Corporate Social Performance: A Stakeholder Approach

Stuart Cooper

• Editore: Routledge
• Anno: 2017
• ISBN:
  9781351948432
• Edizione: 1
• Argomento: Business
• Categoria: Corporate Governance

Corporate social performance has come of age. In a business environment characterized by its perpetual state of flux, the ability to recognize and react to global forces becomes paramount. The fallout of such rapid change - the fast-paced developments in communications and technology, the continual change to global markets, shifting demographics, the homogenization of personal values - have all contributed to the widespread new interest in issues such as ecology and environment, human rights and diversity, health and well-being, and communities. All of these issues are now potential liabilities for companies, and are very much back on the agenda for business. Once regarded as peripheral management concerns, they are now recognized as hard to predict and hard for business to deal with when they go wrong. This book offers an insight into how corporate social performance can be measured and why this is an important aspect of corporate social responsibility. Using detailed case studies, it provides readers with the foundations for understanding and applying corporate social performance, providing a stakeholder framework by which corporate social performance can be measured, alongside a detailed consideration of the value of different stakeholder measures. The book also applies this framework to new social accounting standards, enabling the reader to consider the validity and appropriateness of these standards. The increasingly important role of the internet for corporate social reporting is also considered.

Chapter 1

Corporate Social Performance and Accountability

Introduction

This book is concerned with the social performance of corporations. Traditionally, from accounting, corporate performance has been measured in financial terms, such that the annual report and accounts provide three primary financial statements. These are the profit and loss account, the balance sheet and the cash flow statement.¹ These three statements are argued to enable a user of the accounts to understand the profitability, efficiency, liquidity and financial strength of the corporation. Therefore students of financial accounting are told how to calculate numerous ratios in order to understand a corporation’s performance. These ratios include profit margins, returns on capital, current ratios and gearing ratios. When considered together these ratios are argued to enable the user of the accounts to build up a picture of the organization’s historical performance and starting position for the future. In fact probably the most vociferous criticism of these measures has been that it usually considers historical performance, is too concerned with past activities and hence fails to adequately consider the future of the organization. Certainly the profit and loss account reports on performance in a period that has already finished. The annual report and accounts are principally provided for shareholders and potential investors, although these are by no means the only users. The information provided is supposed to assist the (potential) shareholders in deciding whether to buy, hold or sell shares in the organization. Throughout modern finance and accounting literature and texts it is widely suggested that shareholders invest their money purely to make returns and therefore the management of an organization must run that business in order to maximize shareholder wealth. This is certainly the message that many finance and accounting students receive, as is evidenced by the following quotes:

Of course, ethical issues do arise in business as in other walks of life, and therefore when we say that the objective of the firm is to maximise shareholder wealth we do not mean that anything goes. (Brealey and Myers, 1996, p.25)

The company should make investment and financing decisions with the aim of maximising long-term shareholder wealth. (Arnold, 2002, p.7)

Nevertheless, the view adopted in this book is that, broadly, firms seek to maximize the value of future net cash inflows (that is future receipts less cash payments) or to be more precise the present value of future net cash inflows. This is equivalent to maximizing shareholder value. (Drury, 2003, p.7)

Within management accounting the emphasis has similarly been on financial measures and it is only more recently that non-financial measures and multi-dimensional performance measurement frameworks have increased in popularity. Perhaps the best known and most commonly used of these frameworks is the balanced scorecard, as created by Kaplan and Norton (1992, 1996).² The Balanced Scorecard operates in four perspectives the financial, customer, internal business and learning and growth perspectives. Originally these four perspectives were considered to be balanced, but more recently Kaplan and Norton’s (2000) strategy mapping draws a causal relationship between the different perspective with the ultimate aim being to improve financial performance and hence shareholder wealth. As such this multi-dimensional performance measurement framework is competing with the more explicitly shareholder value models that have also become popular over the last decade. These shareholder value approaches vary, but each explicitly recognizes the shareholder as the primary stakeholder and hence target shareholder value creation. Perhaps the most well known of these is economic value added (EVA®) as proposed and sold by Stern Stewart, which is a residual income type approach to performance measurement.³

Each of the approaches above are aimed at one specific stakeholder group, namely the shareholder. This has consistently been the emphasis of accounting and corporate reporting. This book, however, is interested in a wider conception of performance. It is interested in corporate performance not purely to or for the shareholder, nor purely in financial terms, but is interested in corporate performance to the society within which an organization operates. For the purposes of this book this has been called corporate social performance. The remainder of this chapter provides an introduction to this area of research and positions this work in the wider field of corporate social responsibility. At the same time it explains the structure of the remainder of the book and introduces some of the key concepts and debates that are discussed in more detail later.

