18
A full cost environmental accounting experiment Kathleen Herbohn * School of Business, The University of Queensland, St Lucia, Brisbane, QLD 4072, Australia Abstract A lack of appropriate measurement techniques has constrained full cost environmental accounting (FCEA) exper- imentation. Yet, there has been little research on the applicability of valuation techniques recently developed by envi- ronmental economists within FCEA frameworks. This paper examines a reporting experiment using these valuation techniques that was undertaken by an Australian Government Department managing publicly owned forests. The FCEA experiment was ultimately not successful. However, the implementation experiences of the Department includ- ing the reactions of its managers and stakeholders provide an opportunity to critically reflect on the experimental out- comes to extend the current empirical knowledge of corporate social responsibility reporting. Such critical reflection has not been common in past FCEA experimentation. Ó 2005 Elsevier Ltd. All rights reserved. Introduction This paper provides an account of a full cost environmental accounting experiment. The experi- ment is based on a damage cost reporting system in which net profit is adjusted for positive and neg- ative estimates of environmental externalities using valuation techniques from environmental econom- ics. A case study was drawn from the Australian public forest sector to test the feasibility of such a reporting system. The case organisation controls publicly owned State Forest and Timber reserves under multiple use management within a politically sensitive environment. As a conse- quence, the organisation asked to remain anony- mous, and is referred to hereafter by the fictitious name of the Department of Forest Man- agement (DOFM). The perspective of the reporting experiment is one of economic rationalist reformation. That is, accountants have the capacity to make a positive contribution to the ecological debate, by reforming accounting and reporting systems to take account of environmental and social externalities (Bebbing- ton & Gray, 2001; Owen, 1992). Full cost report- ing systems are an attempt to reform current accounting practice, since at their simplest, they Ôallow current accounting and economic numbers to incorporate all potential/actual costs and 0361-3682/$ - see front matter Ó 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.aos.2005.01.001 * Tel.: +61 7 3365 6581; fax: +61 7 3365 6788. E-mail address: [email protected] www.elsevier.com/locate/aos Accounting, Organizations and Society 30 (2005) 519–536

A Full Cost Environmental Accounting Experiment

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  • al

    He

    sland

    A lack of appropriate measurement techniques has constrained full cost environmental accounting (FCEA) exper-

    This paper provides an account of a full cost

    publicly owned State Forest and Timber reserves

    under multiple use management within a

    mous, and is referred to hereafter by the

    ton & Gray, 2001; Owen, 1992). Full cost report-

    ing systems are an attempt to reform current

    accounting practice, since at their simplest, they

    allow current accounting and economic numbersto incorporate all potential/actual costs and

    eserved.

    * Tel.: +61 7 3365 6581; fax: +61 7 3365 6788.

    E-mail address: [email protected]

    Accounting, Organizations and Soci0361-3682/$ - see front matter 2005 Elsevier Ltd. All rights renvironmental accounting experiment. The experi-

    ment is based on a damage cost reporting system

    in which net prot is adjusted for positive and neg-

    ative estimates of environmental externalities using

    valuation techniques from environmental econom-

    ics. A case study was drawn from the Australian

    public forest sector to test the feasibility of sucha reporting system. The case organisation controls

    ctitious name of the Department of Forest Man-

    agement (DOFM).

    The perspective of the reporting experiment is

    one of economic rationalist reformation. That is,

    accountants have the capacity to make a positive

    contribution to the ecological debate, by reforming

    accounting and reporting systems to take accountof environmental and social externalities (Bebbing-imentation. Yet, there has been little research on the applicability of valuation techniques recently developed by envi-

    ronmental economists within FCEA frameworks. This paper examines a reporting experiment using these valuation

    techniques that was undertaken by an Australian Government Department managing publicly owned forests. The

    FCEA experiment was ultimately not successful. However, the implementation experiences of the Department includ-

    ing the reactions of its managers and stakeholders provide an opportunity to critically reect on the experimental out-

    comes to extend the current empirical knowledge of corporate social responsibility reporting. Such critical reection has

    not been common in past FCEA experimentation.

    2005 Elsevier Ltd. All rights reserved.

    Introduction politically sensitive environment. As a conse-

    quence, the organisation asked to remain anony-A full cost environment

    Kathleen

    School of Business, The University of Queen

    Abstractdoi:10.1016/j.aos.2005.01.001accounting experiment

    rbohn *

    , St Lucia, Brisbane, QLD 4072, Australia

    www.elsevier.com/locate/aos

    ety 30 (2005) 519536

  • benets including environmental (and perhaps so-

    cial) externalities (Bebbington, Gray, Hibbitt, &Kirk, 2001, p. 8).

    A largely unconsidered pool of measurement

    techniques has been developed by environmentaleconomists to estimate non-market values of exter-

    nalities. These include but are not limited to the

    contingent valuation method, the travel cost meth-

    od, benets transfer, doseresponse models, hedo-

    nic pricing models and choice-modelling. These

    valuation techniques have been used in several

    high prole natural resource cases such as the Ex-1

    There have been a limited number of past at-

    tempts at full cost environmental reporting. The

    approaches have been varied and include mainte-

    nance cost, asset valuation and damage cost

    reporting systems. Maintenance cost approachesfocus on the maintenance of natural capital3 and

    have been used in the Net Value Added experi-ment (19901994) of BSO/Dutch Origin, and the

    Sustainable Cost experiments of Landcare Re-search New Zealand (Bebbington & Tan, 1996,

    1997) and Interface Europe (Howes, 2000). Asset

    valuation approaches focus on valuation of envi-

    ronmental assets and changes therein, as was thecase with the Supplementary Economic Accounts

    520 K. Herbohn / Accounting, Organizations and Society 30 (2005) 519536xon Valdez oil spill in the USA, and CoronationHill (Kakadu) in Australia.2

    Despite preliminary discussion of the applica-

    bility of non-market valuation techniques by

    accountants, (e.g. Burritt & Cummings, 1998; Dee-

    gan, 1998; Herbohn, 2000; Herbohn, Harrison, &

    Herbohn, 2000; Milne, 1991; Palmer, 1998; Peace,

    1997), to date little practical accounting experi-

    mentation has been attempted. Accordingly, thisstudy investigates the feasibility of incorporating

    estimates of environmental externalities, derived

    using techniques from environmental economics,

    into a full cost environmental reporting system.

    The public sector forest management organisation,

    the DOFM, is the focus of investigation, and the

    valuation methods considered include the choice

    modelling and benets transfer methods. Threeunderlying research questions are addressed. They

    are: (1) issues with the implementation itself; (2)

    the reactions of managers to the eort; and (3)

    the reactions of stakeholders to reporting non-

    market values of environmental externalities.

    1 Law suits were launched by the US Federal Government

    and the Alaskan State Government against the Exxon Corpo-

    ration for recovery of damages to the natural resources aected

    by spilled oil, following the grounding of the Exxon Valdez oil

    tanker in Prince William Sound, Alaska in 1989. Under US

    Superfunds legislation, trustees were permitted to sue for loss of

    use and non-use values, which the Department of the Interior

    allowed to be estimated using an environmental economic

    valuation technique.2 The Australian Federal Government commissioned a cost

    benet analysis of the environmental costs expected from a

    mining venture at Coronation Hill in Kakadu. The contingentvaluation method was used.experiment (19951998) of Earth Sanctuaries. Fi-

    nally, damage cost systems are concerned with

    estimates of external environmental costs from

    an organisations operations. The Full Cost Envi-ronmental Accounting project of the Canadianpower utility, Ontario Hydro, adopted this ap-

    proach (ICF, 1996)4 and it is also used in theDOFM case study reported in this paper.

