CORPORATE SOCIAL REPORTING
A COOK’S TOUR
By Matt Tilling
School of Commerce
Flinders University
South Australia
School of Commerce
Research Paper Series: 01-9
ISSN: 1441-3906
“the worship of money (the ultimate external reward) has become our secular
religion... we do live in an age where money talks and where many people
listen. We must resist this kind of commoditisation of human subjectivity to
realise virtue in all our human practices, not just accounting. Accounting is
more than a mere conduit for economic reward. Accounting, if it is to be
virtuous, must celebrate itself as the unique creation of human labour and
moral agency that it is” (Francis, 1990, p. 15).
POWER AND THE DISCOURSE OF ACCOUNTING
The act of accounting, that is the production of reports purporting to represent the
activities undertaken by an organisation, is a human practice that holds itself out as providing
authoritative information upon which a variety of people can make decisions. Thus it has the
ability to arbitrate the way people view the world, to affect their understanding, and
influence their decision-making (Hines, 1988). This conveys to the practice of accounting a
certain power. In a moral society this power must be carefully considered and moderated
and used with responsibility. This gives light to an important role for academics, to
continually question the domain of accounting practice, and how its power is exercised.
Careful consideration must be given to the effects that accounting information has on
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society and, perhaps more importantly, empowering society to interpret accounting for the
tool it is.
Francis (1990) has pointed out that accounting as a practice is so much more than a
mere reporting of the facts. Accounting is a discourse, where the accountant chooses what
to say, who to say it to, and how to say it. The accountant is empowered to highlight or
emphasise certain issues, minimise or eliminate others, and in the process, affect people’s
decisions and behaviour. “Explicit recognition of accounting's status as a discursive practice
(as opposed to the view that accountants just report the facts) is profoundly important
because it forces accountants to acknowledge their own personal involvement, their own
moral agency and rhetorical role, in the production and creation of accounting reports”
(Francis, 1990, p. 5).
At the same time, however, just as accountants make choices about reports, so
society as a whole makes choices about which discourses it will acknowledge. Lehman and
Tinker (1987, p. 509) discuss the fact that “the amplitude of an accounting theme depends
on its capacity to enlist, echo, harmonize with, and resonate with other themes prevailing in
the discursive environment”. In other words, accounting can influence the decisions that
people in society make, but it cannot necessarily set the social agenda. Within society there is
a growing awareness that the ‘bottom line’ and other purely economic issues, so favoured
historically by accounting, may not be enough upon which to judge a firm’s performance, or
base a decision. Issues associated with ‘quality of life’ are also an important consideration
(Harte, Lewis and Owen, 1991).
There must be a continual dialogue between accounting researchers, accounting
practitioners and society. In this way the practice of accounting can be moderated between
the desires of various groups. Unfortunately there is strong evidence of a large divide
between each of these three participants (Bricker, 1990), particularly in their understanding
and expectations of accounting information. There are however, researchers in a few areas
of accounting research that do seem to be making an effort to work at the interface, at least
with society, at this point in time. One of the movements in this direction has been labelled
Corporate Social Reporting (CSR) (also sometimes known as Corporate Social Disclosure).
It should be noted that in this paper CSR is deemed to include disclosures of an
environmental nature.
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INCIDENCE OF CORPORATE SOCIAL REPORTING
CSR is an area of accounting research that covers both voluntary and mandatory
disclosures made by firms regarding issues considered important to the community at large
and of more than just an economic nature. CSR has been considered off and on in the
accounting literature since the early 1970s but always on the fringe of accounting academic
research (see for example, Seidler and Seidler, 1975). Corporate social reporting has been
defined (Parker 1986, p. 72) as having the following roles:
1.
Assessing the social (and environmental) impact of corporate activities;
2.
Measuring
effectiveness
of
corporate
social
(and
environmental)
programmes;
3.
Reporting upon a corporation’s discharging of its social (and environmental)
responsibilities; and
4.
External and internal information systems allowing comprehensive
assessment of all corporate resources and impacts (social, environmental and
economic).
