Ese Literature Review

7/29/2019 Ese Literature Review

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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 reportingperformance 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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Ese Literature Review