    Unfortunately, the limited case study evidence

    from prior full cost environmental accounting

    experiments suggests reporting objectives often

    are not met due to both practical implementation

    problems and resistance from managers. Docu-

    mented practical implementation issues include

    data availability, additivity of measurement units,incomplete account of impacts, reliability and suit-

    ability of estimates, and unintended uses of the

    environmental and social information by manage-

    3 The concept of natural capital is drawn from the work of

    environmental economists such as Pearce, Markandya, and

    Barbier (1989). In brief, the capital available to humanity is

    considered to fall into three categories critical natural capital,

    other natural capital and man-made capital. The underlying

    assumption is that critical natural capital must not be consumed

    and reductions in other natural capital must be substituted for,

    replaced or renewed in order for sustainability to be achieved.4 Over a 20-year period, Ontario Hydro developed a damage

    function methodology for monetising external impacts and

    costs for its fossil and nuclear electricity generation systems

    such as human health and mortality. The organisation

    attempted to use the estimates for internal decision-making

    and investigated the possibility of external full cost environ-

    mental reporting. However, the reporting experiment lost

    signicant impetus with the departure of a key manager(Bebbington, 1998).

  • ment (Bebbington & Gray, 2001; Bebbington &

    Tan, 1996, 1997; Dey, 2000; Dey, Evans, & Gray,

    cost environmental reporting experiment, and

    that the more environmentally sensitive an organi-

    sations industry, the greater the incentive toundertake environmental reporting (e.g. Cowen,

    Ferreri, & Parker, 1987; Deegan & Gordon,

    1996; Dierkes & Preston, 1977; Patten, 1991,1992). The environmental sensitivity of the Austra-

    lian public forest sector is the result of several dec-

    ades of bitter public policy debates over forest use

    between Federal and State Governments, conser-

    vationists and the timber industry (Herbohn &

    Herbohn, 1999).6 The end result is that environ-

    mental lobby groups in Australia perceive that

    K. Herbohn / Accounting, Organizations and Society 30 (2005) 519536 521how they were inuenced by the reactions of man-

    agers to the eort. In addition, the DOFM case

    provides the unique opportunity to balance this

    evidence against the reporting outcomes evaluated

    by external stakeholders.

    The DOFM case study is reported in this paperas follows. Discussion of the case organisation and

    full cost environmental reporting framework is

    contained in the Section Full cost environmental

    accounting and the department of forest manage-

    ment. The study design and method is described

    in the Section Study design and method, the

    case evidence and discussion of results is contained

    in Sections Case evidence and Discussion ofcase study evidence, and some concluding com-

    ments follow.

    Full cost environmental accounting and the

    department of forest management

    Case study setting

    The Australian public forest sector was selected

    as the source for this case study because it has a

    high environmental prole combined with politi-

    cally active stakeholder groups that have an inter-

    est in the environmental consequences of forest

    management. Previous research demonstrates

    5 The one exception is the insightful, critical reection of

    Bebbington and Gray (2001) on the Sustainable Cost exper-1995; Larringa & Bebbington, 2001). Tensions be-

    tween the business as usual constraints of manag-ers and the environmental sustainability agendasof researchers has led to the documented resistance

    by managers to full cost reporting systems (Bebb-

    ington & Gray, 2001). Few researchers have how-

    ever, systematically reected upon their reporting

    experiences to identify the implementation issues

    and manager reactions that inuenced the out-

    comes of their reporting experimentation.5 This

    study provides a critical reection on the imple-mentation issues experienced in the DOFM fulliment by Landcare Research New Zealand.the timber products industry is amongst the top10 environmentally sensitive industries (Deegan

    & Gordon, 1996). At the same time, conservation-

    ist groups within the public forest sector enjoy sig-

    nicant political inuence. Their political activities

    over the last decade have resulted in large tracts of

    native forest being withdrawn from timber pro-

    duction, with extensive dialogue now occurring

    via the Regional Forest Agreement Process7 abouthow forests should be managed (Frawley, 1988).

    Within this politically sensitive environment,

    the Department of Forest Management (DOFM)

    manages publicly owned State forests and Timber

    Reserves for multiple forest uses including preser-

    vation of sites of indigenous cultural signicance,

    eco-tourism, forest products, military training,

    nature conservation, outdoor recreation and re-search, outdoor recreation scenic qualities, and

    maintenance of water quality and quantity. The

    Department has legislated responsibilities for man-

    aging forests to accommodate evolving Native Ti-

    tle legislation, the RFA process, and ecologically

    6 Two examples include struggles between Government,

    conservation groups and the timber industry in relation to the

    Franklin River Dam in Tasmania, and the World Heritage

    Listing of large tracts of rainforest in north Queensland.7 The Regional Forest Agreement (RFA) process has been

    instigated in each Australian state as part of the National

    Forest Policy (1992). As part of this process, RFAs are

    negotiated for regions within each state to provide an adequate

    and representative forest reserve system for the ecologically

    sustainable management of forested areas, and for the long-term stability of forests and forest industries.

  • sustainable forest management.8 Sustainable forest

    management is to be monitored via the interna-

    tional Montreal Agreement (1995),9 which estab-

    lishes key criteria and indicators. The criteria

    cover biological diversity, productive capacity, eco-system health and vitality, soil and water resources,

    global carbon cycles, socio-economic benets, and

    an eective legal, institutional and economic

    framework.

    The full cost environmental reporting experi-

    ment at the DOFMwas initiated by this researcher,

    vided the framework for the full cost reporting

    experimentation. The FUP system was designed

    to assist with the management of competing forest

    uses within regions of the State while attaining the

    goal of sustainable forest management. It com-prised eight phases, the fth of which was relevant

    to the full cost environmental reporting experi-

    ment.11 This phase involved preparing an inven-

    tory of the current and potential benets from

    regional forest resources that included economic

    valuations of environmental externalities. An eco-nomic valuation project was established to gatherthese economic values, and two managers were as-signed to the project.12

    At the commencement of the eld research,

    managers from the economic valuation projectidentied three potential avenues for valuation of

    environmental externalities. The rst was to volun-

    teer the DOFM as a data source for choice model-

    ing studies conducted by students from local

    universities.13 A second was to seek external fund-

    522 K. Herbohn / Accounting, Organizations and Society 30 (2005) 519536in conjunction with two middle managers from the

    Department. Initial discussions revealed theDepartments interest in valuation of environmen-tal externalities, and potential uses of this informa-

    tion. This interest had arisen because managers

    perceived that the Department was subject to

    increasing legislative, funding and political pres-

    sures to demonstrate and communicate the out-

    comes from its management of State forests for

    multiple uses. Ultimately, the middle managersand the researcher developed a proposal to use

    economic valuations of environmental externali-

    ties within a full cost environmental reporting sys-

    tem. Approval to proceed with the experiment was

    subsequently received from the Departments se-nior management. The development of the report-

    ing framework is outlined below in Sections Fit

    within the organisational reporting frameworkand Damage cost reporting.

