The Nexus of Theories provides a framework by which we might understand the role of organisations in the social structure, and their ability to create impressions that legitimise their operations and facilitate the management of stakeholder relationships. Voluntary disclosure forms a significant aspect of legitimacy construction. However S&ER requires a great deal of effort on the part of the organisation and consumes considerable organisational resources, particularly during the first year it is undertaken (Kolk, 1999), with the average cost of S&ER for a multinational corporation estimated to be approximately $500,000 (Maharaj & Herremans, 2008). Furthermore, the information disclosed may be of a sensitive nature due to competitiveness (Kolk, 1999). As argued in Chapter 3, there appears to be an absence of a desire
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to discharge S&EAA in organisational S&ER practices. Therefore, it seems reasonable to suggest that organisations would not embark upon such a costly exercise unless they perceived some organisational benefit. A number of studies have explored the ‘business case’ for organisational engagement in S&ER, suggesting that organisations are motivated to engage in S&ER due to ‘enlightened self-interest’ (Burritt & Gibson, 1993; Schultz et al., 2002; Margolis & Walsh, 2003; Spence, 2007; Deegan, 2009), and a great deal of emphasis has been placed upon the commercial benefits of S&ER (Adams & Harte, 2000).
According to the ‘business case’ there are several reasons why an organisation may choose to undertake voluntary S&ER, such as improving staff education, fulfilling supply chain requirements, or in order to attract investment funds including ethical investment, win reporting awards, comply with industry requirements or codes of conduct, delay the introduction of legislation, or to communicate the group’s targets and values to all subsidiaries (Adams, 2002; Burritt, 2002; Deegan, 2002; Tschopp, 2003). Furthermore, many of these benefits may provide the advantage of considerable reputational benefits (Adams, 2002; Burritt, 2002).
Enhanced organisational reputation has been found to be a common motivator for S&ER (e.g. Schultz et al., 2002; Campbell & Beck, 2004; Hahn & Scheermesser, 2006; Bebbington et al., 2008). From a reputation or image management perspective, there are several reasons an organisation may choose to undertake voluntary S&ER (Hooghiemstra, 2000), such as reducing criticism by increasing understanding of organisational activities, minimising risks such as consumer boycotts and unforseen issues, attracting and retaining the most talented employees, and improving local government and community relationships (Adams, 2002; Burritt, 2002; Deegan, 2002; Tschopp, 2003). It has been suggested that those organisations with good reputations can charge premium prices and have more favourable credit ratings, which generally result in lower interest rates (Hooghiemstra (2000). The extent to which an organisation perceives these reputational and image management benefits, and their perceived importance, is “likely to influence the extent and nature of reporting” (Adams, 2002: 236).
Advocates of the ‘business case’ have suggested that these benefits of S&ER result in improved organisational financial performance. Previous studies have shown that there is a positive correlation between an organisation’s S&ER and financial performance (e.g. Al-Tuwaijri, Christensen & Hughes, 2004: Murray, Sinclair, Power & Gray, 2006). However, there is also
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evidence suggesting that organisational S&ER practices tend to be scaled back when the organisation is not performing well financially (Hassel, Nilsson & Nyquist, 2005), and that organisations with poor financial performance, or those operating in weak economies are less likely to engage in S&ER (Campbell, 2007). Therefore, whilst it has been suggested that the primary purpose of S&ER is to increase shareholder wealth (Adams & Whelan, 2009) the relationship between S&ER and financial performance remains unclear (Margolis & Walsh, 2003).
It has also been found that a positive relationship exists between good social and environmental performance and the level of S&ER (Cormier & Magnan, 2003). However, there is also contradictory evidence suggesting that those organisations with poor environmental performance are more likely to make disclosures, and those disclosures are more likely to be positive in nature (Deegan & Rankin, 1996). Therefore, there appears to be an unfortunate incongruence between what it is that organisations say that they do in regard to social and environmental performance, and their actual performance. This incongruence may be referred to as performance dissonance. Unsettling discrepancies have been shown between organisational accounts of performance and independent external social audits (Henriques, 2001), and technological advances and social media have given rise to an ‘audit society’ (Jeacle, 2012) in which poor organisational performance is revealed more quickly and reported more widely than ever before.
Alternatively, there is evidence to suggest that organisations may engage in proactive socially and environmentally responsible behaviour without necessarily disclosing that information (Paul, 2008), suggesting that S&ER does not necessarily indicate social and environmental performance, and vice versa (Fukukawa & Moon, 2004; Perrini, 2006). It appears from the literature that in practice organisational motivations to engage in S&EA may be incongruent with motivations to report, which may explain the performance dissonance mentioned above.
Due to these contradictory arguments in the literature regarding whether organisations with good or poor environmental performance are more likely to voluntarily disclose environmental information, Dawkins & Fraas (2011) proposed a curvilinear relationship, moderated by visibility, between organisational environmental performance and the level of environmental disclosure. The authors found that organisations at both ends of the environmental performance spectrum were more likely to voluntarily disclose environmental information than those in the
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middle of the spectrum. Whilst visibility, measured as a frequency of media coverage, was found to be positively related to disclosure, contrary to expectations it had no moderating effect on the relationship between environmental performance and environmental disclosure. Therefore the authors concluded that the more ‘visible’ an organisation was, the more likely it was to engage in S&ER, regardless of its environmental performance.
However, it must be noted that this measurement of visibility used may be problematic, due to indeterminate causality between visibility and media attention. Furthermore, whilst the sample was taken from the S&P 500 in the years 2005 and 2006, visibility was measured by the number of times the organisation was mentioned in the newsprint media in the calendar year of 1996. It may be argued that the media coverage of a decade ago is unlikely to influence organisational behaviour, particularly when the shift in readership preferences from newsprint to internet over that period is considered. These limitations may explain the unexpected results with respect to visibility.
