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  1. 1. Issues in Social and Environmental AccountingVol. 1, No. 1 June 2007Pp 72-90 Issues in Corporate Social and Environmental Reporting Research: An Overview Manuel Castelo Branco Faculty of Economics University of Porto, Portugal Lúcia Lima Rodrigues School of Economics and Management University of Minho, PortugalAbstractThis paper provides an analysis of some relevant issues in corporate social and environmentalreporting (CSER) research by way of review of relevant literature. Issues in the following twomain areas of CSER research are identified: the methodologies used to capture empirical dataon CSER; and how to theoretically interpret the trends of CSER. An overview of these issues isprovided and some clues to understand what is at stake are offered. We argue that the choice ofmethods used to collect empirical data on CSER depends upon the context in which the organi-sations operate and the purpose of the study to be made. Because of the large array of factorsaffecting companies’ decisions to engage in social responsibility activities and disclosure, theuse of multi-theoretical frameworks is proposed.Keywords: annual reports, corporate social and environmental reporting, economic theoryapproaches, Internet, social and political theories.1. Introductory remarks activities related to such responsibility. The concept of social accountability,The acknowledgement of corporate so- which only arises if a company has so-cial responsibility (CSR) implies the cial responsibility (Gray et al., 1996:need to recognize the importance of dis- 56), concerns both the responsibility toclosure of information on companies’ undertake particular actions or refrainManuel Castelo Branco is Assistant Professor at the Faculty of Economics of Porto (FEP), University of Porto, Portu-gal., email: mcbranco@fep.up.pt .Lúcia Lima Rodrigues is Associate Professor at the School of Economics and Man-agement, the Head of the Department of Management and the Director of the Master in Accounting and Management,University of Minho, Portugal., email: lrodrigues@eeg.uminho.pt
  2. 2. M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90 73from doing so and provide an account of is a research-method oriented paper. Itsuch actions (Gray et al., 1996:38). provides a document to serve those who wish to do research in the CSER area.Corporate social and environmental re- First, it offers a brief overview of theporting (CSER) has been broadly de- issues mentioned above in which theyfined as the “process of communicating are identified and some clues to under-the social and environmental effects of stand what is at stake are given. Second,organisations’ economic actions to par- this paper is also useful as a source ofticular interest groups within society and reference for those interested in doingto society at large.” (Gray et al., 1996: 3) research in the area as it mentions aIt seeks to reflect several social and en- fairly up-to-date list of CSER studies. Invironmental aspects upon which compa- the following section, the issues pertain-nies’ activities have an impact: em- ing to methodological aspects of CSERployee related issues, community in- research are explored. In the third sec-volvement, environmental concerns, tion, the main theoretical frameworksother ethical issues, etc. CSER refers to used are presented. Finally, some con-the disclosure of information about com- cluding remarks are offered.panies’ interactions with society.CSER is not a new phenomenon. CSER 2. Methodological issuesin corporate reports can be traced to thebeginning of the twentieth century (see, There are two kinds of methodologicalfor example, Guthrie & Parker, 1989; issues surrounding research into CSER,Maltby, 2004). However, it is possible to related to the sample selection and toconsider that it has emerged as an im- data capture. Among the latter kind ofportant subject only in the 1960’s issues, those related to the selection of(Epstein, 2004). Following a period of the media to use as the basis for datadecline in the 1980’s, there has been a capture and the methodologies employedresurgence of social disclosure and au- for data collection are particularly rele-diting. This resurgence was associated vant. These issues are discussed below.initially with the prominence of corpo-rate environmental disclosure. This is a 2.1. Sample selectionmore recent phenomenon that emergedmainly in Europe and the USA in the The choice of samples used in CSER1990’s. More recently, the prominence studies usually has been based on com-of CSER seems to be related to sustain- pany size, analysing the documents pro-ability reporting, which addresses simul- duced by large companies (see, for ex-taneously the economic, environmental ample, Adams et al., 1995, 1998; Grayand social dimensions of corporate per- et al., 1995a, 1995b; Guthrie & Parker,formance (KPMG, 2005). 1990; Hackston & Milne, 1996; Neu et al., 1998). However, there are other pos-It is possible to identify some conten- sible approaches, such as the selection oftious issues in two main areas of CSER “interesting” or “best practice” exam-research: the methodologies used to cap- ples, or the selection of large, mediumture empirical data; and how to theoreti- and unlisted companies (Gray et al.,cally interpret the trends of CSER. This 1995b: 87).
