1. GRI Conference 2010
Sustainability Reporting Panel
Amsterdam, May 2010
Making the Most of CSR Reporting:
Disclosure Structure and its Impact on Performance
Francesco Perrini
Bocconi University
With Clodia Vurro, Bocconi University
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2. Agenda
Premise and objective of the study
Theoretical background
Hypotheses
Sample & methodology
Results
Discussion
Contribution and suggestions
F. Perrini, C. Vurro 2

3. Premise and objective of the study
Private sector is increasingly moving away from financial
measures as all-inclusive indicators of corporate performance
all-
Nonfinancial disclosure and reporting are gathering momentum:
Informing internal decisions and supporting companies in identifying
strengths and weaknesses across the whole corporate responsibility
spectrum
Setting the basis for firm-stakeholder dialogue and attracting those
firm-
stakeholders who favor socially responsible business and have the
power to reward it
Is nonfinancial disclosure conducive to a better ability to
manage firms’ social context of reference?
Adopting a stakeholder-based framework, we propose and test a model
stakeholder- framework,
relating the structure of nonfinancial reporting to corporate social
performance
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4. Theoretical background
Existing theoretical literature justifies the performance consequences of
nonfinancial disclosure referring to the following theoretical perspectives:
Cost-
Cost-benefit analysis of disclosing proprietary information:
information:
Ad hoc reports as signals of superior performance aimed at avoiding potential adverse selection risks and the exposure
to future social costs (Verrecchia, 1983; Dye, 1985)
(Verrecchia,
Socio-
Socio-political pressures to disclose:
disclose:
Nonfinancial disclosure allows firms to control for potential legitimacy threats, by means of its favorable impact on
stakeholder perceptions (Abbott & Monsen, 1979; Patten, 2002)
Monsen,
Adaptive managerial styles:
styles:
Nonfinancial reporting is a tool to improve managerial awareness of and control over the social impact of corporate
activities (Bowman & Hire, 1975; Preston, 1981)
Yet, empirical analysis has focused on:
Content of nonfinancial disclosure:
disclosure:
Determine the amount and type of social and environmental information companies provide (e.g., Deegan & Gordon,
1996; Grey et al., 1995)
Antecedents of nonfinancial disclosure:
disclosure:
Test the impact of stakeholder pressure and industry-specific characteristics (Adams, 2002; Meek & Roberts, 1995)
industry-
Disclosure level as a proxy of CSR:
CSR:
Treating it as a univocal construct (see Mrgolis & Walsh, 2002 for a review)
Whether and how does nonfinancial disclosure impact on firm ability to manage
its stakeholder context, turning into improved corporate social performance?
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5. Hypotheses
HP 1: The higher the depth of nonfinancial disclosure by firm i at
1:
time t, the higher the corporate social performance at t+1
Disclosure depth should be representative of a stronger commitment to CSR and
thus be conducive to better performance
HP 2: The higher the breadth of nonfinancial disclosure by firm i at
time t, the higher the corporate social performance at t+1
Disclosure breadth should be representative of a higher inclusivity in the
reporting process, that is, the ability to take into account and inform all
process,
stakeholders groups in order to effectively support dialogue
• HP 3: The less homogeneous the distribution of nonfinancial
3:
disclosure by firm i at time t among stakeholders, the lower the
corporate social performance at t+1
• HP 4: The less homogeneous the distribution of nonfinancial
4:
disclosure by firm i at time t among stakeholders, the lower the
impact of disclosure breadth on corporate social performance at t+1
– Distributed reporting structures, give a signal of company willingness to integrate the
structures,
normative side of stakeholder theory into their accountability processes
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6. Sample & methodology
Fortune Global 100 firms included in the
AccountAbility Rating between 2005 and
2007, publishing a nonfinancial report
continuatively between 2004 and 2006
114 firm-year observations involving 38
firm-
firms
Pooled OLS regression analysis
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7. Sample & methodology
Dependent variable: CSP is the score
variable:
provided by AccountAbility between 2005
and 2007
Addresses largest corporations who are the most
likely to publish nonfinancial reports
Takes stakeholder engagement explicitly into
account in assigning scores
The scoring procedure is such that minimize the
endogeneity bias
Publicly available and released with the purpose
of reaching a wider audience
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8. Sample & methodology
Independent variables: content analysis of
variables:
nonfinancial reports published between 2004
and 2006
Stakeholder-
Stakeholder-based interrogation instrument to
record the amount and typology of disclosure
derived from a comparative analysis of
acknowledged reporting frameworks
1. Disclosure depth: volume of disclosure by firm i at time t
depth:
relatively to what all the others in the sample do
2. Disclosure breadth: variety of stakeholder-related themes
breadth: stakeholder-
included in the nonfinancial reports released by firm i at
time t
3. Disclosure concentration: gini coefficient to measure the
concentration:
disproportionate attention paid by firms to stakeholders
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9. Sample & methodology
In order to record the typology and amount (incidence rate) of disclosure in
different categories the interrogation instrument:
Constructed on a previous comparative analysis of reporting frameworks available
on the market (Tencati, Perrini & Pogutz, 2004, Perrini, 2006)
Stakeholders Categories
Human 1.Policy for equal opportunity (female and male personnel, disability, and
Resources minorities in general)
2.Development of human capital (training projects and employees’ benefits)
3.Health and safety in the workplace (beyond legal requirements)
4.Protection of workers’ right
Shareholders 5.Communication and reporting activities (beyond legal requirements)
6.Corporate governance
Customers 7.Product/service information and labeling (safety, life cycle assessment,
certifications and labels)
8.Ethical and environmental products and services
9.Privacy protection
9
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10. Sample & methodology
Suppliers 10. Supplier selection based on social and environmental criteria
11. Collaboration on cost reduction and technology
12. Procurement conditions
Government 13. Internal auditing systems
14. Collaboration with local authorities
15. Taxes and duties vs. contributions received
Community 16. Corporate giving
17. Active collaboration and direct contribution in the community (voluntary
charity services, social solidarity, etc.)
