2.2.1 What is CSR?
As KPMG (2008) states in their research report, CSR does not obtain a standardized definition, or that it has full set of specific criteria. It states, that there are many terms capturing CSR concept and some of them can be overlapping. These terms are corporate citizenship, corporate sustainability, corporate development, and others (KPMG, 2008:12).
European Commission views CSR as following: "[CSR is] ambitious and aims at seeing enterprises genuinely seek to integrate in their strategic operations the means for achieving long-term social and environmental aims which will be beneficial for society as a whole". (http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/07/770&format=HTML&aged=1&language=EN&guiLanguage=en).
According to United Nations Development Programme (UNDP), CSR is known extensively as: "..more companies embrace, support and enact a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption which enables them to work better, get better results from their employees, and do good to their community... CSR is becoming an increasingly powerful tool of modern societies - carried out by companies on a voluntary basis working to deliver social cohesion and environmental sustainability as well as economic development."
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From a general point of view, these definitions of CSR show how organisations engage or involve relevant parties into their operations in order to achieve sustainable environmental goals and development in the economy and in the society.
2.2.2 Importance of CSR
Firstly CSR information helps bridging the gap between information need and information acquisition. Downs (1957) identifies four different types of information demands which call for CSR involvements. For instance, manufacturers want data that helps with their business and production decisions. Consumers want price and quality information when purchasing. People also require information simply for entertainment and diversion. People also need information to help make informed political choices, for instance like voting. CSR contains elements of all four information demands. Managers would like to know the effect on their companies if they adopt CSR. Consumers may read about green products. Individual investors may search out information with for â€•ethicalâ€- investment purposes. The public also have an interest in stories with human interest, drama, scandal, violence, corruption, or protest, all of which have CSR content. Finally, because CSR often revolves around policy issues such as pollution or sustainable development, it also contains elements of public affairs coverage. This implies that CSR information would not only have an effect on the corporate-level, but also on individual level (for example shareholders and voters). 9
According to Maarewijk (2003), organizations engaging to CSR activities based on different CSR motivations. Generally looking, Maarewijk argues that organizations can choose its CSR position as profit-driven, caring, compliance-driven, synergistic or holistic. To be able to carry out the social responsibilities, organizations are expected to be able to integrate economic, environmental and social essentials and thus, be able to address CSR performance on the aspects of organizational operations and policies.
According to United Nations Economic Comission (UNEC) there are benefits for the organizations that are implementing CSR in their operations. They have listed several on their website, and some of those are:
- improved enterprise image and reputation;
- increased sales and customer loyalty ;
- increased productivity and quality
- reduced complexity and costs;
- improved control and management of risks;
- enchased ability to attract and ability to retain employees
- enchased motivation of employees http://www.unece.org/press/pr2010/10tim_p05e.htm
Warhusrt (2001) has stated that there are internal and external parties that need to be considered and related with CSR - internal such as safety and corporate governance, external such as community and environment (:61).
Therefore, as a conclusion to this part, there are various definitions and views of CSR. They are reflecting the broader picture of social responsibility, which are including various parties, and defined from different standpoints of society.
