Laan (2009) argues that the two theories namely Stakeholder and Legitimacy, derived from the broader political economy perspective, broadly explain motivations for social disclosures. The paper aims at exploring whether the main motivation to corporations for social and environmental reporting is to enhance their corporate image and credibility with stakeholders.
While a few decades back, corporations sole aim remained enhancing shareholder value in financial terms and report them as per the statutory norms, organisations have now moved beyond traditional financial reporting of their performance to its stakeholders. Currently, stakeholders group not merely constitute shareholders, employees, suppliers, creditors, customers but they also include society, community and all those who are affected by the operations of the organization. Corporate social reporting thus, has occupied a wider perspective.
Stakeholder theory prescribes that all stakeholders including primary and secondary have the right to expect fair treatment from an organisation. That is to say management needs to manage the corporation such that interests of all stakeholders are secured. Community or Society at large may not be directly engaged in transactions with the corporation yet they are influenced and affected by the activities of corporations such as emission levels, waste water creation and its treatment, impact on ecology or surroundings and so on. Ethical branch of stakeholder theory also necessitates that community and society not only have a right to know how they are affected or impacted in the long run from the activities of corporations but also they expect that they must be treated fairly by corporation. At the same time, managerial branch of stakeholder theory explains that organisations prefer to provide social and environmental reporting when they believe that it is in their