18. Collaboration with NGOs
19. Environmental protection (energy consumption, materials and
emissions)
20. Corruption prevention
10
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11. Sample & methodology
Controls:
Controls:
Organizational affecting factors:
factors:
Dedicated CSR division
Reporting experience
Reporting standard adopted
Reliance on third party audit
Firm size and profitability
Contextual affecting factors:
factors:
Industry level commitment to CSR
Country-
Country-effect
Year-
Year-effect
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12. Results: The content of disclosure
Financial highlights 89.1%
Investor relations 71.7% Shareholders
Corporate governance 71.7%
Code of conducts and compliance
Public Authorities with law 87.0%
Relations with local authorities 65.2%
Supplier management policy 84.8%
Suppliers
Environmental strategy 87.0%
Environment Energy consumption, materials
Market development 91.3% and emissions 73.9%
Product and service information
and labeling 84.8% Customers
Employment policy 82.6%
Customer satisfaction and Direct involvement 87.0%
loyalty 71.7% Community Corporate giving 65.2%
Stakeholder engagement 56.5%
Health and Safety 93.5%
Training 91.3% Human Resources
Employment policy 82.6%
Industrial relations 76.1%
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13. Results: The performance consequences
DISCLOSURE DEPTH
HP 1 +
Volume of disclosure by firm i at
time t relatively to what all the
others in the sample do Not supported
DISCLOSURE BREADTH CORPORATE SOCIAL PERFORMANCE
HP 2 +
Variety of stakeholder-related
stakeholder- Score assigned by AccountAbility
themes included in the Rating to firm i at time t+1
nonfinancial reports released by (p<.01, r=.066)
firm i at time t
HP 4 –
(p<.01)
DISCLOSURE CONCENTRATION
HP 3 –
Gini coefficient to measure the
disproportionate attention paid by
firms to stakeholders (p<.01, r=-.74)
r=-
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14. Discussion
A finer grained analysis of nonfinancial reporting helps
clarifying how companies should structure disclosure
to benefit the most from it
The more does not necessarily turn into the better
Though increasingly standardized, nonfinancial disclosure is still
voluntary in nature, mirroring firm-specific interpretation of what CSR is
firm-
and how it can be shared with stakeholders and threatening volume-based
volume-
comparability
Broadening responsibilities matters
Superior performers are those able to extend their attention over a
broader set of stakeholders, declining responsibilities in stakeholder-
stakeholder-
based areas
No one should be left behind
Disclosing in more stakeholder-related areas cannot lead to improved
stakeholder-
performance if the structure of disclosure is disproportionately in favor of
some categories of stakeholders rather than homogeneously distributed
Superior performers are those able to combine high engagement and
balanced coverage of diversified interests
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15. Contribution and suggestions
The study provides insights on the emerging trends in the
practice of nonfinancial disclosure
Who and what counts for our sample of firms
It empirically tests the impact of nonfinancial disclosure
on performance
What matter most between disclosing as more information as
possible and giving an appropriate structure to disclosure
It provides a further corroboration of the extent to which
firms rely on disclosure to mirror what they do as
opposed to how they would like to be seen
Suggestions (limits…):
(limits…):
What is behind certain structures?
Firms disclose not just through reporting
Content analysis is intrinsically subjective
What about small and medium sized enterprises?
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