social and environmental strategies performance. This is prepared by them and is included in their own risk management policies.

Increase financing

Most investors are including non-financial metrics in analysis of their investment. It should be highlighted that investors are willing to pay higher prices for shares of companies that are willing to invest more in well-governed companies than in poorly governed ones. Consequently, management CSR can be seen as a way to attract additional investors.

Avoid negative campaigns

In order to prevent being target of campaigns by human rights and labour rights, businesses choose to engage in social practices which may cost less as compared to negative effects these campaigns can cause. Simultaneously, this creates an enhanced goodwill of the business.

Increase worker productivity

By doing business in accordance with human rights and labour rights, management can be affirmed that their workers will be determined to work harder and overall productivity will rise. Also, this can help to decrease staff turnover.

Minimizing costs and increase profitability

Operational efficiencies can be achieved by reducing energy and materials. Reducing wastes allow businesses to decrease their cost of production and hence raising profits. Also, waste can be recycled and thus there is protection of the environment.

Improve competitive advantage

With regards to what Connolly (1997) said ,when contributing and showcasing the companies social and economic best practices to protect the environment, the company can enjoy a competitive edge in the market, which in turn impacts on the scrutiny of corporate sustainability activities.

Increase media attention

In fact, media attention may exert high influence on the company behavior towards engaging in any particular CSR activities. According to McWillaims & Seigel (2001) firms are dependent on media reports as the core legal basis of information asymmetry reduction for many stakeholders who lack interaction with the corporation. Also, this may have the power to influence various stakeholders' opinions on the company's image relative to its contribution to CSR engagement.

The Theoretical Framework

This segment provides the background for the analysis undertaken in this paper where the various theories were reviewed under the literature concerned with CSR.

Today corporate leaders face a dynamic and challenging task in attempting to apply societal ethical standards to responsible business practice (Morimoto et al. 2005). Similarly, the need for an outline of CSR (including environmental reporting) has been considered extensively. (Parker, 1995; Gray et al., 1996; Hackston and Milne, 1996). In view to improve our understanding on this thesis, some researchers have categorized under three major perspectives the reasons why do companies choose to be socially responsible: Legitimacy Theory, Stakeholder Theory and Positive or Agency Theory, (Gray et al., 1995, 1996; Guthrie and Parker, 1990; Patten, 1992; Roberts, 1992).

Legitimacy Theory

Legitimacy theory is derived from the concept of organizational legitimacy, which has been defined by Dowling and Pfeffer (1975, p. 122) as:

"a condition or status which exists when an entity's value system is congruent with the value system of the larger social system of which the entity is a part. When a disparity, actual or potential, exists between the two value systems, there is a threat to the entity's legitimacy."

Mathews (1993, p. 350) provides a definition of legitimacy at this level:

'Organizations seek to establish congruence between the social values associated with or implied by their activities and the norms of acceptable behaviour in the larger social system in which they are a part'. By obtaining legitimacy; the organization is demonstrating social worthiness and mobilizing resources' (Oliver, 1991).

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In legitimacy theory, the term 'legitimacy' also suggests that business organizations use different strategies to make sure that their operations are considered lawful by third parties. Indeed, the norms for business are not set; they vary over time. Sustaining this alteration as a main theme, opinions for 'legitimacy' uphold that businesses need to be receptive to changing social expectations to be regarded as lawful. This is so since businesses can only continue operating as long as their value schemes are considered harmonious with their society's value system. Society maintains this power, as it holds the source of the legal status of firms, and it provides authority and the rights to resources for business operations. Organizations cannot obtain these resources automatically; they must establish that benefits from their operations can be anticipated by society, and that these advantages exceed their costs.

According to Deegan, Rankin and Voght (2000), the Legitimacy Theory is used to clarify how the social disclosures integrated within the annual reports of companies in preferred industries changed around the time of major social incidents or disasters that could be directly related to their specific industry. A positive link was found between industry type and level of disclosure and Roberts (1992) concluded that corporations with a high profile are more likely to disclose social responsibility activities. Laying emphasis on this argument, Richardson (1987) underlined that accounting is a legitimating institution and provides a 'means of by which social values are linked to economic actions.'

