Changes in social and environmental reporting practices in an emerging economy (2004–2007): Exploring the relevance of stakeholder and legitimacy theories
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت) Accounting Forum, Volume 35, Issue 3, September 2011, Pages 158–175
گزارش اجتماعی و محیطی - اقتصاد در حال ظهور - نظریه ذی نفعان - نظریه حقوقی - حسابداری - نشریه
We examine social and environmental reporting (SER) practices of listed companies in the island economy of Mauritius. Based on a content analysis of annual reports, quantitative and qualitative changes in SER were analyzed in light of recent developments in corporate governance and with regard to the prevailing social and political contexts of this emerging economy. We find a significant but selective increase in the volume and quality of SER over the period under review (2004–2007). We rely on Suchman's (1995) conceptualizations of legitimacy to argue that the changes in SER are related to a need for companies to demonstrate an affiliation to pro-social objectives (moral legitimacy) and, to a lesser extent, are motivated by the need to manage specific stakeholders (pragmatic legitimacy). More specifically, the increase in ethical disclosures reflects an attempt at gaining procedural legitimacy in response to criticisms of corruption and unfair/unethical business practices. Furthermore, the increase in social disclosures can primarily be seen as a mechanism to gain consequential legitimacy in response to concerns that local companies are not sufficiently contributing to the country's social development. We suggest that future empirical research should devote more attention to the specific characteristics of emerging economies (such as levels of corruption and unethical business practices and the level of corporate governance) and examine whether these can explain patterns of corporate SER in a given national context or on a cross-country basis.
The practice of social and environmental reporting (SER) remains of topical interest due to its variability across corporate or national contexts, the debate on its various drivers and motivations and its potential role as a social accountability mechanism (see, for example, Gray, 2010, Owen, 2008 and Parker, 2005). Legitimacy theory has gradually emerged as the dominant socio-political explanation (see, for example, Campbell, 2000, De Villiers and Van Staden, 2006, Gray et al., 1995a, Neu et al., 1998, Owen, 2008 and Parker, 2005), but many commentators question whether this theory can provide a comprehensive explanation of SER practices (Amran and Devi, 2008, Cormier et al., 2004, Owen, 2008, Parker, 2005 and Tilling and Tilt, 2010). Furthermore, SER evidence from emerging economies remains limited (De Villiers & Van Staden, 2006), although it has been growing, predominantly within the Asian region (see, for example, Amran and Devi, 2008, Belal and Owen, 2007, Elijido-Ten et al., 2010, Haniffa and Cooke, 2005, Islam and Deegan, 2008 and Ratanajongkol et al., 2006).
Informed by the above, the aim of this study is to analyse the extent of SER practices in Mauritius. We rely on content analysis to identify, classify and quantify changes in the SER disclosures of listed companies over a four-year period (2004–2007). This period of investigation coincides with two contextual events that we consider to be of key relevance to SER in Mauritius. First, a local code of corporate governance was published by the Mauritian National Committee on Corporate Governance (National Committee on Corporate Governance (NCCG), 2004) whereby listed companies were expected to adopt its recommendations in their annual reports from 2005 onwards, including the disclosure of “policies and practices as regards social, ethical, safety, health and environmental issues” (NCCG, 2004, p. 116). The code has explicitly adopted a stakeholder-oriented approach.1 To the best of our knowledge, this was the first explicit and detailed recognition of the need for companies in Mauritius to systematically attend to ‘non-economic’ stakeholders (NCCG, 2004, p. 110) in an otherwise heavily shareholder-focused and ‘private’ business community (Fremond & Gorlick, 2002). Second, political changes in 2005 led to a new agenda aimed at ‘opening up’ the economy. The business sector in Mauritius was traditionally seen to operate as a small and tightly knit group characterized by opaque management and quasi-monopolistic practices with little systematic interest in social action. However, it remains to be fully assessed whether the above changes have led to an increased corporate response in terms of social responsibility activities and/or SER practices.
The motivations for and intended contributions of this study are threefold. First, there has been relatively little research on the effects of corporate governance codes in heightening SER practices (Haniffa and Cooke, 2005 and Jamali et al., 2008). Many of the codes that are disseminated worldwide are drawn from the OECD framework, which states that relevant information must be disclosed to all stakeholders (OECD, 2004, p. 22). However, to what extent the concept of the non-economic stakeholder is accepted by local companies in emerging economies has yet to be fully appreciated. Hence, the findings from Mauritius are potentially of relevance to other emerging economies that have adopted corporate governance codes with similar stakeholder accountability implications (Brennan & Solomon, 2008). Furthermore, given the absence of guidance on the form and content of SER in Mauritius, our findings can be of use to managers and non-economic stakeholders (such as civil society organizations) in ascertaining how companies have engaged with the stakeholder requirements of the code. This study can also assist the NCCG in devising or recommending more detailed models of SER to improve corporate social accountability and improve the usefulness of the disclosures.