A series of studies have shown that CSR by companies is increasing. Deegan and
Gordon (1996), focussing on environmental disclosure practices, have conducted one of the
most detailed studies in Australia. They concluded that the “amount of voluntary
environmental disclosures in Australia is typically low” but that a “general increase in
environmental disclosures occurred” (p. 198) over the 11 year period 1980 to 1991. In a UK
based study, Gray et al. (1995) found that for various categories of social disclosure
(including Environmental, Community and Health and Safety) the average amount of
disclosure had steadily increased from 1979 to 1991. However they note “The rise in social
disclosure from a little over one page to nearly four-and-a-half pages, it could be argued, may
not be something we should get too excited about” (Gray et al., 1995, p. 68). They do go on
to argue that although CSR may be considered a marginal activity, it is one that is worth
studying, both in its own right, and because it provides opportunities to consider the
underlying theory of accounting.
There has been a growing amount of research into CSR outside of Australia, the UK
and US. In recent literature, particular attention has been paid to CSR in Europe and South
East Asia. One study conducted by Gamble et al. (1996) of 276 companies from 27 countries
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(and again limited to environmental disclosures) concluded that over the relatively short
period of 1989 to 1990 there was a significant increase in individual and overall disclosures
across all countries (see also: Tsang, 1998 (Singapore); Andrew et al., 1989 (Malaysia and
Singapore); Adams et al., 1998 (six Western European countries)). It can be concluded that
CSR is a global phenomenon, and that increases reported in the UK, US and Australia are
indicative of the increasing importance of these issues to accounting internationally.
Two interesting points that have important ramifications for those considering the
CSR of companies have been noted by a number of researchers. First, there is almost a total
absence of any “negative” information, and second, some of the information reported may
in fact be misleading.
In a study of 71 Australian firms, who were identified as voluntarily producing
environmental information, Deegan and Gordon (1996) found that only 14 companies
provided information that could be classed as negative, and even then this disclosure was
minimal. They conclude that “The environmental disclosures are typically self-laudatory,
with little or no negative disclosures being made by all firms in the study” (p. 198). This
study supported earlier findings by Guthrie and Parker (1990), who found in a study of
Australian, UK and US firms that absolutely no ‘bad news’ was disclosed. In another study
Deegan and Rankin (1996) went as far as looking at firms who were subject to successful
prosecution by the Environmental Protection Agency. These firms presumably had some
bad news to disclose, yet it was found that “firms elected to promote positive environmental
attributes… In most cases they failed to disclose any negative environmental information”
(p. 6). This contrasts markedly with research conducted within the ‘mainstream’ (that is
traditional, economically focussed) financial accounting literature. Skinner (1994) indicates
that although companies face an asymmetric response to negative disclosures (that is a
disproportionately large drop in share price), they are still likely to disclose to avoid legal
suites. He also notes that negative disclosures are much more likely to be made qualitatively.
It has been argued that this biasing of CSR should come as no surprise. As has already been
identified, accounting disclosure is about control, and positive CSR disclosure may be just a
deliberate effort to influence decision making. Just “like other ideological materials (party
political statements, advertising, public relations “fluff”, religious dogma) it is the repetition
of the mundane and particularly the censoring of other points of view that make these
reports most effective” (Tinker et al., 1991, p. 39).
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Some authors have gone even further. Not just suggesting that the information
provided by CSR is biased, but that it may in fact misrepresent the actual situation. Harte
and Owen (1991, p. 59) indicate that “social information provided within annual reports
tends not to be directly related to quality of actual performance and can indeed be positively
misleading”. This concern was echoed by Wiseman (1982) who concluded that voluntary
environmental disclosures could misrepresent a company’s environmental performance (also
see Ingram and Frazier, 1980).
This situation may have significant ramifications for the long-term viability of CSR.
If questions of validity are raised often enough it would seem logical to conclude that users
may become reticent in their use of such information. Such concerns have led to calls for
“improving reporting and enhancing credibility via the introduction of specific auditable
information in the spirit of promoting public accountability” (Harte and Owen, 1991, p. 59).
