Factors That Influence Corporate Social Responsibility in an Organisation - Essay Example

Factors influencing corporate social responsibility in an organisation [Foundation [Department] 8 December 2014 2014 Factors that influence corporate social responsibility in an organisation 1.0 Introduction Corporate social responsibility is defined as the ethical behaviour that an organisation observes towards the society, and this includes its responsibility towards managing good relationships with other stakeholders who are validly interested in the organisation or business (Moir 2001). It also includes the commitment shown by the organisation towards ensuring that its employees, local community and society are well-catered for in terms of their quality of life. Corporate social responsibility, therefore, entails several principles: The organisation involved should treat its employees fairly and equitably It should respect basic human rights It should strive to conserve and preserve the environment for the needs of future generations. It should operate with integrity and in a manner that observes ethics (Moir 2001) There are various reasons why an organisation incorporates corporate social responsibility in its activities and strategies today. According to Adams, the main motivation for this is to enhance the corporate image and credibility with the organisation’s stakeholders (2002). This paper will, therefore, examine a variety of accounting theories that will henceforth determine the feasibility of this statement by Adams. The paper will briefly expound on each of the accounting theories including legitimacy theory, stakeholder theory and institutional theory. Other theories include instrumental theories, political theories and integrative theory. The paper will, however, begin by explaining the meanings of the main keywords that will be used in the discussion. Corporate Image- this is simply the mental picture or impression that creates in the public’s and employees’ mind with a mention of an organisation. The impressions may range from innovative, socially-responsible, family-friendly and ethical among others. Corporate credibility- this is the extent to which a company or organisation is trusted by its clients, business partners, customers and financiers and largely includes both the company’s reputation and its credit profile. Stakeholders- this are immediate group of people or individuals whose influence can be adequate regarding its effect on an organisation achievement of its objectives. On the other hand, the stakeholders are directly affected by the achievement of the companys objectives. Examples of an organisation’s stakeholders include the investors, local community, customers, government and regulators, banks and creditors, media and general public among others. Each of these stakeholders have specific interests on an organisation’s corporate social responsibility and thus the reason why the organisation should handle this area very carefully. 1.1 Some of the common interests and concerns by shareholders include: Some investors are concerned about what kind of activity or project they are investing in, with most interested in the investments that are socially responsible. A growing trend among customers today is in their increasing interest in green and fair-trade products and these certainly originates from the products’ source. Communities are also increasingly demanding their fair share of an organisation’s corporate social responsibility by seeking participation in decisions on job opportunities and distribution, health implications of the business in their area and society at large. Government and other regulatory bodies are also interested in getting the necessary information such as reports of the business on environmental and other sustainability issues. 2.0 Accounting theories There are three main system-oriented theories in accounting and which majorly focuses on the role of information in an organisation and the need for disclosures in various organisational relationships with other organisations, individuals, groups and state. These theories include stakeholder, institutional and legitimacy theories. 2.1 Stakeholder theory This theory, as the name suggests, basically deals with the relationship that exists between a company and its stakeholders. Stakeholders can be categorised into two major groups; primary and secondary stakeholders. Primary stakeholders are the core supporting group in an organisation and whose participation if withdrawn, can lead to the firm collapsing. Examples of primary stakeholders include the investors, employees, shareholders, suppliers, government, communities and customers among others. Secondary stakeholders, on the other hand are not of critical value for business survival. In as much as they can influence or get influenced by the activities of an organisation, they are at no time directly engaged in the organisations transactions. An important question that the stakeholder theory addresses in corporate social responsibility is to which category of stakeholders do the management pay attention? This largely depends on three major factors that determine the importance of a stakeholder: legitimacy, power and urgency (Coombs & Holladay 2012). According to this theory, therefore, a firm should prioritise stakeholders and their respective needs according to their degree of legitimacy, how powerful and influential they are in the success of the organisation more importantly the urgency of the circumstances at hand. 2.2 Legitimacy theory Legitimacy is defined as the general opinion or assumption that determines whether the actions of an organisation are socially appropriate or desirable in accordance to the existing norms, beliefs, values and definitions (Bebbington et al. 2008; Merkl & Brennan 20001). In an organisation, legitimacy can either be described as moral, pragmatic or cognitive. According to legitimacy theory, the core determinant of organisational success in managing its legitimacy is its corporate communications (Coombs & Holladay 2012). An