    Fit within the organisational reporting framework

    A decision analysis system, hereafter referred to

    as the Forest Use Planning (FUP) system,10 pro-

    8 In this context, sustainable forest management involves

    integrating commercial and non-commercial values of forests so

    that the welfare of society (both material and non-material) is

    improved, while ensuring that the values of forests, both as a

    resource for commercial use and for conservation, are not lost

    or degraded for current and future generations (EGCRA,

    1996).9 A group of 12 countries including Australia that together

    contain more than 90% of the worlds temperate and borealforests participated in the Montreal Process and became

    signatories to the Montreal Agreement (1995).10 The actual name of the decision support system has been

    altered to preserve the anonymity of the case studyorganisation.ing for multiple choice-modeling studies of the

    State forest resource. To this end, sta from the

    DOFM, another government department and

    two universities were participating in a competitive

    11 Phases one to four centred on dening the boundaries of a

    region and the forest resource, ascertaining community values

    and developing a strategy for consultation with key stakehold-

    ers on forest usage. The later phases, six to eight, involved

    preparing, ratifying and communicating a draft plan for use

    and management of the forest resource in question.12 One manager was an economist with post-graduate quali-

    cations in environmental economic valuation techniques and

    the other had an economics background and was pursuing post-

    graduate studies in the valuation of environmental externalities

    from natural resource management.13 In a choice modeling study, respondents are asked to choose

    between dierent bundles of environmental goods, which are

    described in terms of their attributes and the levels that these

    take. Varying the levels of attributes gives rise to a range of

    options that comprise the choice set. Respondents choices arestatistically analysed to determine the impact of each attribute

    and a willingness-to-pay measure of value is estimated (Bennett,

    1996). At the commencement of data collection, one study had

    already been completed which focused on the value of

    landscape, conservation, wood and honey uses of the Stateforest resource.

  • Study design and method

    ations and Society 30 (2005) 519536 523national joint industry and university research

    grant application. A third source was the benets

    transfer method. Existing estimates of externalities

    at one site that had been estimated from choice

    modeling studies would be used as a surrogatefor a similar change elsewhere (Kirchio, Colby,

    & LaFrance, 1997; Pearce & Moran, 1994).

    Damage cost reporting

    After some discussion between the two middle

    managers from the DOFM and the researcher, a

    damage cost approach was selected for the DOFMreporting experiment as being most compatible

    with non-market valuation techniques from envi-

    ronmental economics. The damage cost approach

    centres on deriving estimates of external environ-

    mental costs owing from an organisations oper-ations. The externalities have been likened to

    non-monetary infusions of natural capital into an

    organisation that are provided by the environment(Boone & Rubenstein, 1997), and the damage cost

    estimates are deducted from net prot. The choice

    modelling and benets transfer valuation methods

    would be used to provide estimates of the DOFMspositive and negative environmental impacts to be

    incorporated into the conventional net prot g-

    ure. For example, the Departments forest man-agement results in positive environmentalexternalities such as improvements in scenic quali-

    ties, improvements in water quality, increases in

    bio-diversity, and the provision of opportunities

    for outdoor education and research. Negative

    externalities include the value of alternate forest

    uses that are lost such as the opportunity for out-

    door recreation in areas of cultural heritage

    signicance.The rationale of the damage cost approach is

    essentially pragmatic. The reection of environ-

    mental damage costs in conventional accounting

    performance measures motivates managers and

    stakeholders to factor these impacts into their

    decisions. This was consistent with the pragmatic

    aim of the DOFMs managers to use full cost envi-ronmental accounting to communicate the valueof their organisations forest management in re-sponse to increasing legislative, funding and polit-

    K. Herbohn / Accounting, Organizical pressures.Feedback data collection

    Data sources included documentation, directobservation and semi-structured interviews with

    DOFM managers and stakeholders. The non-

    interview data was used as part of the triangu-

    lation process to provide a background on the

    Department and to assist in the development of

    coding schema (McKinnon, 1988; Yin, 1994).

    The most persuasive source of data was semi-

    structured interviews with 13 DOFM managersand 14 DOFM stakeholders. The interviews fol-

    lowed a cascading process, where an interviewee

    provided the name and contact details of other

    people who would be useful to interview, who

    might in turn provide leads on other potential con-

    tacts. All interviews were tape-recorded and tran-

    scribed verbatim.

    The semi-structured interviews were designed toprovide background information about the inter-

    viewees. Information was also collected on the cur-

    rent environmental reporting framework of the

    DOFM including factors inuencing its current

    form, and its perceived usefulness to managers

    and stakeholders. Additionally, the interviews ex-

    plored the feasibility of a damage cost environ-

    mental reporting system incorporating estimatesfrom choice modelling and benets transfer, and

    in particular the need for this system, and potential

    barriers to its implementation.14

    Managers from the Department were identied

    as potential interviewees if they were involved in

    (a) estimation of environmental externalities from

    the organisations management of forests, and (b)communication of management outcomes withexternal stakeholders. Key contacts within the

    Department initiated contact with the managers

    to assist the interview process. No refusals to be

    interviewed were received. The interviews were

    conducted during three visits to the head oce of

    the DOFM over an eight-month period. The rst

    and last visits were of one-working days duration,while the second visit was for one working week.

    14 The interview protocol containing specic interview ques-tions is available from the author upon request.

  • The DOFM managers were drawn from senior

    and middle management levels, and were involved

    in planning, consultation, operations, cultural her-

    itage and environmental audit. The length of the

    interviews ranged from 35 min to 70 min, with an

    summaries on observations, documentation) was

    done manually using an Excel spreadsheet. To

    minimise bias in the coding process, the descriptive

    coding schemes were developed prior to the com-

    mencement of analysis as part of the case study

    protocol, while the pattern coding scheme was

    developed after the rst major data collectionphase (Miles & Huberman, 1994). Check-coding

    was used to test the consistency between the co-

    ders data reduction and another researchers cod-ing of randomly selected sections of text, and also

    the main coders work against itself at regularintervals during the process.

    Data display was the second sub-process used

    to analyse the case study data (Miles & Huberman,1994). Structured data displays were developed via

    a three-stage iteration. First, interim data displays

    were prepared for each of the 13 manager and 14

    stakeholder interviewees. Four interim data dis-

    524 K. Herbohn / Accounting, Organizationaverage length of 56 min. The managers requested

    that no further demographic information be pro-

    vided to maintain their anonymity.

    The Departments regional planners throughoutthe State identied pools of stakeholders from

    their region who satised the following selection

    criteria. The stakeholder must (a) currently use

    information produced by the DOFM to assess itsmanagement of forests, and (b) be in a position

    to comment on the proposed environmental report-

    ing system (e.g. hold a management position, par-

    ticipate in regular consultation with the DOFM as

    part of its FUP system). The lists of potential

    stakeholder interviewees were provided to the re-

    searcher who then contacted each stakeholder di-

    rectly. Only two refusals were received.15 Theresulting 14 stakeholder interviews were conducted

    over a ve-month period. The researcher traveled

    to the work place of each stakeholder to conduct

    the interviews. Table 1 contains general demo-

    graphic information on the stakeholder inter-

    viewees.

    Data analysis

    The analytical protocol recommended by Miles

    and Huberman (1994) was used for this study. It

    comprises three linked sub-processes of data

    reduction, data display and conclusion drawing/

    verication. The steps involved in data reduction

    and data display that allowed conclusions to be

    drawn are outlined below.Data reduction was undertaken in two steps.