  3. 3. 74 M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90There are good reasons to use a sample organisation constructs its social im-of large companies when studying agery to all stakeholders (Gray et al.,CSER (Gray et al., 1995b 88): it is more 1995b: 82). Moreover, the annual reportlikely to capture more CSER and iden- is considered to possess a degree oftify innovative examples; as a large credibility not associated with other cor-number of other studies use large com- porate communication media (Neu et al.panies samples, its use means greater (1998: 269).potential for comparability of resultswith previous studies; it is easier to ob- Annual reports are statutory documents,tain the annual reports from large com- required to be produced on an annualpanies. An additional reason to use a basis by all companies, thus allowingsample of large companies is that they comparisons to be made. Some evidenceare more likely to have a web page that indicates that annual reports are usedprovides CSER: these sites are nowa- widely to disclose social responsibilitydays important sources of data information and the dominant source of(Freedman & Jaggi, 2005). information used by a number of stake- holder groups interested in social and environmental impacts of companies2.2. Data capture (Deegan & Rankin, 1997).2.2.1. Media to use as the basis for data Particularly over the last decade, compa-capture nies have begun to use other disclosure media, such as discrete reportsMany studies of CSER use annual re- (environmental reports, social responsi-ports as the only source for gathering bility reports, sustainability reports, etc.)data on social responsibility information and the Internet (Frost et al., 2005: 89).disclosure. Annual reports are just one The development of the Internet hassource of information. All forms of data been considered “pertinent to furtherreaching the public domain can be con- development of social accounting”sidered to be part of a company’s ac- (Epstein, 2004: 16). Studies analysingcountability discharge activity and, the Internet as a tool for communicatinghence, annual reports, stand-alone re- with stakeholders and a CSER mediumports, advertising and house magazines, have been growing in recent years (see,can also be seen as vehicles of social for example, Campbell & Beck, 2004;accountability (Gray et al., 1995b: 82). Frost et al., 2005; Patten & Crampton, 2004; Williams & Pei, 1999). More re-In practice, it is impossible to monitor cently, some authors have begun to ana-all forms of communication about the lyse CSER through three disclosure me-CSR. But there are other good reasons to dia (annual reports, discrete reports andfocus on the disclosures made in annual web pages) (see, for example, Frost etreports. First, the annual report is the al., 2005).main corporate communication tool,which represents a company and is used The benefits of the Internet for commu-widely. Some authors consider that the nicating information to stakeholdersannual report is probably the most im- over traditional communication channelsportant document in terms of the way an are related substantially to the possibility
  4. 4. M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90 75of disseminating more information less Quantifying disclosuresexpensively and in a more timely fash-ion, and to its interactive nature Different “units of analysis” can be used(Williams & Pei, 1999). One important when codifying qualitative informationaspect which can be regarded as a limi- into quantitative format (i.e. coded data).tation of the Internet when compared Disclosure themes can be used as a unitwith annual reports is the proximity of of analysis, giving information on thethe narrative material in the annual re- number of different items of CSER pre-port to the audited financial statements. sent on the documents studied, or fre-The fact that the auditors must read such quency of disclosures. However, mostmaterial gives it a degree of credibility studies use one or a combination ofthat other media can not claim to have words, sentences or pages as the unit of(Neu et al., 1998: 269), including the analysis, giving information on the vol-Internet. ume or amount of disclosure. The simplest form of content analysis2.2.2. Methodologies employed for data consists of detecting the presence or ab-collection sence of social responsibility informa- tion, where at least one information itemContent analysis is the dominant method needs to be disclosed under each cate-used to examine CSER in annual reports gory (see, for example, Frost et al.,(see, for