Also companies use disclosure as a way to respond to and participating in, public policy demands. Aerts & Cormier, (2006) contends that, with regards to legitimacy theory, firms use corporate communication media. For example; disclosure via annual reports and press releases, to better understand environmental legitimacy by indicating to relevant publics that their behavior is correct and desirable, simultaneously, react to public demands by raising the level and quality of their environmental disclosure (Aerts & Cormier, 2006). Corporate Social Disclosure (CSD) aims to influence people's sensitivity about the firm, in this view, CSD is a public relations vehicle intended to influence people's perceptions (Hooghiemstra, 2000).

Relative to the legitimacy theory, Owen (2005) argued that there may be issues of reputation and risk management and competitive advantages that drove companies to engage in corporate social accounting rather than accountability. Empirical evidence established a connection between corporate social reporting and reputation management (Bebbington et al; 2007). In some reports firms clearly stated that they sought to gain good reputation. Additionally, O'Dwyer (2002) initiated that there must be internal evidence for companies to use CSR reports to manage reputation. In his study, managers interviewed stated that corporate social reports were used to as symbolic tool rather than reflecting actual responsibility or activities undertaken.

A number of these studie examined, constructively cite Lindblom's (1994) development of Dowling and Pfeffer(1975) and Sethi (1975; 1978; 1979), highlighted on the function of corporate social and environmental reporting/disclosures in:

Clarifying public misinterpretations of organizational performance,

altering the publics' expectations of organizational performance,

communicating improved (social and environmental responsibility) performance, and

distracting the public's attention away from poor organizational performance.

Stakeholder Theory

The measurement of corporate success has traditionally been limited to the satisfaction of and creation of wealth for mainly the shareholder. "The economic and social purpose of the corporation is to create and distribute increased wealth and value to all its primary stakeholders groups…" - M. Clarson, The Academy of Business Review, 20 (1): 92-117

According to Freeman, a more nuanced understanding of business would claim that maximizing shareholder value might look like this:

"You've got to have great products and services people want, that do what you say they are going to do. You need suppliers who want to make your company better, and who stand behind what they do. You need employees who show up and want to be there, be creative and be productive. You need communities for whom you are at least a good citizen so they do not use the political process to destroy the value you create. And, you have to make money for the financiers."

Another important aspect of CSR is how enterprises interact with their internal and external stakeholders; employees, customers, neighbors, nongovernmental organizations, public authorities, etc (Enterprise and Industry, n.d). Additional key CSR policies can be summarized as: Adoption of internal controls reform in the wake of scandals; Commitment to diversity in hiring employees and avoiding discrimination.

Management teams that see employees as assets rather than costs; integrate the views of employees into decision-making processes; Implementation of policies in line with social and environmental laws. (As you sow, 2006)

According to the business school stakeholder researchers profit maximization is not the end or point of the business, but a result of a well-administered firm. CSR involves what it takes to be a well-managed corporation. Hence, creating value for stakeholders would direct to profits being maximized. There is no basic divergence between the two theories regarding the ultimate aim of CSR, which is to raise profits or the long-run value of the firm, there is simply a difference about how to achieve it.

According to Siegel and Vitaliano (2007), CSR takes place when firms contribute to an activity that helps to advance a social agenda beyond that which is mandatory by law. CSR was linked to profit-maximization by displaying firms' products to contain "social" attributes competing for a socially responsible clientele. In other words, firms are meeting a demand for CSR. Another feature of the stakeholder theory is that when firms contribute to CSR whereby the products are more attractive. "CSR is a form of product differentiation, a form of advertising to establish or sustain brand loyalty" ( Siegel and Vitaliano, 2007).