    Firstly, data summaries were used to reduce obser-

    vations, eld notes, and documents collected in the

    eld. The summaries identied the signicance of

    15 The rst refusal came from the Mayor of a local council

    whose involvement in a political campaign meant that she did

    not have the time available to be interviewed. The second

    refusal was from a forester who had been retired for three years

    and felt that he had lost touch with developments in the forestsector.the item, provided a summary of its content and

    reective comments by the researcher. Once com-

    pleted each data summary was added to the case

    study database. Secondly, data reduction was

    undertaken through manual coding, using descrip-

    tive and pattern coding schema. The unit of coding

    was a minimum of one and a maximum of three

    sentences. The coding of interview data (e.g. inter-view transcripts) and non-interview data (e.g. data

    Table 1

    Demographic details of stakeholder interviewees

    Stakeholder groupsa Number

    Conservation 4

    Timber industry 3

    Private sector (non-forestry commercial)b 2

    Government departments/agencies 4

    Other communityc 1

    Average Range

    Average duration of interview (min) 40 2060

    a The stakeholder categories used were the most frequently

    identied groups by DOFM managers, and in many cases were

    how the stakeholder interviewees identied their own

    organisations.b Business people dependent on the ow-on eects (e.g.

    employment, tourism) of forestry into regional economies.c Community member with specic environmental, ecological

    expertise who was highly involved in consultation with the

    DOFM.

    s and Society 30 (2005) 519536plays were prepared per interviewee, based on

  • descriptive codes, pattern codes, predicted stake-

    holder reactions (prepared only for DOFM man-

    agers), and any emerging constructs. The data

    included in these displays took the form of short

    blocks of text, quotations and phrases, and sum-maries in the researchers own words. Also, anyrelevant material from the document summaries

    that related to an interviewee was incorporated.

    Next, separate meta-matrices were constructed

    These nal display matrices were prepared for po-

    K. Herbohn / Accounting, Organizationtential costs and benets from the reporting exper-

    iment, implementation experiences, impediments,

    and predicted stakeholder reactions. They took

    the form of role-ordered matrices, in which man-

    agers organisational levels, and stakeholdersbackground were used to sort the data. Also, the-matic conceptual displays were prepared to com-

    pare and contrast the issues emerging from the

    analysis of data relating to the DOFMs managersand its stakeholders.

    A nal research report was drawn from the

    role-ordered matrices and thematic conceptual

    matrices. Feedback on the research report was ob-

    tained from the DOFM manager interviewees toreduce bias and improve reliability (Guba, 1981;

    Miles & Huberman, 1994; Stake, 1994).17

    Case evidence

    The case evidence is presented on the three re-

    search questions regarding implementation experi-

    16 For example, the meta-matrix cell entry will have additivityproblems, icon species cause problems with valuations and

    should not report on endangered species was distilled into thegeneric descriptor concerns about the appropriateness of non-market values.17 While exposure of the ndings added to the reliability of the

    results, it also revealed managers concerns about possibleidentication. Accordingly, additional eort was expended tofor managers and stakeholders respectively, that

    combined the data from the individual interim

    data displays. From these two meta-matrices, nal

    display matrices were derived in which key phraseswere distilled into more generic descriptors.16protect condentiality of data sources.ences, the DOFM managers reactions andstakeholders reactions to the full cost environmen-tal reporting system.

    Implementation experiences

    Initial indications were positive that the imple-

    mentation of a full cost environmental reporting

    system for the DOFM would be feasible. The

    reporting experiment had been approved by senior

    management and was supported by middle manag-

    ers from the DOFM. An organisational frame-

    work in the form of the FUP system was inplace to support the full cost reporting system. In

    addition, the DOFM had begun to use choice

    modelling exercises and, to a lesser extent, benets

    transfer to value environmental externalities from

    its forest management activities.

    Despite the early encouraging signs, little

    progress was made on the DOFM full cost envi-

    ronmental reporting experiment over the eight-month period between the commencement of the

    reporting experiment and the end of data collec-

    tion by the researcher. Over-optimism by the

    DOFM managers, coupled with sta turnover on

    the economic valuation project contributed tothe slower than expected progress. However, the

    major stumbling block was that no new estimates

    of the Departments environmental externalitieswere obtained during this period. The FUP system

    was only applied in three areas in the State and

    the inventories of benets from regional forest

    resources produced in phase ve for each applica-

    tion had not included economic estimates of

    externalities.

    The failure of potential sources of nancial esti-

    mates of environmental externalities meant that itwas not possible to proceed with an application of

    the full cost environmental reporting system as

    envisaged by the researcher and the DOFM man-

    agers. The limited implementation experiences do

    however, provide an opportunity for reection

    on impediments to the DOFM implementing a

    damage cost environmental reporting system.

    These impediments are discussed below. The preli-minary implementation experiences can also be

    used to critically reect on the outcomes of the

    s and Society 30 (2005) 519536 525experiment using the Department managers and

  • cies such as the highly venomous Western Taipan

    snake.18

    An unexpected development during the course

    of the eld research was the resistance of managers

    on the economic valuation project to the use ofestimates of environmental externalities, which

    they described as part of simple socio-economicvalue, cost-benet analysis. They suggested thatnon-market values should only be used as a sup-

    ations and Society 30 (2005) 519536stakeholders evaluations of the system. Thesereactions of managers and stakeholders are exam-

    ined in Sections Reactions of the departmentsmanagers and Reactions of stakeholders

    respectively.The most compelling impediment facing the

    DOFM managers in the reporting experiment

    was the business as usual constraint rst identi-ed by Bebbington and Gray (2001). During

    the course of the experiment, the DOFM was

    under considerable pressure from two sources.

    Conservationist stakeholders and other State

    Government agencies and departments launchedsustained political attacks on the Departmentsforest management, and at the same time the

    State Government introduced budgetary funding

    cuts to the public forest sector. As the reporting

    experiment progressed, it became clear that rstly,

    funding economic valuation studies of environ-

    mental externalities from forest management,

    and secondly, developing a damage cost reportingsystem were decreasing in priority in direct pro-

    portion to the increasing funding and political

    pressures to which the DOFM was subject. As

    one senior manager explained: We dont want areporting system that is going to take 90 per cent

    of our resources and leave 10 per cent for forest

    management.Interestingly, a second impediment was resis-

    tance from four DOFM managers. This resistance

    emerged despite the managers initial support andenthusiasm for the full cost reporting experiment.

    One of the main sticking points was managers be-lief that resource management decisions and out-

    comes could not be reduced to nancial

    components. Instead, they saw forest management

    outcomes as the result of political compromiseamongst all aected stakeholders, with nancial

    estimates of externalities as only a subset of infor-

    mation. Following from this, the Departmentsmanagers were concerned that willingness-to-pay

    measures, which are estimated in choice modelling,

    may be ill-informed in an ecological and sustain-

    able forest management context. To illustrate,

    one manager discussed the likelihood of overvalu-ation of the forest habitats of icon species such as

    Koala Bears at the expense of the habitats of more

    526 K. Herbohn / Accounting, Organizecologically important but universally disliked spe-plementary information set, to complement a more

    complex multi-disciplinary planning approach

    such as Multi-Criteria Analysis (MCA).19 How-

    ever, they acknowledged that using more complexvaluation methods creates what they termed a val-uation dilemma. That is, the more technical andcomplex the valuation method used, the less likely

    DOFM stakeholders would be to accept the valu-

    ation outcomes because of their unwillingness to

    treat the valuation process as a black box process.

    In summary, the success of the DOFM full cost

    reporting experiment was eroded by a lack of addi-tional funding to undertake economic valuation

    studies in the face of State Government budget

    cuts, and changing priorities as the organisation

    responded to sustained political scrutiny from its

    stakeholders. There was also resistance by manag-

    ers to non-market valuation techniques, which had

    been unexpected for both DOFM managers and

    the researcher.

