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A companys decision to report particular issues that form an opinion on howappropriate its practices are and its quality is highly analyzed given the fact that
the fields of ethical, environmental and social [ESE] reporting have continued to
develop rapidly in an international scale. It has become highly significant for
stakeholders that companies give an account towards its actions, demanding
organizations to demonstrate its acceptance of its ethical, social andenvironmental responsibility. This giving of an account encompasses
accountability the main reason why stakeholders push to receive ESEdisclosures. Such acceptance of environmental, social and ethical should be
demonstrated by providing hard copy reports that are transparent, includes
quantified goals and achievements and giving a balanced opinion on the issues
the firm is facing. Current developments in the field of ESE reporting can be
observed through the standards and guidelines that have been created by
organizations such as the Global Reporting Initiatives (GRI) and the Institute of
Social and Ethical Accountability (AccountAbility.) These organizations
developed guidelines containing directions pertaining to the process of reportingand what to include in the report. A prominent problem that needs to be
addressed with voluntary disclosures is its lack of completeness and this is the
main concern of the journal The Ethical, Social and Environmental ReportingPerformance Portrayal Gap.
A reporting- performance portrayal gap is the difference between what the
company has actually done with what the company has claimed theyve done intheir reports. This gap represents the lack of accountability, the larger the gap,
the less the company feel thattheyre responsible. An analysis of this was donein the journal, focusing on Alpha, a company in an industry that considers health
and safety issues as significant. The analysis of the performance-portrayal gap inAlpha was done by comparing the Year 1993 and 1999 ESE report of Alpha with
the external disclosures from a variety of sources relating to Alphas activitiesduring those years and determining if whether Alpha have reported important
issues that have occurred. It is duly noted that Alpha does not claim to have
accountability with all of their corporate impacts. In fact, it has been observed
that the positive achievements in the ESE disclosures were exaggerated while
negative issues, if included at all, were only briefly noted.
In the year 1993, Alpha was frequently prosecuted and fined due to what they
claim an accidental breach of environmental regulations. An example would bewhen Greenpeace accused Alpha of discharging wastes into them sea, suing them
on the grounds of the Water Resources Act 1991. This case was discharged after
a failure to gain evidence to correlate Alpha with the illegal act. This was not
mentioned in Alphas ESE reports despite the numerous media coverage
surrounding it. An implication of the objection of accountability. In addition,
Alpha was infamously fined more than 6,000 due to breaches concerning the
endangerment of human health. This again was not discussed in the disclosures,
even though the fines were hefty enough for shareholders to be concerned.
Overall, Alpha only included 11 prosecutions against them from breaking the
environmental law with only brief outlines of the reasons. The overall
impression of the 1993 report is that Alpha is trying hard to do better while alsoexpressing their regrets on their mistakes. In addition, there is no mention of
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embedded governance structures, there is a lack of quantification of future goals
and limited information of negative impacts that were disclosed reported.
In Alphas 1999 report, though much longer than the 1993 report with additional
quantification of targets, is more or less similar in nature. Both reports on the
acknowledgement that the company needs to do more and perform better. Anew management system is introduced in the 1999 disclosures including
explanations regarding its compliance with US and UK responsible care
requirements. Despite these improvements, Alpha has caused more protuberant
disruptions to the environment and society, having less regard to its ethical
engagements. In its ESE 1999 report, the firm states that it is working to resolve
a condition concerning a chemical X (a substance dug by Alpha) that may causeharm to health. It appears that the chemical is relatively unhazardous, but such
is not the case. The chemical X is truly poisonous, capable of causing liver and
kidney cancers, decreasing lifespan and reducing fertility in humans. This
understatement and belittling of important and vital issues affecting life is
extremely alarming. In addition to Alphas environmental disruptions, the firmcan be criticized to have little ethical reputes with its employment treatment and
disregard for human rights.
What stands out in the analysis of the journal research is that the more
prominent problem in voluntary environmental, social and ethical reporting is
not the omission of significant events but the difference of portrayal between
reporting entities of similar happenings. This difference or gap constitutes to the
low perceived accountability of Alpha, and this incompleteness would not be
tolerated in financial reporting. The difference in coverage from external parties
raises a question about the degree in which stakeholders are included in thereporting process. This raises concern on how indispensible existing legislations
and standards pertaining to social corporate responsibility are, giving an
impression that it only acts as a legitimating tool. Consistent progress should
hence be made in working towards establishing standards to guide management
to a more detail-specific, fairly balanced and complete disclosures of corporate
environmental, social and ethical responsibilities.