2.3 Theoretical framework of the CSR incentive
2.4 Global CSR awareness
2.6 Theoretical framework of CSR reporting
CSR reporting appears important while it acts as a linchpin for efforts to evaluate the results of corporate activities. Such activities will help corporates to broadcast their CSR practices, promote continuous improvements in corporate performance and achieve a better public image. CSR reporting may be regarded as a method of self-presentation and managerial decoration to ensure various stakeholders' satisfaction (e.g. Hooghiemstra, 2000; Patten, 2002). Gray et al. (1996) define CSR reporting as: The process of communicating the social and environmental effects of organisations' economic actions to particular interest groups within society and to society at large (p.3). 20
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Furthermore, the GRI, the most popular CSR guideline around the world, describes CSR reporting as an organisation's public credit of its economic, environmental and social performance related to its operations, products and service. Under the concept of CSR: GRI uses the term â€•substantiality reportingâ€- synonymously with citizenship reporting, social reporting, triple-bottom line reporting and other terms that encompass the economic, environmental, and social aspects of an organisation's performance (Hopkins, 2005, p.225). Hence, CSR reporting reveals to what extent companies perceive their responsibilities to society. Their aims in CSR reporting are to add more scope on the classical method on reporting company's economic status, which are primarily designed for the needs of shareholders and management, based on economic and monetary measurements (Snider et al., 2003). Golob & Bartlet (2007) have similar view that CSR reporting is a means for organisations to provide information for different stakeholders regarding social and environmental issues. Traditional accounting reveals only a certain level of a company's awareness of necessary social responsibility while social reporting shows the higher degree to which that responsibility is taken seriously (Antal et al., 2002). The intention is to ascertain and document all the internal, macroeconomic and social tasks imposed upon, attributed to, or voluntarily assumed by the company but captured only indirectly or incompletely, if at all, in conventional business accounts. Traditional accounting and CSR reporting are complementary rather than exclusive when social responsibility consists of various goals such as meeting social needs, forming compatible relationships, ensuring safety and a clean environment, efficient production, pursuit of profit, and thereby contributing to prosperity in society. Some CSR information is reporting in reporting in similar ways to traditional accounting, for example, information about donation, environmental investment and Employee Benefit in sections of reports.
The main role of CSR reporting can be described as the vehicle to deliver information for the public within the scope of a â€•public-information modelâ€- (Grunig & Hunt, 1984). Within this public-information model, the disclosure can help describe â€•to the public what the organisation has done to be responsible and should explain lapses into irresponsibilityâ€- (p.48). Hooghiemstra (2000) also applies a corporate communication model for organisations, which use CSR reporting as a strategy for legitimisation of their activities. As a consequence, CSR reporting involves extending the accountability of organisations and includes reporting on stakeholder interests, such as the environment, human rights, animal protection, employees' interests, and ethical standards (Hooghiemstra, 2000). Since the 1950's, the development of CSR literature has been erratic. It has passed a through three distinct periods (Wartick & Cochran, 1985; Frederick, 1994; Carroll, 1999). In the first period, studies focused on the necessity that managers should look beyond the scope of traditional economic concerns and consider the ecological and social environment as well (Bowen, 1953). In the second period, the concept evolved further from the philosophical-ethical concept of CSR to the action-oriented managerial concept of corporate social responsiveness with more business and social-oriented scholarship efforts (Frederick, 1994). In the current period, the concept of â€•corporate social performanceâ€- emerged as a synthesis of both CSR and corporate social responsiveness approaches (Clarkson, 1995; Wood, 1991).
In the early development stage to comply with CSR reporting, disclosure was voluntary and companies were not required mandatory social and environmental information. Hence early social and environmental accounting studies found a lack of external monitoring and verification in corporates' attitude and understanding. Legitimacy theory was called on to construct corporate disclosures, so as to maximise perceptions of legitimacy (Deegan, 2002). Gray (2001, p.13) writes â€•the quality of attestation to social and environmental reports is woefully poor.