THE THEORY OF CORPORATE SOCIAL REPORTING
Academics are not content to just sit back and measure the incidence of CSR.
Having established that it is a growing phenomenon, attention has been turned to the
underlying driving factors. At it’s simplest, to disclose additional information in the Annual
Report costs additional money. The firm will not incur this extra cost unless it reasonably
expects some kind of return. The role of theory is to place these expectations in some kind
of reasonable framework and then assess them.
From the outset it needs to be appreciated that there is not a single accepted
approach to research in accounting (Chua, 1986). One of the major problems for accounting
theorists is the sheer complexity of dealing with so many ‘users’ who want an almost infinite
variety of data from accountants with which to undertake a variety of tasks. This point has
been highlighted by Aitken (1990, p. 224) who notes:
It is quite conceivable that thousands of events are likely to be significant to
different users and equally conceivable that information needs are likely to be
contradictory given the fact that users are permitted (by a conscious policy of
the researcher not to become involved) to favour particular information sets
which condition events in a way which is favourable to them (the users).
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The accounting researcher is left in a position where they must favour certain claims
and ignore others. This is the basis upon which accounting research is undertaken, and
theories of accounting are based. Gray et al. (1988) argue that traditional accounting has
suppressed this conflict of needs by taking on a passive role and implicitly ‘preferencing’ the
rights of investors. However, CSR by its very nature addresses the question: for whom
should we be accounting and how best should we account for them? It opens up dialogue
with a far broader range of ‘users’ than just the investor. Gray et al. (1988, p. 7) go further
and point out that, “when the traditional intellectual baggage of accounting is hauled across
to try and articulate the issues of CSR, it is exposed for the flaccid paraphernalia that it is”.
The choice and explanation of a theoretical perspective can be a very difficult task,
particularly in the relatively young area of CSR where no dominant theory has yet been
established. Having spent many years examining the area Gray et al (1995, p. 67) comment
that “CSR practice is a complex activity that cannot fully be explained by a single theoretical
perspective or from a single level of resolution”. Gray et al. (1995, p. 67) go on to note
however, with regard to research based on specific theories, that:
if such observations augment the attention given to an increasingly
widespread and complex activity and thereby recognize the legitimacy of a
wider range of voices in corporate activity, then positive and worthy steps
have been taken to attempt to challenge the current corporate hegemony and
to expand the perspective of conventional accounting.
Tinker (1988, p. 174) also comments on the difficulty in the area of theory as “'facts'
have a meaning, credibility and significance that depends on their linguistic and theoretical
context. If facts are 'theory relative' in the sense that the same fact takes on different
meanings within different theoretical frames, then 'facts' cannot be an independent source
for adjudicating the validity of theories”. He also notes however, that the fact that
accounting theories have implicit biases is not in itself bad, but that we must make clear “the
assumptions hidden in theorizing, and re-evaluate whether they accord with a
conceptualization of our aims for research” (p. 184).
There is perhaps cause for concern when it comes to consideration of the theoretical
perspectives of CSR. Mathews (1997, p. 487) comments with regard to CSR in the early
years (the 1970s) that “there seems to have been relatively little curiosity expressed about the
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motivation of those making disclosures”. Of the later years he concludes that there has not
been a lot of improvement, and though there has been increased interest, there has been
little consensus. Zeghal and Ahmed (1990) are even more damning, concluding that “in spite
of many years of experience, corporate social accounting has no unifying paradigm and a
framework for adequate disclosure is still not developed” (p. 38). They go further to state
that “Social accounting has suffered, therefore, from a lack of progress and little consensus
exists with regard to objectives, measurement method and reporting framework” (Zeghal
and Ahmed, 1990, p. 38). This view is perhaps a little pessimistic.