example, Gray et al., 1995b; 2005; Haniffa & Cooke, 2005; Magness,Hackston & Milne, 1996; Milne & 2006). Although it allows to capture theAdler, 1999; Unerman, 2000), corporate “variety” of disclosures (Haniffa &web pages (see, for example, Patten & Cooke, 2005: 405), one of the mainCrampton, 2004; Williams & Pei, 1999) shortcomings of this form of contentand stand-alone reports (see, for exam- analysis is that it does not allow meas-ple, Frost et al., 2005). urement of the extent of information disclosure and, therefore, the coded dataContent analysis can be defined as a re- do not reflect the emphasis that compa-search technique “that consists of codi- nies attach to each information itemfying qualitative information in anecdo- (Zéghal & Ahmed, 1990: 42). However,tal and literary form into categories in some authors believe that analysis of theorder to derive quantitative scales of frequency of disclosure themes andvarying levels of complexity.” (Abbott changes in disclosures over a period of& Monsen, 1979: 504) It relies on the time is sufficient to reflect the impor-assumption that the extent of disclosure tance of a disclosure (Burritt & Welch,(either the number of times an item is 1997: 8).disclosed, or the amount of space de-voted to disclosure) provides some indi- If an unweighted scoring approach iscation of the importance of an issue to used, disclosure scores for each com-the reporting entity, and to derive an pany can be added and not weighted, theindication of the meanings, motivations assumption being that each item of dis-and intentions of the communicator closure is equally important. It does not(Gray et al., 1995b: 89). allow analysis of the quality or com- pleteness of the information provided. It
  5. 5. 76 M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90merely recognizes that the company has The advantages of sentences are in over-provided some information on the rele- coming the problems related to font,vant issue (Frost et al., 2005). While margin or page size, in not needing tousing two disclosure indexes based on standardise words, in obtaining moretwo weighting schemes (equal weights, reliable inter-rater coding (Hackston &assigning a one to each item, and un- Milne, 1996: 84-86), and in allowingequal weights), Freedman & Jaggi more detailed analysis of specific issues(2005: 223) recognize the equal weight and themes (Deegan et al., 2002: 322).method is simple and avoids controver- However, measuring CSER in terms ofsies. number of words, sentences or lines pre- cludes measurement of photographs andSeveral different methods have been graphics (Unerman, 2000: 675-676).used by previous studies to measure vol-ume of CSER, including: Quantity vs. quality of disclosure• number of sentences disclosed (see, Content analysis has been criticised be- for example, Deegan et al., 2002; cause the measures used consider quan- Deegan et al., 2000; Hackston & tity and not quality of disclosure. How- Milne, 1996; Milne & Adler, 1999; ever, this limitation has been deemed Walden & Schwartz, 1997; Wil- acceptable by Campbell (2000: 87). liams, 1999; Williams & Pei, 1999); Some authors believe that distinguishing• pages or proportion of pages (see, between qualitative and quantified for example, Adams et al., 1995, (monetary and non-monetary) disclo- 1998; Gray et al., 1995a, 1995b; sures provides some indication of the Guthrie & Parker, 1989, 1990; Kua- quality of disclosures (Gray et al., sirikun & Sherer, 2004; Newson & 1995b: 84), because numerical informa- Deegan, 2002; Patten, 1991, 1992; tion is believed to be more useful than Unerman, 2000); descriptive information on a company’s• number of words disclosed (see, for social and environmental impact. example, Brown & Deegan, 1998; Campbell, 2003, 2004; Campbell et Some previous research placed a heavy al., 2003, 2006; Deegan & Rankin, weighting on quantitative disclosures 1996; Haniffa & Cooke, 2005; Neu (see, for example, Aerts et al., 2006; Al- et al., 1998); Tuwaijri et al., 2004; Bewley & Li,• lines (Belal, 2001; Trotman & Brad- 2000; Cormier & Magnan, 2003; ley, 1981). Cormier et al., 2004; Freedman & Jaggi, 2005; Warsame et al., 2002; Wiseman,Number of pages as a measure of disclo- 1982). However, some authors considersure is often criticized because it does that weighting systems imply some kindnot consider different page sizes, font of bias towards social responsibility of asizes, margin sizes (Hackston & Milne, financial kind (Burritt & Welch, 1997:1996: 84). Number of words is said to 9).cause difficulties due to different stylesof writing, as is also the case with num- A distinction between the types of newsber of sentences (Cowen et al., 1987: (for example, “good”, “bad” or117; Unerman, 2000: 675). “neutral”) can also provide some indica-