Second, there are claims that legitimacy and/or stakeholder-based studies set in an emerging economy do not sufficiently recognize the social, economic and political factors germane to the country. Haniffa and Cooke (2005, p. 394) argue that this limitation causes SER practices to be evaluated by the norms prevalent in an Anglo-Saxon culture. In our view, this indicates a need to uncover the context in which companies engage with SER. In this regard, De Villiers and Van Staden's (2006) study of environmental disclosures provides a case in point articulating the links between societal expectations (as perceived by corporations) in South Africa and changes in disclosures over time. A related issue is the fact that many studies (see, for example, Amran and Devi, 2008 and Belal, 2001) focus only on one year's data and can only provide a limited picture of how SER is evolving over time. The fact that SER remains by and large a voluntary practice suggests that companies may take time to respond to new forms of social accountability.
Third, the ‘fuzziness’ and lack of specificity of the legitimacy perspective (refer to Deegan, 2002, p. 298; Parker, 2005, p. 846; Tilling & Tilt, 2010, p. 57) have led to claims that it has yet to provide a convincing and coherent explanation for corporate SER behavior. In this respect, we are drawn to an analytical framework based on Suchman's (1995) work that, in our view, combines legitimacy and stakeholder management to understand changes in SER practices. The legitimacy and stakeholder perspectives are already seen to be complementary and overlapping in providing a macro (legitimacy) and a micro (stakeholder) framework to explain a firm's specific actions (Cormier et al., 2004, Deegan, 2002, Holder-Webb et al., 2009 and Tilling and Tilt, 2010). The nature of this overlap has not been considered to a great extent. Hence, we aim to develop further insights on the relevance of the legitimacy and stakeholder perspectives in explaining SER patterns in emerging economies.
The remainder of the paper is organized as follows. We briefly explain the stakeholder and legitimacy theories and concurrently review relevant empirical evidence. The Mauritian context is then considered, with a particular reference to the code's expectations and how they might influence SER. Third, the methods and data sources are explained. Fourth, the findings are presented and analyzed in light of the selected theoretical perspectives. Finally, we conclude with the contributions and implications of our findings.
نتیجه گیری انگلیسی
We have documented recent changes in SER in an emerging economy. We have sought to interpret the changes in disclosure practices in light of the implementation of a stakeholder-oriented corporate governance code set within a broader socio-political context that has become increasingly critical of the business community's lack of sufficient engagement with societal imperatives. In terms of theoretical perspective, on one hand, we argued that the notion of pragmatic legitimacy is akin to that of stakeholder management because it relies on evidence of exchanges, influences and dispositions between the organization and specific audiences, such as stakeholders. On the other hand, the notion of moral legitimacy is more closely connected to the need to demonstrate an affiliation to social norms, values and beliefs. The latter reflects the macro-perspective and the associated concept of a social contract, which are often mentioned in the SER literature (refer to Deegan, 2002, Gray et al., 1995a, Haniffa and Cooke, 2005 and Ratanajongkol et al., 2006).