Tilt (1994) has outlined three broad positions for research in CSR: the functionalist
or neo-classical economic paradigm; the interpretive or “middle of the road” paradigm; and,
the radical, critical or socio-political paradigm. It should be noted that these three groupings
really represent somewhat arbitrary divisions on a continuum. However there does exist
some degree of delineation. It is interesting to note these three perspectives match very
closely the three broad arguments presented by Mathews (1993, p.9) as to the importance of
CSR. Firstly, market-related arguments, which hold that additional disclosures are to be
encouraged on the basis that shareholders and creditors will benefit from a more responsive
market. Secondly, socially-related arguments which hold that additional disclosures establish
the moral nature of the corporation, and therefore satisfy the implicit social contract
between business and society and to legitimate the organisation in the eyes of society.
Finally, radical-related arguments, which posit a whole new role for accounting. It is not
within the scope of this paper to adequately explore these three paradigms, only
acknowledge their existence. But as a final note it is important to remember the point made
by Deegan (1997, p. 71), that “all theories are simplifications of reality”.
NORMATIVE RESEARCH - THE ROAD BACK TO RELEVANCE
Llewellyn (1996, p. 1, emphasis in original) has noted “that interpretive and critical
accounting researchers should now reconnect with accounting as a practice and be prepared
to present theories for practice rather than restricting their research to theories about
practice”. This is to be achieved through the consideration of normative issues. “Researching
theories for practice would acknowledge normative issues - in the sense that all theoretical
development would be seen as having potential ethical implications” (Llewellyn, 1996, p.1).
One of the most exciting and relevant models for normative research in CSR is the
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Conditional - Normative theory. “The hallmark of a conditional - normative theory is the
inclusion of the objective as well as the instrumental hypotheses (i.e. the empirically
determined means-end relations), within the theoretical framework” (Mattessich, 1992, p.
190, emphasis in original). In this framework ‘conditions’ are placed upon the application of
the normative conclusion. If certain results are desired, and the conditions meet certain
requirements, then appropriate (normatively determined) action is taken. The aim is “to
provide a range of tools for practitioners to choose from, depending on preconceived and
actual needs” (Mattessich, 1992, p. 190). This is an attempt to draw together theory, practice
and society, bridging many of the divides that have been identified. It is perhaps pertinent to
review Mattessich’s (1992, p. 192) final 3 points:
1.
The time is ripe to unite accounting theory and societal norms in a single
theoretical
framework
but,
simultaneously,
treat
general
empirical
assumptions differently from specific purpose - orientated hypotheses;
2.
That academic accounting (as a whole) is an applied science in which
conditional - normative reasoning - i.e., the search for connecting efficient
means with given ends - ought to be at the very centre; and
3.
Reject false pride, which the expression ‘applied science’ seems to injure. It is
truth not appearance that counts.
Theory is a means to an end; it provides a skeleton, upon which research must be
hung, but at the end of the day, although it supports the thesis it is not the product.
“Accounting, to the extent that it is a choice about how to effect our lived
experience - our ends - is a practice grounded in moral discernment.
Accounting is important precisely to the extent the accountant can transform
the world, can influence the lived experience of others in ways which cause
that experience to differ from what it would be in the absence of accounting,
or in the presence of an alternative kind of accounting. Why would an
invented human practice like accounting even exist except as a choice about
how to shape human experience?” (Franics, 1990, p. 7).
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THE FUTURE OF ACCOUNTING
Accountants in practice are presented with a choice, either to change or to remain
the same. Accounting academics should be precipitative in any changes that practice needs
to make; their role should be to inform both practitioners and society. “[A]ccountants,
whether academic or professional, must redirect their efforts before it is too late and they
find themselves to be experts in a shrinking area of diminishing importance. One way to
prevent this happening is to broaden the field covered by accounting to include social and
environmental data” (Mathews, 1997, p. 506).
CSR research has the potential to change accounting. It has widened the scope of
what counts as accounting information, and it has begun to consider a wider variety of
stakeholders (see for example, Baker and Hayes (1995) who focus on employee concerns).
The potentially broader role that accounting could play through the identification,
measurement, and communication of interactions between the firm and society is slowly
being recognised by "managers, the media, politicians and the public" (Mathews, 1997, p.
481). In contributing broader information to more people this should allow them to make
better-informed decisions and contribute to a better society. Yet there is still a long way to
go.
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