Another theoretical stream suggests that stakeholder theory, highlights that efficient management of stakeholder relations may have the outcome of improved financial performance. They state that recognizing and managing ties with key stakeholders may minimize the likelihood of negative regulatory, legitimate or fiscal action (Freeman, 1984; Berman et al., 1999; Hillman and Keim, 2001), attract socially aware consumers (Hillman and Keim, 2001) or even attract financial resources from socially responsive investors (Kapstein, 2001). Furthermore, stakeholder management theories argue that CSR strategies may direct to better performance by shielding and enhancing corporate reputation (Fombrun and Shanley, 1990; Fombrun, 2005; Freeman et al., 2007).

In Mitchell, Agle and Wood (1997) build up a representation of stakeholder classification and salience based on stakeholders having one or more of the aspect of power, legitimacy and importance. Agle, Mitchell and Sonnenfeld (1999) validate that these three attributes do stimulate to salience. Therefore, we might foresee that businesses would give more importance to those legitimate stakeholder groups who have power and urgency. Basically, this might signify that businesses with issues over worker retention would focus on employee problems and those in consumer markets would be accountable to matters that influence reputation. Futher investigation has shown that when participation in some types of CSR activities ,a form of goodwill or moral capital for the firm is created and acts as 'insurance like' protection when harmful events occur (Gardberg and Fombrun, 2006; Godfrey, 2005) that preserves shareholder value (Corporate Financial Performance).

Thus a current analysis of CSR would involve meeting the needs of all stakeholders and not just shareholders against some form of ethical grounds. This basis is explained by Business Impact (2000: 1.02) in the following key principles:

To treat employees fairly and equitably

To operate ethically and with integrity

To respect basic human rights

To sustain the environment for future generations

To be a caring neighbour in their communities

This begins to accord with Frederick's corporate social rectitude; however the need for business benefits is never far away.

Positive Theory

Positive or agency theory states that 'managers will disclose social information only if it increases welfare; that is, when the benefits from the disclosure outweigh the associated costs' (Ness and Mirza 1991).

Gray et al. (1995) argue with the positive accounting perception on social accounting, stating that it has 'little or nothing to offer as a basis for the development of corporate social reporting. Further they find that the theory 'not only empirically implausible but also highly offensive.' Particularly due to' its central assumption that all actions are motivated by a morally degenerate form of short- term self- interest'. This criticism has certain intuitive appeal, especially for those who wish to maintain at least some faith in human nature.

Agency Theory

From an agency theory perspective (Jensen and Meckling, 1976) other studies have found that using valuable firm resources for constructive social performance policies generates considerable managerial advantages rather than financial benefits to shareholders (Brammer and Millington, 2008). So far CSR integration into business processes has been very asymmetrical. Hockerts (2008) stipulates that most organizations anticipate CSR mainly as an instrument to minimize risks and operational costs. However, only a minority of businesses are essentially using CSR as a way to drive innovation. It is unfortunate, since taking stakeholders into the innovation procedures offers significant prospects to boost up both the social and financial performance of firms. Scholars have argued that better social performance may direct to acquire better resources (Cochran and Wood, 1984; Waddock and Graves, 1997), efficient employees (Turban and Greening, 1996; Greening and Turban, 2000), improved marketing of goods and services (Moskowitz, 1972; Fombrun, 1996) and the outcome may be the origin of unforeseen opportunities (Fombrun, Gardberg and Barnett, 2000). Enhanced social performance may also purpose in corresponding conduct as advertising does, indeed with growing overall demand for goods and services and/or by dropping consumer price sensitivity (Dorfman and Steiner, 1954; Navarro, 1988; Sen and Bhattacharya, 2001; Milgrom and Roberts, 1986). Additionally, it has been stated that positive social performance could minimize the level of waste within constructive and innovative processes (Konar and Cohen, 2001; Porter and Van Der Linde, 1995).