  6. 6. M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90 77tion of the quality of disclosures (Gray 1992; Mahapatra, 1984). “Experimental”et al., 1995b: 84). However, Bewley & studies assess the impact of social re-Li (2000: 206) deliberately avoided such sponsibility information on investmenta distinction due to its subjectivity. For decision-making (see, for example,example, “capital expenditures for pollu- Milne & Chan, 1999; Chan & Milne,tion control may be ‘good’ news for cor- 1999).porate environmental stakeholders butmay represent cash outflow with no ex- 3.2. Economic theory approachespected economic benefit from a share-holder’s perspective.” (Bewley & Li, Some prominent economic theory ap-2000.: 221n) proaches rely on the positive accounting theory of Watts & Zimmerman (1978) which suggests that government regula-3. Issues of theoretical interpretation tion is a political cost to companies. Positive accounting theory is based onDifferent theoretical perspectives about the assumption that economic agents arethe motivations for companies to dis- rational and will act in an opportunisticclose social responsibility information manner to maximize their wealth. Indi-have been used to interpret empirical viduals are driven by self-interest (tiedevidence. In an influential review of the to wealth maximisation). Based on suchCSER literature, Gray et al. (1995a) di- views, Ness & Mirza (1991: 212) arguevided much of the extant research into that “managers will disclose social infor-the following three categories: decision mation only if it increases their welfare,usefulness studies, economic theory that is, when the benefits from the dis-studies, and social and political theory closure outweigh the associated costs.”studies. When defining political costs, Watts &3.1. Decision usefulness approaches Zimmerman (1978: 115) specifically referred to “social responsibility cam-The basic line of argument for the deci- paigns in the media” as one of the possi-sion usefulness approaches is that com- ble actions that companies take to avoidpanies release information on their so- the adverse attention that high profitscial responsibility activities because us- draw. These actions are done to reduceers find it useful for their investment the likelihood of adverse political ac-decisions. Milne & Chan (1999) identi- tions and expected costs. Companiesfied three types of decision usefulness attempt to avoid potential pressure fromstudies: survey, market reaction and ex- government regulatory agencies whichperimental studies. The “survey” studies enforce CSR through CSER (see, forconcentrate mainly on undertaking sur- example, Belkaoui & Karpik, 1989).veys of potential users of the informa-tion (see, for example, Buzby & Falk, More recently, some studies have1979; Epstein & Freedman, 1994; adopted an information economics per-Deegan & Rankin, 1997). Other studies spective to analyse CSER (see, for ex-focus on studying the market reaction to ample, Bewley & Li, 2000; Cormier &CSER (see, for example, Belkaoui, Gordon, 2001; Cormier & Magnan,1976; Ingram, 1978; Jaggi & Freedman, 2003, Li et al., 1997). These studies sug-
  7. 7. 78 M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90gest that companies may disclose social regulators or lobby groups.responsibility information in a strategicfashion, with disclosure decisions being A few recent studies also draw upon theinfluenced by the risk of the company resource-based views in managementbeing affected adversely by third parties, research to analyse the economic poten-who can use information disclosed by tials of CSR and disclosure (Toms,the company to its disadvantage. 2002; Hasseldine et al., 2005). One of the advantages of these perspectives re-Bewley & Li (2000) and Li et al. (1997) garding other economic theories is thatexamine environmental disclosure they allow the researcher to concentratethrough the lens of voluntary disclosure on what managers are actually doing totheory. Proprietary costs are taken into create heterogeneous resources to sus-account to explain the reluctance of tain competitive advantage in the formmanagers to disclose voluntary informa- of enhanced reputation, rather than ontion. Companies withhold the informa- what they are trying to avoid happeningtion that could be used by third parties (for example, political costs)(such as competitors who can, for exam- (Hasseldine et al., 2005: 233).ple, change their production plans) andcause a decrease in future cash flows. 