organisation, therefore, can employ various strategies when faced with issues of legitimacy in a society. An organisation can opt to educate its stakeholders about its objectives and plans concerning any necessary improvement in its performance. The organisation can also seek to change an event’s performance without necessarily changing its performance. The organisation can also employ tactics that drive attention away from the issue that raises legitimacy concerns. This can involve the use of manipulative tactics that distracts or diverts attention from the source point of concern. An organisation can also choose to change the expectations that its stakeholders have towards its performance (Freedman & Jaggi 2010). From these arguments, it is evident that legitimacy can be a vital cause of an organisation consideration of corporate social responsibility through which the activities involved lead to publicity or influence. 2.3 Institutional theory This theory is more of a combination of both stakeholder theory and legitimacy theory. It focuses on the major aspects social structure including the rules, norms, schemas and routine. These aspects are an important part in determining the guidelines for social behaviour. Institutional theory, therefore, looks into ways through which these elements are created and adopted in an organisation over a certain period of time. The theory takes two main dimensions: isomorphism and decoupling. The isomorphism dimension is characterised by three main mechanisms: coercive, mimetic and normative (Hond et al. 2007). In accordance to corporate social responsibility, this theory explains that actual practices in an organisation can vary from what the organisation publicly announces to partake. 2.4 Other theories Other theories include the positive accounting theory that is considered important especially when used to disclose voluntary information such as corporate social responsibility report. This theory helps to describe, predict and explain certain circumstances within an organisation such as the accounting practises of managers (Setyorini & Ishak 2012). This theory focuses on an organisational relationship with other stakeholders that majorly takes the form of contracts. The contacts are meant to enhance cooperation among the stakeholders, majority who are self-seeking individuals. These contracts include those between management and suppliers and employees. However, these contracts come at a cost, for example, costs of negotiating and monitoring the performance of the entities involved in the contract. Through this theory, an organisation should publish certain information such as corporate disclosure thereby enabling the public to understand critical information on management compensation, debt hypothesis and political cost hypothesis. 3.0 The outcome- the corporate social responsibility enhances corporate image and credibility with its stakeholders A close examination of the literature as discussed in the paper shows coherency in the relationship between corporate social responsibility and an organisation’s quest for an enhanced corporate image and credibility with its stakeholders. Business undertake this course by engaging in activities that are organisation-centred stakeholder based. The typical stakeholders in this arrangement, therefore, are the employees, environment and the community. Other core reasons why an organisation would undertake corporate social responsibility include: To form part of the philanthropic activities undertaken by the organisation The quest by the business to influence a particular section of its stakeholders towards a certain course of action or plan. The corporate social responsibility can also be related to the primary or secondary activity of a firm thereby serving as a source of business income (Martyn & Beylefeld 2012). 4.0 Conclusion The need for corporate social responsibility has seen an increasing growth in the last few decades. This can largely be attributed to various factors such as the growing concerns and interests among most stakeholders today, anxiety and concerns about business ethics and increasing importance of ethical investments. This has in turn led to organisations undertaking voluntary reporting of their corporate social responsibilities activities and strategies to enhance their corporate image and credibility among their stakeholder. Using the accounting theories, the organisations are able to address these matters in a manner that also enhances the accountability of their own management issues. Bibliography Adams, C. 2002, ‘Internal organisational factors influencing corporate social and ethical reporting beyond theorising,’ Accounting, Auditing, and Accountability Journal, Vol. 15 No. 2, pp. 223-250. Bebbington, J., Larringa-Gonzalez, C., and Moneva, J. 2008, ‘Corporate social responsibility reporting and reputation risk management.’ Accounting, Auditing, and Accountability Journal, Vol. 21 No. 3, pp. 337-361. Coombs, W. T., & Holladay, S. J. 2012. Managing corporate social responsibility: a communication approach, Wiley-Blackwell, Chichester. Freedman, M., & Jaggi, B. 2010. Sustainability, Environmental Performance and Disclosures, Emerald Group Publishing Limited, Bingley. Hond, F. D., Bakker, F. G. A. D., & Neergaard, P. 2007, Managing corporate social responsibility in action talking, doing and measuring, Ashgate, Aldershot, Hampshire, England Martyn, K. S., & Beylefeld, M. 2012, Corporate governance: a practical handbook, CCH New Zealand, Auckland, N.Z. Merkl-Davies, D. M. & Brennan, N. M. 2011, ‘A Conceptual Framework of Impression Management: New insights from psychology, sociology, and critical perspectives,’ Accounting and Business Research, Vol. 41 No. 5, pp. 415-437. Moir, L. 2001, ‘What do we mean by corporate social responsibility?’ Corporate Governance, Vol. 1 No. 2, pp. 16-22. Setyorini, C. T., & Ishak, Z. 2012, ‘Corporate social and environmental disclosure: A positive accounting theory view point.’ International Journal of Business and Social Science, vol. 3, no. 9, pp. 152-164. Read More