â€- In its most positive light, a â€•specious glossâ€- is said to characterize social reporting initiatives in the United States and Europe, where annual report is a strong tool to deliver such information (Owen & Swift, 2001). A parallel literature describes corporate â€•green-washing,â€- â€•blue-washing,â€- and other forms of disinformation from organisations seeking to repair public reputations and further shape public images (Beder, 1997; Bruno, 1997). CSR reporting can contribute to society from two perspectives. Firstly, CSR may be regarded as an addendum to conventional accounting and research while sharing the same assumptions and preconceptions (Mathews, 1984; Gray et al., 1987). Within this perspective, financial institutions and relevant governing bodies as the principal users of any CSR reporting would regard CSR reporting as one component of financial statement. The second perspective is broader as it covers social and environmental reporting as the main role of information transmission in the organisation society inter-communication process (e.g. Preston & Post, 1975, 1981). This approach appears to be more consistent with the conventional accounting regime. It presents a challenge for CSR reporting academic researchers and invites criticisms (Puxty, 1986, 1991; Tinker et al., 1991). In spite of the progress, major problems remain in CSR reporting theory building (Gond & Herrbach, 2006). As Gray et al. (1995, p47) commented: â€•there has been lack of any agreed theoretical perspective to drive systematic researchâ€- for various reasons. The first reason is that CSR reporting is not compulsory in legislation in many countries. Consequently, it is not practised systematically by corporations without universal definition or recognition (Gray, 1995). Secondly, seldom do corporate social performance (CSP) models enable the elaboration of competent search propositions (Gond & Herrbach, 2006). Most research merely investigates several kinds of CSP components and there are no significant findings on the interactions between components. Furthermore, CSR reporting fails to theorise the organisation society relationship explicitly and this leaves the literature the poorer (Gray, 1991; Puxty, 1991; Tinker et al., 1991). Despite the literature, the CSR reporting framework is not well established and further theories are necessary. Empirical findings prove that some CSR literature does work in some cases. Many different theoretical perspectives have been produced after decades of empirical investigation of CSR reporting practice. Gray et al. (1995) summarises that there are various theories for the cognitive system on CSR reporting, for example, decision-usefulness studies (Benjamin & Stanga, 1977; Chenall & Juchau, 1977; Belkaoui, 1984), economic agency theory (Christenson, 1983; Arrington & Francis, 1989), positive accounting theory (Gray et al., 1995; Deegan, 2002), shareholder theory (Ullmann, 1985; Roberts, 1992), legitimacy theory (Guthrie & Parker, 1989; Pattern, 1992), political economy theory (Benston, 1982).
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Gray et al. (1995) categorise classic theoretical perspectives namely decision-usefulness studies, economic-based theories and political economy theories. The decision-usefulness approach has been proved unsatisfactory. The main problem is that the outcome of this method does not cater for the needs and concerns of financial participants (Booth et al., 1987; Mathews, 1987). Also such literature has theoretical problems with decision-usefulness as it does not support decisions efficiently (Laughlin & Puxty, 1981; Pallot, 1991). Hence, comment has been made that the whole process of information and response of CSR reporting is under-theorised (Gray et al., 1995). The use of economic-based theories has been criticised for the reason that the focus on self-interest and wealth-maximisation is in appropriate and offensive. But because economic-based theories were mainly applied in accounting research, they contributed little to the development of CSR reporting (Gray et al., 1995). Political economic theories include more political and social issues to present a more comprehensive picture. The essential point is that such literature looks at the reciprocity caused by political, social and institutional frameworks. In essence, political economy theory, including shareholder theory and legitimacy theory, is efficient in interpreting the empirical findings. The political theory focuses on not merely economic self-interest and wealth-maximisation of individuals or businesses, but also on the political, social and institutional framework within which the economic takes place (Gray et al., 1995).
The corresponding effects of CSR in annual reports with important issues have been detected in several empirical studies (Hogner, 1982; Guthrie & Parker, 1989). In this instance, political economy theories demonstrate better adaptability in the need for explaining why corporations appear to respond to government or public pressure in terms of social information (Guthrie & Parker 1990). Stakeholders would like to assess the corporate disclosures as the response of their demand at some levels. The perception of accounting reports as the agency of social, political and economic information sourceswould let political economy theory act in this role (Guthrie & Parker, 1990). Using such a perspective, political economic theory can be viewed as the tool for management in achieving organisations' goals and reflecting external stakeholders' expectations by achieving social and environmental disclosures. In particular, â€•by far the more interesting and insightful theoretical perspectives are 24
those drawn from social and political theory (most particularly stakeholder theory and legitimacy theory perspectives)â€- (Gray et al., 1995, p52). These two popular theories are discussed as follow.