Business in Society and Corporate Social Performance

As we have just seen, the most commonly accepted objective, within the finance and accounting fields, for a company is to maximize shareholder wealth. The justifications for the appropriateness of this as an objective are manifold, but most importantly it is argued that through the workings of efficient markets this objective will not only benefit shareholders, but society as well. In chapter 2, we explore the arguments that have been used to support this conjecture and furthermore we consider if there is any evidence to support that this actually works in the real world. The most commonly proposed alternatives within the business ethics literature are stakeholder theory and social contract theory. Therefore chapter 2 contrasts the arguments that support these alternative theories. The stakeholder concept is an important one for this book. The term has increased in popularity⁴ since Freeman’s (1984) seminal text ‘Strategic Management: A Stakeholder Approach’. Freeman defines stakeholders in numerous ways, but the most commonly quoted definition is:

any group or individual who can affect or is affected by the achievement of the organization’s objectives.

It is interesting to note that Freeman explicitly regarded the stakeholder approach to be a strategic management tool, as opposed to an ethical theory. In fact, according to Stoney and Winstanley (2002) this is one of the key confusions within the stakeholder literature. In the words of Stoney and Winstanley there are ‘intrinsic’ and ‘instrumental’ reasons for adopting a stakeholder approach. Goodpaster (1991) actually uses the terminology strategic stakeholder management model and the multi-fiduciary stakeholder approach. The terms are different, but the underlying distinction is the same. There are some that see the stakeholder concept as a way to improve the strategic management of an organization, and hence to improve performance, usually measured in terms of financial performance. Then there are those that see stakeholder theory, as an ethical approach to management. This is to say that stakeholder theory is a normative approach that some argue is more ethically and morally acceptable than a shareholder value approach. This confusion has resulted in a lot of criticism of stakeholder theory and this is considered in chapter 2.

The supporters of both the shareholder and stakeholder approaches suggest that they should be preferred because they provide benefits to a society as a whole. This would be consistent with the social contract theory that can trace its roots back to the work of Rousseau and Hobbes. Social contract theorists argue that a society would only allow a business to operate within it if the benefits of the business outweigh its detriments to society. Both shareholder and stakeholder theories are therefore subsumed within social contract theory. In fact both claim to be the best way to ensure that an organization satisfies its obligations to society. If we accept that businesses should provide a contribution to society then the question is how can this be achieved?

It seems a great leap of faith to simply accept that by operating a shareholder approach society will benefit. Clearly it will benefit in some ways in terms of employment, revenue from taxes and an injection of money into an economy. There are, however, potentially scarce resources that the organization will use not least in terms of natural resources. There are also externalities created by the operation of businesses, for example emissions and pollution, that can detract from the quality of life of some of the members of that society. There are many, many ways in which an organization can affect a society and it is here that the stakeholder approach is helpful. As noted above the stakeholders are those groups from within a society that are affected by an organization’s activities. Therefore a stakeholder framework can be used to consider corporate social performance.

Stakeholders and Corporate Social Performance

In this book the stakeholder concept is used as a framework for considering corporate social performance. It draws upon many different strands of literature including strategic management, business ethics, social accounting and performance measurement to do so. The social accounting literature is especially important and in many ways chapters 5, 7 and 8 of this book are an attempt to produce a social account. Just as financial accounting can be considered to be an account to shareholders so social accounting can be considered to be an account to society. Gray et al. (1997) suggest that social accounting includes all possible accountings and as such financial accounting is only one, relatively small, part of social accounting. This is in exact opposition to the majority of financial accounting texts, which if they include or mention social accounting at all, is considered to be a smaller part of financial accounting. These textbooks see social accounting as something that can be added on to the traditional financial accounting, but the traditional financial accounting remains dominant. Within these texts, therefore, the shareholder remains primary and other stakeholders very much secondary.

The social accounting literature clearly places a different emphasis upon the non-shareholder stakeholder groups. Social accounting attempts to make transparent the workings of an organization (Owen et al., 1997). Through this process it is hoped that society will become better informed about the operations of an organization such that where an organization is not benefiting society some corrective action can be taken. Therefore it is hoped that this process will result in a ‘more benign’ form of business activity (Gray et al., 1997). Effectively the line of reasoning is that a better informed society will be empowered to ensure that the organizations operate to the benefit of that society. By ensuring that organizations are accountable to society for their actions so those actions can be changed to the benefit of that society. Within the social accounting literature the relevance of the stakeholder concept is recognized. Gray (1998) suggests that a stakeholder approach could be used to produce a social account. In fact it is stakeholder accountability that Gray (2000) argues is at the very heart of social accounting.