    Reactions of the departments managers

    Six of the 13 DOFM manager interviewees gen-

    erally supported the proposed environmental

    reporting system, while seven gave qualied sup-

    port. Table 2 summarises the specic benets and

    costs of the reporting system perceived by the

    18 Although there were few estimates of environmental exter-

    nalities available for the DOFM, 10 of the 13 Departmental

    managers had previous experience with or knowledge of non-

    market valuation techniques, and raised this concern based on

    their prior experiences.19 Multi-criteria analysis is an evaluation approach that aims

    to rationalise planning and resource-use decisions through a

    systematic representation of various objectivesthat is eco-

    nomic, environmental and socio-culturaland their attributes(Tumaneng-Diete & Waring, 2000).

  • Table 2

    Reactions of managers from the Department of Forest Man-

    agement to full cost environmental reporting using choice

    K. Herbohn / Accounting, OrganizationDepartments managers in their overall assessmentof the system.20

    The benet most commonly identied was the

    use of estimates of environmental externalities in

    monitoring and reporting on sustainable forest

    management. Managers were concerned about

    the diculty in interpreting the sustainability of

    the DOFMs forest management against the Mon-treal criteria that were outlined in Section Case

    study setting. As one manager explained, whatdoes it mean if two of the indicators for conserva-

    tion go up, 29 indicators stay the same, and the

    modeling and benets transfer valuation methods (n = 13)

    General reactions No. of managers

    Positive 6

    Negative

    Mixed 7

    Total 13

    Benets

    Monitoring and reporting on

    sustainable forest management

    7

    Rigorous resource management decisions 5

    Stronger funding negotiation position 5

    Costs

    Philosophical concerns 7

    Stakeholder acceptance problems 6remaining two on biodiversity go down? Sevenof the Departments managers could foresee bene-ts in exploring the possibility that a prot gure

    adjusted for positive and negative environmentalexternalities from the Departments forest manage-ment might assist in meeting their responsibility to

    the community to deliver sustainable forest

    management.

    The possibility of using full cost environmental

    accounting data to improve the rigour of forest re-

    source decisions was also an important benet to

    managers. The ve DOFM managers noting thisadvantage perceived that emotion, rhetoric and

    political lobbying by powerful stakeholder groups

    20 Discussion of the costs and benets is drawn from

    preliminary results reported by Herbohn and Henderson

    (2002, pp. 141144).rather than the best quantitative data available,

    are currently used to inuence forest resource allo-

    cation decisions. The introduction of full cost nan-

    cial data to assist in making policies and decisions

    on competing forest uses could contribute to morerational, transparent and justiable outcomes.

    Managers also perceived the potential for full

    cost environmental reporting to be used in funding

    negotiations. Approximately six months prior to

    the experiment, the State Treasury Department

    had signalled that future funding was no longer

    to be allocated on the basis of the cost to provide

    a service. The focus was to be on the demonstratedoutputs delivered, which had implications for the

    DOFM. The other government departments

    against which it competes for scare public re-

    sources tend to produce services that have a com-

    mercial value, while the DOFM delivers public

    goods that have no commercial value. Hence, the

    Departments managers argued that valuing publicgood components of its management of forests,such as the conservation of cultural heritage sites,

    and adjusting conventional prot measures using

    the public good values, would strengthen the case

    for continued and increased funding.

    Balanced against the perceived benets from

    full cost reporting, are the potential costs. As sum-

    marised in Table 2, seven departmental managers

    had philosophical concerns about the feasibilityof measuring environmental externalities. These

    concerns related, in particular, to the ability of

    nancial values to capture landscape aesthetics,

    conservation and sites of cultural heritage signi-

    cance. One manager explained:

    You cant value social value. You cant do itwith aesthetics. You cannot quantify becauseaesthetics is about smell. You know you gointo a beautiful waterfall settingyou cansmell it, you can hear it, you can see it, youcan feel it. You know so all of those emotionfeelings, but how can you put a number on itbecause one person will have a dierent feelto another.

    The Departments managers argued that any at-tempt to measure environmental externalities must

    be incomplete, and the information should only be

    s and Society 30 (2005) 519536 527a sub-set of reported information.

  • ationtural heritage site with the timber production in

    the area.Departmental managers also attempted to

    communicate with non-indigenous cultural heri-

    tage groups using rankings of forest values

    including cultural heritage uses. The extent ofA low level of stakeholder acceptance was a sec-

    ond potential cost. The DOFM managers were

    concerned that stakeholders, particularly powerful

    groups, would see the potential erosion of their

    power base and oppose reporting:

    The problem is of course that somebodyultimately makes a decision, now they eithermake a decision based on a set of compara-ble facts, or they make some sort of a subjec-tive decision. Now I suspect that if you arepowerful people, or a powerful lobby group,you are probably better having subjectivedecisions made. Particularly if you think thatyou can overly inuence those decisions.

    The DOFM managers suggested that a compli-

    cating factor is that stakeholders in the public for-

    est sector currently have high levels of cynicism

    about the motivations of government and publicservants. Consequently, nancial estimates of costs

    and benets of forest management would be

    viewed with distrust by stakeholders because the

    nancial numbers would be perceived as exagger-

    ated and subject to manipulation through the

    underlying mathematics.

    A further issue in stakeholder acceptance was

    the hostility managers expected from specicstakeholder groupscultural heritage and conser-

    vation groups. The Departments managers foundthat indigenous cultural heritage groups did not

    want to discuss resource management at the level

    of forest uses. Instead, their representatives

    wanted to negotiate a role within the resource

    management framework along the lines of co-

    management with the DOFM. Also, the indige-nous cultural heritage stakeholders did not want

    their forest uses valued in the same way as other

    uses, considering their uses to be on a higher plane.

    As one DOFM manager explained: They say thattheir uses are special. Indigenous people are saying

    to us, You cant compare our religious, our cul-

    528 K. Herbohn / Accounting, Organizthe adverse reaction to quantifying aspects ofcultural heritage was such that there was no at-

    tempt to introduce non-market values into the

    communication process. As one manager ex-

    plains, They just hated it. Just thought howcould you possibly put numbers on anything. . .you cant quantify a cultural heritage value, soconverting that to dollars I would say is even

    worse.The DOFM managers attempts to use nancial

    estimates of environmental externalities in com-

    munication with conservation stakeholders re-

    vealed a similar attitude. A common managerial

    description of communication with conservationgroups is: They are the sorts of ones who say,You cant put dollar values on some things.How much is my life worth because I am chained

    around a tree? Twenty-ve dollars? There are

    huge amounts of outrage and you are not going

    to reason with them.

    Reactions across managers organisational level andbackground

    The perceived benets and costs were ordered

    around the DOFM managers organisational lev-els and backgrounds, and Table 3 summarises

    the results. To preserve their anonymity within a

    highly political environment, a negotiated compro-

    mise was reached with the DOFM managers

    whereby only modal responses are reported sepa-rately by level and background.

    Senior/upper middle management appeared

    more concerned with strategic rather than practical

    day-to-day consequences of full cost environmen-

    tal reporting. Their most commonly identied ben-

    et was being able to monitor and report on

    sustainable forest management, and to develop a

    stronger negotiation position with powerful stake-holders. In contrast, middle management was

    focused on using full cost environmental data to

    improve the rigour of forest management deci-

    sions. A strategic focus was also evident for poten-

    tial costs since senior/upper middle management

    most commonly focused on the philosophical issue

    of whether it is appropriate to reduce resource

    management to wholly quantitative components.While middle management were most often con-

    cerned with the issue of stakeholder resistance to

    s and Society 30 (2005) 519536full cost reporting.