3.3. Social and political theoriesProprietary costs arise due to the exis-tence of proprietary information, that is, Under the social and political theoryprivate information which can be used group one might include three overlap-by third parties to inflict costs upon the ping perspectives: stakeholder theory,company. For example, some environ- legitimacy theory and political economymental information can be used to dam- theory. In contrast to the decision useful-age a company’s competitive position ness and economic theory approaches,(see, for example, Li et al., 1997: 441). these theories take a systems perspec- tive, recognising that companies influ-Cormier & Gordon (2001) and Cormier ence, and are influenced by, the society& Magnan (2003) examine social re- in which they operate. Gray et al.sponsibility information disclosure (1995a: 67) argue that different ap-within a costs/benefits framework, con- proaches within social and politicalsidering both information and proprie- theories should be seen not as competi-tary costs. According to such perspective tive explanations but as “sources of in-(Berthelot et al., 2003: 6): terpretation of different factors at differ- ent levels of resolution.”• on the one hand, managers may re- frain from disclosing information if 3.3.1. Political Economy Theory they perceive that investors do not need it or can easily find it from al- Political economy theory suggests “that ternative sources, and the economic domain cannot be studied• on the other hand, they may choose in isolation from the political, social and to minimize the disclosure of infor- institutional framework within which the mation if it can lead to proprietary economic takes place.” (Gray et al., costs through actions against the 1995a: 52) Therefore, economics, poli- company by third parties, such as tics and society are thought to be insepa-
  8. 8. M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90 79rable and should all be considered in suppliers, local communities, govern-accounting research. ment, interest groups, etc.Following Gray et al. (1995a: 52-53), Two variants of stakeholder theory cantwo political economy theories have be identified (Gray et al., 1996: 45-46;been distinguished. The classical variant Deegan, 2002: 294). The first variant,of political economy theory views CSER which Deegan (2002) designates as ethi-as part of an attempt to legitimise not cal (or normative), holds that all stake-only individual companies within the holders have the right to be treated fairlycapitalist system but the system as a by a company. This view is reflected inwhole (see, for example, Adams et al., the Gray et al. (1996) accountability1995; Adams & Harte, 1998). framework, which argues that the com- pany is accountable to all stakeholders toProponents of the bourgeois variant of disclose social responsibility informa-political economy theory argue that dis- tion.closure can only be explained in relationto the socio-political environment within The second variant, which Deeganwhich companies operate. In general, (2002) designates as managerial (orCSER is considered to be a function of positive), explains CSER as a way ofsocial and/or political pressure, and managing the company’s relationshipcompanies facing greater social/political with different stakeholder groups (see,pressures are believed to provide more for example, Roberts, 1992; Ullman,extensive CSER. CSER is seen as a re- 1985). Ullmann (1985) suggested thatsponse to competing pressures from CSER is used strategically to managevarious stakeholders such as govern- relationships with stakeholders. Stake-ments, employees, environmental holders are considered as having varyinggroups, customers, creditors, suppliers, degrees of power or influence over athe general public and other social activ- company, the importance being associ-ist groups. Stakeholder theory and legiti- ated with control of resources. The moremacy theory are identified as two over- important (influential or powerful) thelapping perspectives derived from the stakeholders are to the company, thebourgeois variant of political economy more effort will be made to manage thetheory. relationship.3.3.2. Stakeholder Theory Roberts (1992) was probably the first author using the framework developedStakeholder theory is based on the no- by Ullmann to test CSER practices em-tion that companies have several stake- pirically. He found that stakeholderholders, defined as “groups and indi- power, strategic posture and economicviduals who benefit from or are harmed performance are related significantly toby, and whose rights are violated or re- levels of CSER and that CSER is usedspected by, corporate actions” (Freeman, by managers as a proactive method of1998: 174), with an interest in the ac- managing stakeholders and their organ-tions and decisions of companies. Stake- isational environment.holders include in addition to sharehold-ers, creditors, employees, customers, About managerial stakeholder theory,