The social account may serve a number of purposes but discharge of the organisation’s accountability to its stakeholders must be clearly dominant of those reasons and the basis upon which the social account is judged, (p.250)

This book draws upon the stakeholder concept in this vein. It sees corporate social performance as something that is important as it can be used to inform society. The more we know about corporate social performance the more society can attempt to reform those organizations so that they operate in socially beneficial ways. It may be that organizations are already benefiting society, but until the corporate social performance is measured we can not say whether this is the case. Furthermore there are significant social and environmental problems in the world, Europe and within the UK. One of the causes of these problems could well be the way that modern business is organized. This is reflected in the following quote:

Our world is one of immense inequality, poverty and violence, with “catastrophic global and local environmental degradation; poverty and conflict in the Third World; unemployment, poverty and inequality (in Britain); widespread disaffection with the political system and political parties; (and) a loss of community” (Real World Coalition 1996, p vii). (Adams and Harte, 2000, p.56)

It is these real world problems that many social accountants want to see redressed. The level of reform required to do so is a source of debate. Those from the critical accounting school argue that much, if not all, of the social and environmental accounting is flawed as it does not address the problem of the capitalist system. They argue that it is the capitalist system that leads to the problems noted above rather than the actions of individual organizations. Therefore social and environmental accounting will fail to bring about the desired changes because the system will remain. Unless the capitalist system can be changed then the systemic conflicts within society will remain and therefore the social benefits will not follow. Gray et al. (1995) acknowledge that this argument is persuasive, but suggest that if social accounting recognizes and highlights the conflicts then it can still achieve its purpose. As such the vast majority of social accountants do not necessarily require the end of capitalism. Gray et al. (1995) do, however, suggest that a ‘neo-pluralist’ approach to society is required if these conflicts are to be identified and accounted for. Again this leads us back to the stakeholder concept, which is indeed a pluralist conception of society. Multiple factions are identified and their needs and relative welfare are considered.

In fact the relative importance of different stakeholders, from completely unimportant and therefore one which receives no consideration, to the most important, or primary, which have certain rights, is a source of much debate within the stakeholder literature. It is the strategic management aspect of the stakeholder literature that has the most to say about this. It is actually one of the key purposes of this part of the literature to rank the different stakeholders and hence manage the stakeholder relationship. Perhaps the best known example of such strategic stakeholder management models is that proposed by Mitchell et al. (1997). They propose that organizations should measure each stakeholder’s salience and then based on this should decide how to prioritize the needs of that stakeholder group. Stakeholder salience consists of the power, urgency and legitimacy of the stakeholder group. If all three are present then the stakeholder requires a great deal of attention and must be prioritized within the strategic management of that organization. This strategic stakeholder management model is not consistent with the stakeholder accountability discussed above. It is concerned with the instrumental rather than intrinsic value of stakeholders and will therefore not address the problems discussed above.

chapter 3 concludes with a consideration of a number of different attempts to identify stakeholder groups and in fact there is a great deal of consistency between these different models. Therefore as this book continues to consider corporate social performance it does so through using a stakeholder framework that concentrates upon a number of key stakeholder groups, and these are:

• Shareholders;

• Employees;

• Consumers;

• Suppliers;

• The Environment.

It must be stressed here, and it is again later in the book, that this does not intend to demean or down play the importance of other stakeholder groups. This book does, however, concentrate on this relatively small number of stakeholder groups. There is a further requirement for further research into the needs of other stakeholder groups. The more stakeholder groups incorporated into a consideration of an organization’s performance the more completely, it can be argued, that we reflect the corporate social performance. Also it could be argued that included here are some of the more powerful stakeholder groups that require little or no protection. Further, some of the very weakest, or least salient, stakeholder groups are not included in this list and it could be argued that it is these groups that require the most protection of all. Nevertheless this research has concentrated upon the above primary stakeholder groups.

A Model of Corporate Social Performance

As noted above there are many different strands of literature that are concerned with performance measurement. Clearly, as discussed in the introduction to this chapter, finance and accounting is concerned with performance, but in a very narrow way. This is to say that it is primarily concerned with financial performance for the benefit of shareholders. A conflicting view of the purpose of accounting was provided by The Corporate Report (ASSC, 1975)⁵ that recognized a wide range of ‘constituents’ (stakeholders) that would use and require...

Indice dei contenuti

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Figures
• List of Tables
• 1 Corporate Social Performance and Accountability
• 2 Business in Society - Ethics and Stakeholders
• 3 Social Accounting and Stakeholder Identification
• 4 Stakeholder Performance Measurement in Theory
• 5 Value Added Analysis
• 6 Stakeholder Performance Measurement in Practice
• 7 Shareholder Analysis
• 8 Stakeholder Analysis
• 9 Theorizing the Results
• 10 Recent Developments and the Future of Social Accounting
• Bibliography
• Index