  • onme

    cision

    s, and

    nagem

    ct int

    ationThe two most commonly identied potential

    benets across manager background were the use

    of full cost environmental reports to assist in mon-

    Table 3

    Most commonly identied benets and costs of full cost envir

    managers level and background

    Managers levela Modal response

    Benet

    Senior and upper middle

    management (n = 3)

    Monitoring and reporting on

    sustainable forest management

    Stronger negotiation position

    Middle management (n = 10) Rigorous forest management de

    Managers backgroundb

    Forestry (n = 7) Monitoring and reporting on

    sustainable forest management

    Stronger negotiation position

    Other (n = 4) Stronger negotiation position

    Economics (n = 2) Monitoring and reporting on

    sustainable forest management

    a Based on levels of responsibility, location and size of oce

    divisions in management levels between senior/upper middle mab The DOFM managers backgrounds were indicated by a dire

    conservation, engineering, biological sciences).

    K. Herbohn / Accounting, Organizitoring and reporting on SFM, and attaining a

    stronger negotiation position with stakeholders.

    In terms of potential costs, managers from all

    backgrounds were most commonly concerned

    about stakeholder resistance. The economists werealso focussed on the appropriateness of choice

    modelling and benets transfer in estimating the

    value of environmental externalities from the

    DOFMs forest management.

    Reactions of stakeholders

    The majority of stakeholders (i.e. eight out of14) favoured a full cost environmental reporting

    system to account for the DOFMs forest manage-ment, while six stakeholders had mixed reactions.

    Table 4 contains a summary of the specic benets

    and costs that were perceived by stakeholders. In

    contrast with the Departments managers, stake-holders backgrounds are reported, because thestakeholder interviewees did not perceive a threatto their anonymity from the disclosure of this

    information.Ten stakeholders across all stakeholder groups

    identied the benecial use of damage cost report-

    ing in the negotiation of forest management

    2 Stakeholder acceptance problems 2

    2 Appropriateness of valuation methods 2

    Stakeholder acceptance problems 2

    comments made by the interviewees, there are two apparent

    ent, and middle management.

    erview question and include forestry, economics and other (e.g.ntal reporting for the Department of Forest Management by

    No. Cost No.

    3 Reduction of environmental management

    to quantitative components

    2

    3

    s 4 Stakeholder acceptance problems 5

    3 Stakeholder acceptance problems 4

    3

    s and Society 30 (2005) 519536 529outcomes. Economic rationalism was perceived

    to dominate the Australian resource management

    decision and policy arena. Consequently, nancial

    quantication of environmental externalities

    from forest management was perceived as theonly way to ensure consideration of environmental

    issues. As one of the three conservationists

    adopting this pragmatic perspective explained:

    I loathe economic rationalism with a pas-sion. However, I think my view is that we livein a world that is so totally dominated byeconomics that unless environmental issuescan be couched with some kind of economicvalue on them, the policy makers arentgoing to be interested. So basically, we, con-servationists have to start speaking thelanguage of business and government other-wise we are going to be shut out.

    In particular, large positive values of environ-mental externalities from forest management were

    expected. Stakeholders acknowledged that such

  • geme

    s G

    d

    a

    (

    3

    1

    3

    2

    2

    3

    3

    cadem

    ations and Society 30 (2005) 519536Specic costs

    Appropriateness of nancially quantifying

    environmental externalities

    3

    Loss of political eectiveness by the DOFM 1

    High levels of distrust of the DOFM 4

    Complexity of valuation methods 2

    a The community stakeholder group category comprised an a

    regularly consulted with the DOFM.bTable 4

    Reactions of stakeholdersb of the Department of Forest Mana

    modeling and benets transfer valuation methods

    General reactions Conservationist

    (n = 4)

    Positive 1

    Negative

    Mixed 3

    Specic benets

    Negotiation tool 3

    Improvements in decision-making 3

    Means of rewarding or penalising

    entities for environmental performance

    3

    530 K. Herbohn / Accounting, Organizvalues would be extremely useful in negotiations to

    promote conservation-related forest uses by either

    conservationists, or by the DOFM as it manages

    public good components of State forests. A man-

    ager from a government agency/department de-

    scribed the negotiation advantage of full cost

    information for the DOFM.

    As a manager involved in negotiating fundsfrom both State and Commonwealth govern-ments, there is great benet in having intrin-sic values attached to the protected areas. IfIve got my hand out I want a really bol-stered value of the assets that I manage. Ihave to have some tools in my bag to justifywhy I have spent $5m preserving that area.

    The ability to use estimates of environmental

    externalities to assist with resource use decisions

    was a benet identied by seven of the Depart-

    ments stakeholders from all categories except re-gional business and the community. Full cost

    data on environmental impacts could be used to

    The stakeholder groups are based on self-description by the stakeho

    managers.nt to a full cost environmental reporting system using choice

    overnment

    epartments

    nd agencies

    n = 4)

    Timber

    industry

    (n = 3)

    Local

    business

    (n = 2)

    Communitya

    (n = 1)

    Total

    1 2 1 8

    2 6

    14

    1 2 1 10

    2 7

    1 1 7

    1 7

    3 7

    4

    2

    ic with a specialization in natural resource management whocompare alternate forest uses to produce more jus-

    tiable resource management decisions. It was also

    suggested that if non-market values were estimated

    when resource use plans are developed, it would

    ensure that any environmental impacts were con-

    sidered from the start of a project, rather than as

    an after-thought.

    Seven of the DOFMs stakeholders also identi-ed the possible use of full cost data as a basis

    for rewarding or penalising entities for their envi-

    ronmental performance. For example, non-market

    values could be used to determine nancial incen-

    tives for groups such as private landholders and

    government departments that use the forest re-

    source to produce positive environmental impacts

    including increased biodiversity and preservationof wildlife habitat. Non-market values could also

    used in a punitive sensethat is, the user pays.

    Groups such as developers, government depart-

    ments, and local government authorities could be

    held responsible for nancially quantied negative

    environmental impacts from their activities such as

    the loss of habitat for rare ora and fauna.

    lders and supported by the classication of the DOFM regional

  • whatever the assumptions are that the modelis built on are correct, and Im not prepared

    ationBalanced against these benets are the costs of

    full cost reporting that were perceived by the

    Departments stakeholders. From Table 4, theinappropriateness of non-market values for forest

    resources was one of the most common concerns.Seven stakeholders from conservation, govern-

    ment and community backgrounds suggested that

    full cost reporting results in the treatment of the

    environment as a commoditytermed the com-modication of the environment by one conserva-tionist. Since intrinsic values such as spiritual

    enrichment from forest recreational opportunities

    and aesthetic appreciation, and the complex inter-relations between ecological components of forests

    cannot be nancially quantied, they tend to be

    devalued. Consequently, inappropriate trades

    could be made between alternate forest uses. As

    one conservationist explained:

    So that would mean that you could start awhole system of trading, basically this placeis worth $150,000, and that place is onlyworth $30,000, so we will trash the $30,000one because this place is worth less in oursystem of accounting for resources. That$30,000 one might be a critical habitat withsome endangered ora species, or faunaspecies.