Slack Resources Theory

Yet, another emerging theory in the literature as to why social and environmental reporting occurs is the Slack Resources Theory. In line with this theory more social disclosure information is anticipated to be published in the annual reports of those big companies which are big and more profitable. The theory asserts that high performance and big firms would have a large pool of resources available for investment in socially responsible programs. More precisely, a direct relationship between financial performance and financial reporting was found by some studies such as Graves and Waddock (1994) and Theoh et al (2000). Nevertheless, Al-Basteki's study (1997) found that there is no association between profitability and the level of social disclosure.

Furthermore the company size has been found to have a considerable positive relationship with social disclosure (Blacconiere and Patten, 1994 and Mohamed and Hill,1996). Particularly, there are size effects in CSR (Trotman and Bradley, 1981; Guthrie and Parker, 1990; Patten, 1991; Hackston and Milne, 1996; Adams et al., 1998). Additionally, Graves and Waddock (1994) argued that various sectors revealed different levels of social performance since the issues faced by different industries in a given social area could fluctuate drastically. Accordingly, it is likely that there is a link between the social and environmental disclosure and the companies' characteristics such as the financial performance of the company, company size and industry.

While it is stated that the above theories are not fully fledges theories and that they are still improving, though present a helpful frameworks for studying CSR (Gray et al., 1996)

CSR Reporting: Voluntary or Mandatory

In most countries CSR reporting is not mandatory. Firms are reporting but on their individual suitable format, which is considerably differs from other firms. This absence of consistency is hindering comparison of the social disclosure.

Hence the idea of regulating the social reporting field is put forward. An obligatory CSR reporting might set up some standard.

Mandatory CSR reporting

A mandatory CSR reporting will lead to accurate and fair reporting, and this will boost up confidence of readers/users of the reported information. This will pressurize firms to explain their impact on society and therefore causing a fall in excessive exploitation of the employers, consumers, environment …

Additionally, companies would come to know what is expected from them and thereby promoting a level playing field. The Netherlands, Norway, Sweden and the US all have mandatory requirements that companies report to the public on their environmental performance (KPMG, 1999).

Voluntary CSR reporting

Voluntary CSR reporting indicates that choice on what to disclose, how to disclose and where to disclose are taken entirely by the corporation. There is no obligatory law to abide by. In order to survive, a business has to be profitable and thus financial statements are viewed as being more significant than social reporting. Producing social reports (either separately or within the annual report) is costly; consequently it is not financially feasible for every business. Non-voluntary reporting will compel every corporation to report and this might be very expensive to small firms. Furthermore, non-conformity with legislation will consequently direct to sanctions against these small firms and eventually they will be forced to shut down.

Besides, the CSR field differs considerably among businesses and they are constantly altering with time whereby a stagnant section of legislation would not be so helpful. Hence, it is more appropriate to allow those firms who are financially strong to voluntarily provide social disclosures.

Location of Corporate Social Disclosure

Since social reporting is liberal, there is no determined location of social disclosure. According to Zenghal and Ahmed, besides annual reports, stand-alone Environmental and Societal reports have been adopted make social disclosure.

However, the annual report has been regarded as being the key communication medium in the standard of social reporting (Wiseman, 1982; Freedman and Jaggi, 1986). This is so since annual reports are not only a legal document in terms of the firm's foundation of its social imagery (Hines, 1988; Neikmark, 1992). Also, the publication of social disclosure simultaneously with financial results expresses the equivalent significance of financial and non- financial results.

Another main aspect of social disclosure is its location within the annual report namely in Financial Statement, Notes to Financial Statement, Chairman's Statement and Directors' Reports. Gray, Kouhy, Lavers have anticipated that location of CSR information is essential since:

It is more likely to be read( E.g. in Chairman's Statement)

It designates the magnitude linked to the issues ( E.g. in a separate Section/ Booklet)

It falls within auditors' ambit( E.g. In Statutory Sections)

It exhibits the integration with the conventional subjects of the firm ( E.g. in Directors report)

It is exclusively incorporated with the mainstream activities of the organization ( E.g. in Review of the Year)

In fact, besides accountability-discharge activities advertising, house magazines and press notices can be seen as CSR reporting that are reaching the public domain for social disclose.