The basis for an improved practical demonstration of ethical and environmental
concerns lies on the social contract with the society it operates in. The source of
power held by institutions is never undeviating thus it must profess its
legitimacy by demonstrating that the consumers are given services they require
and at the same time persuade them that the assemblies benefiting gain the
approval of society. Matthews (1995, p.667) states that the future survival also
are based on: delivering of some socially anticipated culminations to society in
general; and the distribution of advantages whether it be economic, social or
political from where the power derives. In addition, one motivation that induces
a firms managementto undertake additional voluntary disclosures is to enhance
the legitimacy of the organization, as suggested by Dowling and Pfeffer (1975, p
122):
Organizations seek to establish congruence between the social valuesassociated with or implied by their activities and the norms acceptable
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behavior in the larger social system of which they are a part. In so far as
these value systems are congruent we can speak of organizational
legitimacy. When an actual or potential disparity exists between the two
value systems, there will exist a threat to organizational legitimacy.
In perspective, organizational legitimacy causes an increase in disclosures not
because it is the right thing to do morally but because it is part of their mission to
raise other parties interests on behalf of the stakeholders. In order to satisfy
shareholders and serve them, it is significant that management maintain
legitimacy for their organizations by preparing environmental, social and ethical
accounting disclosures in order to establish accountability. It is important that
we examine political voluntarism as well given that it is an inherent part of the
modern accountability frameworks. A study from Francis Aristotelian states that:
The exercise of virtue requires a capacity to judge, to do the right thing in
the right place at the right time in the right way. The exercise of judgment
then is not merely the routine application of rules or laws. Hence
judgment has an indispensible role in the life of the virtuous person,
which it does not and could not have in the life of the merely law-abiding
or rule-abiding person. (Francis 1991, p.13)
Consequently, accountability innately comprises of the idea of fairness, which
straightforwardly means doing the right thing for society. Accountability does
not only provide the involvement of organizations in complying with legal
requirements and moral relationships, but also strives to create a frame of
accountability in which political participation creates a better environment forpolitical participation and construct a harmonized community (Wilson, 1993.)
The understanding that accountability to stakeholders is the main drive of the
preparation of environmental, social and ethical disclosures, it is rational to
propose that in order to have a better accuracy and complete scope, stakeholders
should be engaged in the process of reporting preparation. This is crucial in ESE
dialogue, a guide in which management learns the priorities held by
stakeholders and the aspirations they wish to see be reported.
The issue of improving ESE reports not only consents to what the society
demands and what the stakeholder expect, but it also address the situational
barriers that halts the much needed improvement of voluntary reporting. The
ethical codes of professional accounting should be enlarged in order to
accommodate a growing encompassment of accounting and ethical behavior. The
Generally Accepted Accounting Principle (GAAP) define the underlying values of
modern accounting that are also supported by conceptual frameworks, limiting
the adoption of a system much more acquainted with the overall impact of the
business towards the environment and society. Corporate Social Responsibility
(Gray et al., 1987) describes the inclusion of information about employee
interests, community services, environmental impact and more of the sort as an
extension of accounting reports. The lack of standards however creates an
ambiguity on what should be disclosed and how the process should be done. The
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conflict between financial criteria and matters involving the environment should
be considered; an example would be Greys perspective (1993, p.53):
A company may consider that employee protection is a good long-term
financial investment or that accidents and injuries to employees are
simply unacceptable to any reasonable, responsible and ethicalorganization. Either way, some basis which social, human and/or ethical
matters can transcend immediate financial criteria has been established.
So it is with environmental issues.
It is clear from all the organizations with which we has dealings that until
environmental matters are embedded into the performance system environmental matters will nearly always lose out to financial criteria.
Additionally to provide guidance as how ethical treatment will be aided:
We are simply convinced that change is essential because any system asaccounting which reflect an economic theory which is so fundamentally
socially and environmentally malign cannot itself lay legitimate claim to
being environmentally benign.
It is prevalent that the development of regulations pertaining to the preparation
of ESE report will be slow and gradual, overcoming the barriers of improvement
one by one along the way. Carol Adams journal on the ethical, social and
environmental reporting-performance portrayal gap have exhibited the gap
between actual performance and the case study company Alphas self-disclosed
portrayal, revealing the significant amount of difference that consequently led tothe realization that current guidelines are not sufficiently adept to increase
accountability to stakeholders. It seems that guidelines and legislations of
voluntary disclosures act only as a legitimating tool that a firm inhabit
providing symbolic disclosures to appease the society. In addition, becausestakeholders are significant partners of a business, they have a privilege to
demand more disclosures from the firm. Obstacles such as current accounting
principles, however, restrict the advancement and establishment of voluntary
ESE guidelines and regulations. Unless environmental, social and ethical issues
are embedded in the companys governance structure, it would be difficult to
mandate firms to accept its social responsibilities. What is necessary in our
opinion is the formation of a legislation that would make environmental, social
and ethical reports mandatory for firms. We believe this to be the most effective
way due to the fact that voluntary laws would be ignored or neglected by firms if
there are no concrete specifications on what exactly is to be done and if there are
no penalties, enforcements and punishment expected if they fail to oblige by the
voluntary rule. Environmental, social and ethical issues are no doubt important
and significant in all standpoints and companies with power to affect it have to
be held accountable.
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