  9. 9. 80 M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90and relating it to political economy the- or to repair or to defend its lost or threat-ory discussed above, one can say that it ened legitimacy.” (O’Donovan, 2002:is “explicitly bourgeois in that the world 349).is seen from the perspective of the man-agement of the organisation who are If one recognizes that society is madeconcerned strategically with the contin- up of various groups having differentued success of the company” (Gray et views of how companies should conductal., 1995a: 53). The same can be said of their operations and unequal power orlegitimacy theory, which is discussed ability to influence their activities, abelow. These two theories hold that change of focus from society to thoseCSER is made for strategic reasons and groups who are able to influence a com-such motivation is in clear contrast with pany’s legitimacy, either granting orthe motivation envisaged by the ethical withholding it, is warranted (Deeganstakeholder theory which accepts the 2002: 295). These key stakeholders haveresponsibility to disclose information to been designated by proponents of legiti-those who have a right to it. macy theory as “relevant publics” (Buhr, 1998; Neu et al., 1998) or “conferring3.3.3. Legitimacy Theory publics” (O’Donovan, 2002).Legitimacy is defined by Suchman Legitimacy requires a reputation that(1995: 574) as “a generalized perception must be retained, that is, it requires aor assumption that the actions of an en- company to convince its relevant publicstity are desirable, proper, or appropriate that its activities are congruent with theirwithin some socially constructed system values. Issues such as industrial conflict,of norms, values, beliefs and defini- social and environmental incidents,tions.” Nowadays companies need to do fraudulent or unethical management be-more than just provide economic bene- haviour may threaten corporate legiti-fits, such as profits, wages and employ- macy. However, a company can losement, and comply with the law to be legitimacy even though it does notconsidered as legitimate within the soci- change its activities, either due toety in which they operate. It has become changes in the composition of its rele-necessary for them to act and be seen vant publics or changes in their valuesacting within the bounds of what is con- (O’Donovan, 2002: 348). If a companysidered as acceptable according to the is seen to lack legitimacy then, at best,values and norms of society. profits are short-term. This occurs be- cause if a company is perceived byIt is necessary to distinguish between stakeholders not to comply with theirlegitimacy and legitimation: whilst le- expectations, those stakeholders maygitimacy can be considered as a withdraw the support needed to ensure“condition or status”, legitimation is a its continued existence (Deegan, 2002).process engaged in by companies to take Companies are supposed to have activi-them to such state (Brown & Deegan, ties which are congruent with social val-1998: 23). A process of legitimation ues and also to communicate that theirmay be engaged in by a company either activities are congruent with such val-to “gain or to extend legitimacy, to ues. These are the two dimensions in amaintain its level of current legitimacy, company’s efforts to gain, maintain or
  10. 10. M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90 81repair legitimacy, identified by Buhr changes in the level of CSER, thus lend-(1998: 164): action, that is, congruence ing support to legitimacy theory. Com-of the company’s activities with social panies disclose information in the wakevalues; and presentation, that is, appear- of particular incidents such as an envi-ance of congruence with social values. ronmental disaster (an oil spill or gasLegitimacy can be at risk even when a explosion) that puts the companies in thecompany’s activities accord with soci- spotlight (see, for example, Patten, 1992;ety’s expectations because the company Deegan et al., 2000; Walden &has failed to communicate that its activi- Schwartz, 1997). Other