    A reduction in the political eectiveness of the

    DOFM and the timber industry was another issue

    that stakeholders identied with full cost report-

    ing. They argued that full cost data were poten-

    tially sensitive information for the Department

    because it could be used in an opportunistic way

    by conservationists, particularly if the values of

    conservation-related forest uses were high. A po-tential consequence would be the degeneration of

    forest resource management decisions into pro-

    longed debates between conservationists, the tim-

    ber industry and the DOFM at the expense of

    sound forest resource management.

    Four stakeholders from conservation groups

    were suspicious that the DOFM would exploit

    the potential for manipulation of full cost report-ing to further its own interests. This perception re-

    ects the history of prolonged debates between

    K. Herbohn / Accounting, Organizconservationists, the timber industry and govern-to make that leap of faith.

    Discussion of case study evidence

    The DOFM case study is an account of anunsuccessful full cost environmental reporting

    experiment within the Australian state forest sec-

    tor. The implementation experience serves to illus-

    trate the dependence of accounting systems on their

    context. That is, the form and ultimately the suc-

    cess of an accounting system reects both the orga-

    nisations political and historical context, and themotivations and philosophical positions of organi-sational managers and stakeholders. For example,

    changes in the Departments political environmentincluding State Government funding cuts and sus-

    tained political scrutiny by the historically adver-

    sarial conservationist stakeholders distracted

    managers from developing the reporting system

    as they struggled to conduct business as usual.Another major sticking point was resistance

    from the Departments managers. This resistancewas surprising to them as well as to the researcher,ment, with perceived manipulation of statistics

    by all parties involved. One conservationist com-

    mented: I guess that I get a bit cynical aboutnancial data because you can make them show

    anything you want . . . and we are pretty selectiveabout the things we include too.

    The use of complex economic valuation models

    is a related cost since the DOFM stakeholders

    would be asked to accept the full cost information

    provided without understanding the underlying

    processes. Two conservationist stakeholders ar-

    gued the potential credibility of full cost informa-

    tion is questionable unless a transparentvaluation system was used:

    A whole bunch of numbers get thrown intothis big black box and I cant see what isgoing on in the box, and Im being asked totrust that it is going to spit out a goodanswer. Im also being asked to trust that

    s and Society 30 (2005) 519536 531and is similar to the experiences documented in

  • prior experimental reporting case studies by Dey

    (2000) and Bebbington and Gray (2001). Unlike

    these prior experiences, the issue for the DOFM

    was not a struggle for control of the organisation

    (Dey, 2000), or a failure to reconcile the organisa-

    economic based theories and socially grounded

    theories.22

    It is contention of this paper that socially

    grounded theories oer more insights and useful

    interpretations of the DOFM manager-stake-holder interactions compared to economic based

    theories such as Agency Theory and Positive

    Accounting Theory.23 There are well-rehearsed

    criticisms of economic theories and their role in

    corporate social responsibility (CSR) research.24

    Apart from these broad concerns, economic theory

    oers, at best, a narrow interpretation of the

    empirical evidence of the DOFM case study. Thereporting experiment could be interpreted as an

    exercise in minimising political costs, such as in-

    creased legislation of forest uses, by managers in

    light of the Departments high political visibilityand its perceived poor past environmental perfor-

    mance by conservationists. Additionally on the ba-

    532 K. Herbohn / Accounting, Organizations and Society 30 (2005) 519536tions unsustainable use of resources with theobjectives of the reporting system (Bebbington &

    Gray, 2001). Rather, the concern for the DOFM

    managers was that economic valuation methods

    are ill-informed in an ecological sense and a focus

    on full cost information results in unsustainable

    forest resource decisions. The Departments man-agers strongly advocated forest resource manage-ment as a process of compromise with full cost

    reports as one subset of available data. This view-

    point is not new. Researchers have long questioned

    the validity of attempting to value environmental

    dimensions of organisational life (e.g. Gibson,

    1996; Hines, 1991, 1992; Lehman, 1995, 1996,

    1998; Maunders & Burritt, 1991). In a similar vein

    to the DOFM managers, they have argued thatsuch economic rationalist attempts are counter-

    productive and actually contribute to environmen-

    tal exploitation and degradation.21

    Additional reections on the reactions of managers

    and stakeholders

    It was not the original intention of the DOFMcase study to oer comment on the reporting

    experiment in light of descriptive theories of cor-

    porate social responsibility (CSR) activities. How-

    ever, the empirical evidence creates a compelling

    case to do so. The interactions between managers

    and stakeholders in negotiating the role of full cost

    environmental reporting in managing the State

    forest resource and in their relationships with eachother are of particular interest. In exploring these

    interactions, the current paper draws a general dis-

    tinction between two broad groups of theories

    used to inform empirical investigations of CSR

    21 For example, Gibson (1996) illustrates this point with

    reference to reporting tradeable pollution allowances withinnancial statements.sis of market event studies, the exercise would be

    likely to be supported by the Departments stake-holders because of the information content of

    CSR disclosures. The restricted focus of this type

    of interpretation provides few insights into the

    complexity of the reactions of managers and stake-

    holders. It ignores the tensions between managers

    and stakeholders over the use of quantitative full

    22 The classication of descriptive theories of CSR is drawn

    from Gray, Kouhy, and Lavers (1995a) which developed three

    broad theory groups: (1) decision usefulness studies, (2)

    economic theory studies, and (3) social and political theory

    studies. Gray et al. (1995a, 1995b) noted that decision useful-

    ness studies overlap with economic studies. Consequently, the

    current paper only draws a general distinction between two

    broad categorieseconomic theory and socially grounded

    theory.23 Studies of CSR activities drawing from economic theory

    such as Agency Theory and Positive Accounting Theory have

    investigated the determinants of CSR disclosures such as social

    performance, political visibility, various nancial variables and

    economic performance (e.g. Belkaoui & Karpik, 1989; Mak,

    1991; Ness & Mirza, 1991). The information content of CSR

    disclosures evidenced by stock-market reactions has also been

    investigated (e.g. Belkaoui, 1976; Blacconiere & Patten, 1994;

    Ingram, 1978; Jaggi & Freedman, 1982; Shane & Spicer, 1983).24 A persuasive case has been made for the greater potential

    contribution of social theories over economic theories to the

    development of a conceptual underpinning for CSR (e.g.

    Arrington & Francis, 1991; Christenson, 1983; Gray et al.,1995b, 1995a; Puxty, 1986; Tinker & Okcabel, 1991).

  • cost data and emotive rhetoric that was underlaid

    by strategic opportunism. Thus, few opportunities

    are oered to develop and extend the existing

    descriptive theoretical underpinning of CSR

    practice.Socially grounded theory, in contrast to eco-

    nomic theory, oers more insights into the DOFM

    use negotiations with other State Government

    Departments.26 They were however, particularly

    focussed on using the information to manage their

    interactions with conservationists who had access

    to inuential media and cultural heritage groupswith legislative power via for example the Native

    Titles Act. Both stakeholder relationships were

    adversarial, and managers described full cost envi-

    ronmental reporting as an aggressive strategy to

    re-negotiate, re-dene and re-gain control of the

    environmental asset, the State Forest Resource.27

    K. Herbohn / Accounting, Organizations and Society 30 (2005) 519536 533case evidence. Of the socially grounded theories,

    the organisation-orientation of Stakeholder The-

    ory is most closely aligned with the focus of the

    case study on the Department and its stakeholder

    relationships. This makes Stakeholder Theory par-

    ticularly useful for informing the interpretation ofthe case evidence.25 Stakeholder theory posits that

    a major role of management is to assess the impor-

    tance of meeting stakeholder demands in order to

    achieve the strategic objectives of the organisation

    (Roberts, 1992). Organisations have a certain

    degree of discretion on how to full these external

    demands, and accordingly prioritise managing the

    demands of powerful stakeholder groups. Stake-holder importance derives from their power to con-

    trol critical resources required by the organisation

    to remain viable (Ullman, 1985). Consequently,

    the organisation will strategically manage relation-

    ships with important stakeholders to ensure contin-

    ued survival. Publicly disclosed information,

    including CSR disclosure, is viewed as part of a

    strategic arsenal available to negotiate stakeholderrelationships (Ullman, 1985).

