Contemporary Issues in Accounting
with special reference to
Corporate Social Responsibility


By

Jayakumar Aswathaman
M.Com, M.Phil, MBA, DIMA (CIMA-UK)
Faculty of Business
(Accounting and Finance)
Ibri College of technology
Sultanate Oman
 


Introduction

Traditionally accounting as a discipline has been associated with 'the process of measuring, analyzing and communicating economic information' (American Accounting Association). The traditional accounting concerned with technical knowledge related to how external financial reports are prepared and audited, but not concerned with why they exist in the form that they do. Considering the why question provides insight into current practice and illustrates that there are possible and perhaps, if considered from society's view as a whole, more intelligent alternatives. Traditionally companies have been thought to be accountable only to shareholders. This implies financial accountability only. This article provides a broader context of corporate performance and disclosure in the context of sustainability and social justice. This extends the corporation's accountability beyond the traditional financial disclosures to shareholders and predicated on the assumption that corporations have, as a consequence of implied social contracting or ethical dimensions, social responsibilities that are much broader than generating shareholder wealth. Society's attitudes are beginning to change in this regard – consumers are starting to think about ethical purchasing decisions and ethical investments are continuing to grow. Such attitudinal change will place demands on companies to make them more accountable for the impact their operations have on society and the environment. In this context, corporate responsibility is a term that is currently often heard. Corporate Social Responsibility (CSR) is one aspect of corporate responsibility the second aspect is corporate governance. Corporate governance is the management systems that support corporate social responsibility; CSR is the social, economic and environmental impact of the practical outcomes of those systems. CSR accountability, accounting and reporting is concerned with communicating the social and environmental effects of a corporation's economic actions to particular stakeholders and to society at large.

In 1962 Friedman famously suggested that:

'there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase profits.'

Friedman continued that the only check on increasing profits should be engage in open and free competition, without deception or fraud'. Many other definitions of CSR have since been provided and Carroll (1999) provides an informative history of the evolution of the concept of CSR. Carroll provided a four part definition of CSR in 1979 and in 1983 this was further elaborated as follows:

'In my view, CSR involves the conduct of a business so that it is economically profitable, law abiding, ethical and socially supportive. To be socially responsible…that means that profitability and obedience to the law are foremost conditions to discussing the firm's ethic and the extent to which it supports the society in which it exists with contributions of money, time and talent. Thus, CSR is composed of four parts: economic, legal, ethical and voluntary or philanthropic.'

Carroll's definition is broader than Friedman's in that it suggests going beyond what is required by the rules of the game and identifies ethical and voluntary dimensions to CSR.

The World Business Council for Sustainable Development defines corporate social responsibility as:

'the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families and the local community and society at large.'

In general, corporate responsibility includes both social and environmental responsibility. A socially responsible entity will have a strong culture of social responsibility and a code of ethics, the application of which is ensured through good corporate governance practices. Such an organisation will also prove the application of its socially responsible behaviour by, for example: social and environmental reporting; pro bono work, employee volunteering; philanthropic programs; community education and partnerships; and mentor programs. It will apply corporate social responsibility as an integral part of day-to-day living and doing business.

There can be profitable advantages to socially responsible entities from improved corporate responsibility as ethical investments continue to grow and consumers make ethical purchasing decisions. This article focus on the reasons and theory that can explain why companies would adopt socially and environmentally responsible processes and the nature of social and environmental reporting, which is currently made almost entirely on a voluntary basis.

Incentives for CSR

The question arises as to why would companies incorporate social and environmental impacts into their decision making processes. The obvious answer may be that they won't, unless it is profitable and, therefore, leads to increased shareholder wealth. The Business Council for Sustainable Development lists the following possible benefits from increased CSR:

1. Improved financial performance
2. Reduced risk exposure
3. Identification of new products and markets
4. Enhanced brand image increased sales and customer loyalty
5. Improved recruitment and retention performance
6. New business networks
7. Increased staff motivation
8. Enhanced skills
9.Improved trust
10. Enhanced reputations
11. Improved government relations
12. Reduced regulatory intervention; and reduced costs through environmental best practice leading to more sustainable profitability.

Why would companies behave in a socially and environmentally responsible manner?

Why do companies behave socially and environmentally responsible? Put in somewhatdifferent way, under what circumstances are firms behave likely to act in socially responsible ways?

Immediately the above creates to think the economic conditions and institutionalconditions are the prime factors that affect the companies to behave in a socially and environmentally responsible way.In most situations that the economic conditions affect the degree to which companies act in socially responsible ways but that this relationship is facilitated by a range of institutional factors.

Economic Conditions

The following economic conditions make the companies to behave socially responsible and environmentally responsible:

1.  Companies social and environmental responsibility will be better when they have strong financial performanceand when they are operatingin a healthy economicenvironment

2. Companies act in socially and environmentally responsibleways if there is neither too much nortoo little competition.

Institutional Conditions

The following institutional conditions make the companies to behave socially responsible and environmentally responsible:

1. Companies likely to behave in socially and environmentally responsibleways if there are strong and well enforcedstate regulations in place toensure such behavior.

2. Corporations will belikely to act in socially and environmentally responsibleways if there is a system of well-organized and effective industrialself-regulation in place to ensure suchbehavior.

3. Corporations will bemore likely to act in socially and environmentally responsible when monitor their behavior by private, independentorganizations.

4. Corporations will bemore likely to act in socially and environmentally responsibleways if they operate in an environmentwhere normative calls for suchbehavior are institutionalized in, forexample, important business publications,business school curricula, andother educational venues in whichcorporate managers participate.

5. Corporations will bemore likely to behave in socially and environmentally responsibleways if they belong to trade oremployer associations, but only ifthese associations are organized inways that promote socially responsiblebehavior.

6. Corporations will bemore likely to act in socially and environmentally  responsibleways if they are engaged in institutionalizeddialogue with unions,employees, community groups, investors,and other stakeholders
 

--> Article continued on next page, click here  -->

Source: E-mail June 27, 2011

          

Articles No. 1-99 / Articles No. 100-199 / Articles No. 200-299 / Articles No. 300-399 / Articles No. 400-499/ Articles No. 500-599
Articles No. 600-699 / Articles No. 700-799 / Articles No. 800-899 / Articles No. 900-1000 / Articles No. 1001-1100
Articles No. 1101-1200 / Articles No. 1201-1300 / Articles No. 1301 Onward / Faculty Column Main Page