studies used le-ties are congruent with social values. gitimacy theory to explain changes inMoreover, companies can attempt to disclosure around the time of exposure“achieve legitimacy by appearing to do to legal proceedings (Deegan & Rankin,the ‘right things’ or not be involved in 1996), fines (Warsame et al., 2002) ordoing the ‘wrong things’ when this ap- privatization operations (Ogden &pearance may have little in common Clarke, 2005). The relationship betweenwith a company’s actual” performance media exposure of certain industries and(Buhr, 1998: 165). disclosure has also been explored from a legitimacy theory framework (Brown &From such a perspective, CSER is seen Deegan, 1998). Other studies examinedas one of the strategies used by compa- one single company over time (see, fornies to seek acceptance and approval of example, Buhr, 1998; Deegan et al.,their activities from society. It is seen as 2002) finding supportive evidence ofan important tool in corporate legitima- legitimacy theory. Some authors usetion strategies, as it may be used to es- textual analysis in case studiestablish or maintain the legitimacy of the (Moerman & Van Der Laan, 2005). Fi-company by influencing public opinion nally a large array of studies used a vari-and public policy. Legitimacy theory ety of proxies for the public exposure ofsuggests that CSER provides an impor- companies, such as size, industry type,tant way of communicating with stake- profitability, media exposure, member-holders, and convinces them that the ship of pressure groups (see, for exam-company is fulfilling their expectations ple, Adams et al., 1998; Campbell, 2003,(even when actual corporate behaviour 2004; Campbell et al., 2003; Cormier &remains at variance with some of these Magnan, 2003; Mobus, 2005; Newson &expectations). Deegan, 2002; Neu et al., 1998; O’D- wyer, 2003; Patten, 1991; WilmshurstGuthrie & Parker (1989) did not find and Frost, 2000) obtaining more or lessconclusive evidence of disclosure link- supportive evidence of legitimacy the-ing corporate and social values in a lon- ory.gitudinal study of an Australian com-pany (Broken Hill Proprietary Company,Ltd.). However, a majority of the em- 4. Discussion and concluding com-pirical literature which tested LT tends mentsto lend it support. Although CSER and CSR performanceSome studies found that the occurrence are two very different things, only inof particular events is followed by specific types of empirical studies it is
  11. 11. 82 M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90possible to separate the analysis of context in which the organisations oper-CSER from the analysis of CSR per- ate, and the purpose of the study. Forformance. It is very difficult to deter- example, if the study one wishes tomine whether social performance data make is about the value relevance ofdisclosed by companies are under- CSER, then it is appropriate to place areported or over-reported. On the other high weighting on quantitative disclo-hand, there is evidence suggesting that sures. In other cases, it will probably beCSER reflect impression management adequate not to introduce a bias towardsrather than accurate disclosure. social responsibility of a financial kind by using such method.In this respect, Epstein (2004: 4) arguesthat “increased social disclosures may As to the quantification issue, it is al-have improved corporate accountability ways preferable to use a method whichbut may not have improved social and allows the measurement of the extent ofenvironmental performance.” But even information disclosure, thus reflectingthe accountability credentials of volun- the emphasis that companies attach totary corporate CSER is questioned by the information disclosed. This appliesauthors, such as Adams (2004), who in particular to the case of longitudinalcontend that there is a reporting- studies, especially if one is analysing theperformance portrayal gap, which is CSER practices of one single companymade visible by comparing voluntary over time. However, given the higherCSER with information from other, degree of subjectivity involved in usingmore independent, sources. Voluntary these methods, if the use of an indexdisclosure that is subject to considerable allows a proper detection of variationdiscretion by management is cited as a between companies’ disclosure (and thisreason for such gap. Voluntary CSER is the objective of using the method),can be seen as a communication mecha- then it is adequate.nism through which companies try tocomply with pressures to conform to The theoretical issues are particularlysocially