Other means of CSR disclosure may be via the internet and firm's website. This is mainly embraced as a means of easing the dissemination of CSR information that a company's stakeholder expects.

Contents of Disclosure

Ernst & Ernst (1976) suggest that most firms were reporting on the following issues , under different categories:


Pollution Control

Prevention or repair of environment damage

Conservation of natural resources

Other environmental disclosures

Human Resources:

Employee health and safety

Employee training

Other human resource disclosures

Community Involvement:

Community activities

Health and related activities

Education and arts

Other community activity disclosures



Reducing pollution from product use

Other product-related disclosure

Fair business practices:

Employment & Advancement of minorities and women

Employment of other special interest group…

Again, these disclosures can be linked to different stakeholders. Companies reporting on human resource are disclosing to employees and the disclosures made on the products match to clients for whom the goods are manufactured. Any disclosure made on the environment concerns mainly environmentalists. Other disclosures will relate to the public at large. This sustains that firms do not stand alone; it is in regular contact with various stakeholders.

Social Auditing

Social auditing can be said 'as the process whereby an enterprise measures and reports on its performance in meeting its declared social, community or environmental objectives'. (Conference Handout, Workshop on Social Auditing for community and cooperative enterprises)

Social disclosures are subject to review in a similar manner as are financial statements. The Company Act 2001 of Mauritius affirms that corporations need to conform to Section 193 and have their financial statement audited. However, this is not applicable to social disclosures. Consequently, social audit is deemed to be less important. Additionally, the apparent insignificance of non- statutory social audit has several indicators.

However, any non- verified social disclosures will be ineffective as its truth and fairness is doubtful. Thus, this may clarify why few firms are still auditing their social disclosures in annual report.

Views against CSR

Milton Friedman (1970) argued against the concept of CSR through the economic analysis of companies. He suggests that if a firm acts "responsibly" by dropping prices to avoid inflation or spend money to stop pollution; that firm is spending shareholders' wealth for a common public interest.

In the long run, this may cause harm to the very society the firm is trying to assist. By undertaking the burden of social costs, the firm will become less efficient and will have to boost up its production in order to survive on the market. CSR injures a firm's efficiency. Friedman further argued; 

"there is one and only one social responsibility of business- to use its resources and engages in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Thus, an enterprise will utilize its resources only to raise its profits as long as it stays within the principles of the firm, i.e. engages in open and free competition. Profitability is the main objective of a company.


The economic view does not estimate CSR actions, but upholds that as long they are carried under self-interest they stop to be CSR contributors but merely maximize profits and dress it as 'social responsibility'. Further to this, the economic view argument against altruistic CSR is the 'taxation without representation' case where the costs are passed to either the customer with a rise in prices or reduced tax to the government who in turn is unable to offer social services.


Drucker (1986) adds that the first objective of business is to generate enough profit to cover the expenses for future. If this social responsibility is not met, then no other social responsibility can be met. Managers are employed to generate shareholders wealth and not to give it away.


One shortcoming of CSR and social reporting is the lack of standardized measures of performance, which can direct to overstatement and green washing. This view supports that CSR is just a form of window-dressing that companies do to keep critics happy. Nevertheless it would be very hard for a company to "fake" CSR in the long term. In view to evade accusations of window-dressing, corporations often ensure that their CSR disclosures meet certain criterion such as Global Reporting Initiative (GRI's) guidelines or social audit. Also, it should be highlighted that CSR is expensive and it is regrettable that businesses will have to accept the impact.

Possibly the most important cause of the unpopularity of CSR is its instant non-effectiveness. Tough the execution of CSR policies accounts for a lot of resources, the business is not going to obtain any potential benefit and so companies choose to focus on their financial performance first. Noticeably, it is going to be profitability that will boost up their survival and growth.