We first conclude that changes in SER in Mauritius are, to a certain extent, the result of companies being concerned with managing specific stakeholders. Evidence from the social and health and safety disclosures indicates attempts at stakeholder management (NGOs, employees and government) that are consistent with the concepts of exchange and influence legitimacy. To a degree, therefore, the local corporate governance code has led to increased corporate recognition of non-economic stakeholders in Mauritius. This finding has implications for consultants and policy-makers who have an interest in ensuring that the implementation of stakeholder-oriented corporate governance codes can lead to broader, substantive social benefits rather than purely economic ones. This finding also indicates that civil society organizations can, to some extent, access more detailed information from the annual company reports. Second, and more conclusively, the changes in SER patterns related to ethical and social disclosures reveal companies’ reactive strategy to portray themselves more explicitly as organizations that are mindful of societal interests. Faced with societal pressures, companies’ SER practices have evolved to include features that are consistent with a strategy of seeking consequential and procedural legitimacy. In particular, ethical disclosures emphasize procedures, such as establishing a code of ethics, that companies appear to have adopted to address societal concerns regarding corruption and unfair business practices. This finding also highlights the fact that research has paid very little attention to ethical reporting and its possible links to the level of corruption and other unethical business practices in the country of study. As an illustration of the impact of unfair business practices on SER, concerns about questionable labor practices in Bangladesh have led to increased human resources disclosures in this country, primarily to satisfy powerful audiences (Belal and Owen, 2007 and Islam and Deegan, 2008). Otherwise, there is scant research on disclosures related to such ethical practices. Furthermore, social disclosures depict philanthropic actions with a view to emphasizing the companies’ affiliations with socially accepted goals and organizations. At the same time, critical and controversial issues of ethnic and religious prejudice and social harmony are altogether shunned, possibly due to their potentially negative influence on corporate legitimacy. In previous empirical studies, social disclosures are often seen to be an important SER theme (see Haniffa and Cooke, 2005, Islam and Deegan, 2008, Ratanajongkol et al., 2006 and Tsang, 1998). Even so, these studies have not considered in detail the links between context, social disclosures and the pursuit of moral legitimacy as outlined in this paper. Consequently, this paper contributes to the literature in the following ways: (i) it provides recent evidence of changes in SER in an emerging economy that can be attributed to local contextual factors and a corporate governance code; and (ii) it demonstrates that Suchman's (1995) work on the pragmatic and moral types of legitimacy could be useful in developing a deeper understanding of stakeholder and legitimacy as motivations for SER. Suchman (1995) has developed a typology of various strategies that organizations could adopt to gain, maintain and repair their legitimacy, the validity of which has yet to be empirically investigated. These concepts could form the basis for further studies of managerial and/or organizational motivations for CSR and SER practices, possibly by using qualitative and/or case study methods.
The main limitations of our study are as follows. First, we rely on published annual reports and on the assumption that SER disclosures contained within the annual report reflect the main corporate narrative. Companies have at their disposal a wider array of media to convey their message. However, as mentioned previously, the practice of providing stand-alone CSR reports or dedicated CSR sections on corporate websites was not widespread in Mauritius during the period of study. Second, a content analysis of annual reports reveals the outcomes of decisions on the type of SER. For a better understanding of SER motivations, primary data (e.g., interviews of directors and/or stakeholders) could provide corroborating evidence to support our claims. Nonetheless, SER disclosures will continue to provide a useful gauge of an organization's attempts at communicating with society. Third, the number of companies surveyed in this study is limited to those listed on the local stock exchange and does not consider the SER practices of other non-listed entities. The possibility that incentives for stock exchange listing may be less attractive in some emerging countries has to be taken into consideration (e.g., less reliance on equity finance; less open ownership of companies). As such, a greater appreciation of CSR and SER practices in those economies may require a broader study encompassing non-listed entities.
Building on the above, we conclude with a reflection on the need for broader cross-country SER research within the context of emerging economies. Researchers largely agree that emerging economies exhibit a number of economic, political and social characteristics that are different from developed countries. However, it is important to carry out more systematic studies on the influences of these characteristics on the existence and extent of SER practices. Characteristics such as ownership concentration, concerns about levels of corruption and other measures of unfair business practices, degree of civil society activism, extent of corporate governance implementation, influence of government institutions in the business sphere (through ownership or otherwise), foreign influence and quality of accounting information are the main ones we can draw from the literature (Amran and Devi, 2008, Belal and Owen, 2007, De Villiers and Van Staden, 2006, Elijido-Ten et al., 2010, Gao et al., 2005, Haniffa and Cooke, 2005, Huang and Kung, 2010, Islam and Deegan, 2008 and Tsang, 1998) and our own findings. However, these characteristics have mostly been analyzed on a piecemeal basis and for only a handful of emerging economies. Although country studies such as ours have provided, and will undoubtedly continue to provide, useful and detailed insights into SER patterns in specific socio-political contexts, we contend that larger cross-country studies of SER in emerging economies may at this juncture be of interest. These would help researchers to understand and validate some or all of these characteristics using appropriate proxies informed by relevant theoretical perspectives, such as stakeholder and legitimacy theory. In addition, there are indications that a significant number of companies in emerging economies have been adopting the guidelines set out by the Global Reporting Initiative (GRI).15 In this regard, future comparative studies could rely on the GRI framework to provide a more stable and up-to-date classification and coding of social and environmental information, whether it is provided in annual reports, sustainability reports or other stand-alone formats (such as organizational websites).