    These themes from Stakeholder Theory perme-

    ate the DOFM case study evidence. The motives of

    Departmental managers for damage cost reporting

    centred on the capacity to measure and report the

    value of the outcomes from the DOFMs forestmanagement as a basis for dialogue with its pow-

    erful stakeholders. Managers described quantiedpublic good outcomes as necessary tools in their

    bag to bolster the Departments position in forest

    25 There are two broad variants of Stakeholder Theory (Gray,

    Owen, & Adams, 1996). The rst variant is normative in nature

    and is concerned with the accountability owed by an organi-

    sation to its stakeholders (Freeman, 1984; Roberts, 1992). It has

    little descriptive power in a CSR context and thus is notconsidered further in this paper.Reporting the nancial values of forest uses was

    seen as a means of replacing the dialogue of emo-tion and rhetoric used by these stakeholder to

    great eect to promote their favoured forest uses.

    The dynamic, two-way interaction between

    management and stakeholder groups documented

    in the DOFM case study has not been adequately

    captured in the CSR literature drawing on Stake-

    holder Theory. The general view is that social

    and environmental disclosures assist in securingstakeholders support and approval through, forexample, developing a corporate reputation as

    being socially responsible (Roberts, 1992), or dis-

    tracting their opposition and disapproval (Gray

    et al., 1996). To some extent, full cost environmen-

    tal reporting by the Department did gain support

    from stakeholders because it met their expecta-

    tions that environmental consequences were fac-tored into mainstream performance measures of

    the DOFM. This was not however, the main

    source of stakeholder support for the experiment.

    Rather, the majority of stakeholders were inter-

    ested in the potential for opportunistic, strate-

    gic use of any new information such as full cost

    26 For example, a manager related the following experience:

    We were negotiating a power line through State forest withanother Government Department and we put a metric on the

    trades to reect them occurring. The guy from the power

    authority was happy to acknowledge conservation values, so it

    made the process of management and negotiation so much

    easier.27 The phenomenon of organisations redening the environ-

    ment in quantitative terms to suit their own ends, has

    previously been identied by Gray et al. (1995b). They speculate

    that it is most likely attractive to organisations because it

    apparently reduced ambiguity, bears a hallmark of science andtranslates the environment into that which is known and overwhich power can be exercised.

  • and government funding, and more generally to

    ationensure that environmental externalities are explic-

    itly considered in decisions and policies. However,

    philosophical concerns about the reduction of

    intrinsic environmental values to nancial terms,

    was an unresolved source of tension for some man-

    agers and stakeholders.

    The potential role of environmental economic

    valuation techniques within accounting andreporting frameworks is not as clear. The invest-

    ment of resources required to undertake valuation

    studies was problematic for the DOFM. There was

    also a valuation dilemma facing the Department in

    that the complexity of the natural eco-systems

    managed required more complex valuation meth-

    ods, which were in turn viewed with distrust by

    stakeholders because of their complexity. At theconclusion of the case study, a stalemate had been

    reached with managers on the economic valua-information, to further the interests of their

    respective organisations.

    In short, while full cost environmental dis-

    closures were intended by managers as part of a

    strategy to renegotiate the power balance in rela-tionships with stakeholders, these very same groups

    viewed the information as a potential tool to be

    used to negotiate their relationships with the

    Department. Further exploration of the dynamic

    nature of organisation-stakeholder relationships

    would assist in developing a better understanding

    of CSR practice from a Stakeholder Theory per-

    spective. Evidence from this study suggests thatwhen CSR disclosures are used as stakeholder man-

    agement strategies, managers and powerful stake-

    holders are likely to contest control of these

    disclosures because of their strategic importance.

    Conclusion

    The evidence from the DOFM case study

    indicates that there may be a role for full cost envi-

    ronmental reporting systems within the non-

    corporate, natural resource management sector in

    Australia. The Departments managers and stake-holders alike perceived that full cost reporting is a

    necessary undertaking to secure political support

    534 K. Herbohn / Accounting, Organiztion project unclear on how to proceed with thevaluation of environmental externalities. A worth-

    while area for future research would be whether

    economic valuation methods such as choice mod-

    elling and benets transfer are more appropriate

    for use by organisations operating under dierentconditions to the DOFM. Possible factors to con-

    sider in future research include the availability of

    resources, the political sensitivity of operations,

    and the history of interactions with organisational

    stakeholders.

    More generally, empirical evidence from the

    DOFM case study implies that the t between anaccounting system and its organisational context,and its broader historical and political context is

    an important factor in its successful implementa-

    tion. In the case of the DOFM, the history of bitter

    power struggles between Government, conserva-

    tionists, and the timber industry acted to sensitise

    organisational managers and stakeholders to the

    political implications of any new information pro-

    vided by the full cost environmental accounting sys-tem. These operating conditions also resulted in the

    imposition of resource constraints that ultimately

    hindered the reporting experiment. A fruitful area

    for future research includes additional eld based

    research into how the t of proposed environmental

    accounting systems within their broader organisa-

    tional, historical and political contexts inuences

    the outcomes achieved.The case evidence also highlighted the value of

    socially grounded theories, such as Stakeholder

    Theory, compared to economic based theory in

    interpreting CSR reporting. From an economic

    theory based perspective, the DOFM reporting

    experiment was merely an exercise in minimising

    political costs. In contrast, the Stakeholder Theory

    perspective suggests that full cost environmentalreporting was part of an aggressive strategy used

    by the Departments management to negotiate itsrelationships with powerful stakeholders. Interest-

    ingly, this study found that powerful stakeholders

    responded by supporting such disclosure because

    of its potential application in furthering the inter-

    ests of their own organisations. A worthwhile area

    for future research is to explore the interactionsbetween organisations and stakeholders in re-

    sponse to CSR disclosures intended as part of a

    s and Society 30 (2005) 519536stakeholder management strategy.

  • Belkaoui, A., & Karpik, P. G. (1989). Determinants of the

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    The cooperation of managers from the anony-

    mous case organisation is most gratefully

    acknowledged. Also, this research has signicantlybeneted from the helpful comments of the

    two anonymous reviewers, Scott Henderson, Lee

    Parker, and participants at the Emerging Schol-

    ars Colloquium at the 2001 Asia Pacic Inter-Disciplinary Researchers Association conference

    in Adelaide, Australia. Any remaining errors are

    my own.

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    A full cost environmental accounting experimentIntroductionFull cost environmental accounting and the department of forest managementCase study settingFit within the organisational reporting frameworkDamage cost reporting

    Study design and methodFeedback data collectionData analysis

    Case evidenceImplementation experiencesReactions of the departments managersReactions across managers rsquo organisational level and background

    Reactions of stakeholders

    Discussion of case study evidenceAdditional reflections on the reactions of managers and stakeholders

    ConclusionAcknowledgmentsReferences