acceptable norms. In many contentious. Findings which are inter-cases, real performance is not accompa- preted as being consistent with one par-nied but rather substituted by disclosure. ticular theory might, in most cases, beNonetheless, to analyse CSER corre- interpreted using a different theoreticalsponds also, at least partially, to analyse perspective. For example, Berthelot etCSR. CSER is likely to be associated in al. (2003: 118) argue that findings thatsome ways with social performance. seem consistent with legitimacy theoryCompanies which have more reason to explanations may be interpreted also inhave a good social performance will also light of explanations put forward byhave more activity to describe and thus other theories.their disclosure may be higher(Campbell et al., 2006: 102). Based on a legitimacy theory frame- work, Patten (1991) used company sizeRegarding the question of the methods and industry affiliation as proxies forto choose in order to collect empirical public pressure. He analysed the rela-data on CSER, the authors of this paper tionship between CSER and the twobelieve that it is all a question of the public pressure proxies and, in addition,
  12. 12. M.C. Branco, L.L. Rodrigues / Issues in Social and Environmental Accounting 1 (2007) 72-90 83profitability. The public pressure vari- ing “with absolute authority which par-ables were found to be significantly as- ticular theoretical perspective offers thesociated with CSER in his study, more convincing explanation.” (Hibbitt,whereas profitability was not. Given that 2004) Thus, it is important to recognizesize (see, for example, Belkaoui & Kar- that it remains a matter of subjectivepik, 1989) and industry (see, for exam- belief as to which of the possible theo-ple, Ness & Mirza, 1991) are also fac- retical explanations is the more accept-tors that positive accounting theorists able (Hibbitt, 2004: 415).have used to test the political cost hy-pothesis, some argue that the findings Even if the researcher is inclined to useassociated to relations with the level of social and political theories due to aCSER probably “are not an adequate matter of personal belief, some addi-basis on which to distinguish between tional questions arise. For example, al-the two positions” (Milne, 2002: 383). though legitimacy theory has been re- cently considered as the dominant theoryHowever, the arguments presented to in the CSER research (Hoogiemstra,explain such association differ. For ex- 2000: 55), social and political theories,ample, according to positive accounting particularly legitimacy and stakeholdertheory, large or highly profitable compa- theories, should be considered as com-nies are seen as vulnerable to political plementary rather than alternative orinterference. These companies use sev- opposite (Gray et al., 1995a: 52). Ac-eral strategies to reduce their political cording to Campbell et al. (2003: 559)exposure, including social responsibility legitimacy theory may be conceived asprogrammes. “a subsidiary theory of the stakeholder metanarrative in that a number of con-The social visibility argument used by stituencies are recognized” that “takes alegitimacy theory is different. Particular more descriptive view of how a com-companies, especially those which are pany addresses and deals with those con-large or operate in socially-sensitive in- stituencies.”dustries, are seen as more exposed topressures from social activist groups that Because many factors affect companies’seek socially responsible behaviour. So- decisions to engage in CSR activitiescially visible companies are seen as re- and disclosure, such as financial per-sponding to such challenges by using formance, stakeholders’ pressure, publicseveral legitimation strategies, which exposure and social concern, it is proba-may include CSER, to manage public bly advisable to recognize that no singleimpressions and reduce their exposure to theory is sufficiently comprehensive tothe social and political environment. explain all these factors. Thus, to under- stand why companies engage in CSRAs emphasised by Hibbitt (2004: 9), “as activities and disclosure it is necessarywith all research in the social sciences, to integrate different theoretical perspec-including economics and accounting, tives. This much has been acknowledge‘truth’ is a matter of meta-theoretical in recent studies which adopt multi-belief not empirical fact.” This fact leads theoretical frameworks (see, for exam-to an almost total impossibility of assert- ple, Cormier et al., 2005).
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