The use of media attention as a proxy for visibility was also applied in an Australian context, in which visibility was found to be associated with higher levels of disclosure, and that disclosure overwhelmingly positive (Brown & Deegan, 1998). However, as noted above, media attention may not necessarily be the most appropriate proxy measurement for the visibility, or public profile, of the organisation. An alternate proxy was provided by Clarke and Gibson-Sweet (1999), who measured public profile according to the organisations’ proximity to end-users. The sample was classified into three groups; those organisations selling directly to the end-user, those producing brands known to the end-user, and those with no obvious connection to the end-user. The authors found that whilst not significant, the results did indicate that public profile did increase the likelihood of voluntary S&ER.
Public profile, or visibility, may also be positively associated with the size of the organisation (Clarke & Gibson-Sweet, 1999), and there is a great deal of literature to suggest that larger organisations are more likely to engage in voluntary S&ER. A commonly used proxy for size is some measure of financial performance, such as market capital or total assets (e.g. Deegan & Gordon, 1996; Esrock & Leichty, 1998; Cormier & Magnan, 1999; Cormier & Gordon, 2001; Latteman, Fetscherin, Alon, Li & Schneider, 2009), which is consistent with the suggestion that a positive relationship exists between the financial health of the organisation and their propensity
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to engage in S&ER (Campbell, 2007). However, caution must be exercised when making assumptions about causality (Adams & Whelan, 2009). The public profile, or visibility, of an organisation may also be determined by the industry in which the organisation operates (Clarke & Gibson-Sweet, 1999), and as noted in Chapter 3 numerous studies have shown significant industry differences with respect to organisational S&ER practices.
The ‘business case’ for S&ER falls a long way short of discharging S&EAA (Owen & Swift, 2001), and it has been argued that by focusing on the financial benefits of S&ER, proponents of the ‘business case’ are simply reinforcing the capitalist ideals that led to the destructive overconsumption of resources in the first place (Margolis & Walsh, 2003; Burns, 2012). Furthermore, the propensity for organisations to engage in S&ER for solely reputation and image management purposes has concerning implications regarding organisational social and environmental performance, and it has been suggested that if reporting continues to be used in this way it will benefit only the capital market. It offers no incentives to promote increased organisational social and environmental awareness and commitment, and as a result may in fact jeopardise global sustainability (Yusoff & Lehman, 2009).
In summary, whilst proponents of the ‘business case’ suggest that operational, financial and reputational benefits accrue to organisations engaging in S&ER, empirical studies examining the relationship between S&ER and financial performance have yielded mixed results. Therefore, whilst the financial benefits of engaging in S&ER remain unclear, the intangible reputational benefits appear to provide some motivation for organisations to engage in S&ER, and the need to maintain a positive public image may be determined by the visibility or the organisation. There appears to be little correlation between S&ER and organisational social and environmental performance. However, it must be noted that organisational behaviour often makes little difference to how the organisation is perceived by external constituents; how it is perceived is predominantly determined by the communication strategies used by the organisation in its stakeholder management and legitimation efforts, regardless of whether this relates to performance (Owen & Swift, 2001). Consistent with the socially constructed and constructing nature of the organisational environment emphasised in the Nexus of Theories, the reputational benefits resulting from engagement in S&ER, which may be enhanced through organisational
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impression management tactics, may in turn facilitate stakeholder management and organisational legitimation.
4.8 Summary
The purpose of this chapter was to provide the theoretical foundation upon which this exploratory research is based. Organisations operate in complex environments, and it is argued that a multi-faceted theoretical framework may provide greater insights with respect to organisational behaviour. A Nexus of Theories based upon legitimacy theory and stakeholder theory is proposed, in which impression management is used as a tool to construct organisational identities. It is argued that no study of organisational behaviour can be undertaken without an acknowledgement of the socially constructed nature of reality.
The social constructionist view is based on assumption that social reality is constructed by individual interactions with their everyday and face-to-face social world. The corporation is merely a social construct, yet it appears by many to be a monster that has enslaved us. We have assigned to it a personality, unlimited life, and a hunger for profits that may never be satisfied. The use of myths, symbols, and communication play an important role in this reality construction, and the use of impression management occurs both consciously and subconsciously in all forms of communication.
Impression management originated within social psychology and has been increasingly applied in organisational settings. Impression management is closely aligned with the social constructionist school of thought in that both are concerned with the construction of societal perceptions. Many of the features of impression management strategies may also be used to enhance the communicative power of corporate disclosures, and the concepts of accountability and impression management are not mutually exclusive. However, it appears in practice that organisations use impression management to provide a more favourable perspective of the organisation than is warranted, and that corporate S&ER is used to legitimise organisational activities and manage stakeholder relationships.
Legitimacy theory and stakeholder theory are the most commonly cited theories in the S&ER literature, and it has been suggested that the theories are complementary, rather than opposed, and that it is the different perspectives from which they are viewed that may provide the greatest
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insights. Due to the synergies between the theories a Nexus of Theories was proposed. The Nexus of Theories is based upon the notion that legitimacy theory, stakeholder theory and impression management operate as a connected group, and suggests that the theories provide the greatest insights when viewed as being interrelated and existing co-dependently in a socially constructed and constructing world.
There are clearly advantages that flow to the organisation if they are able to construct an environment in which they are perceived favourably by society, thus leading to suggestions that there is a ‘business case’ for S&ER. The ‘business case’ is closely aligned with successful stakeholder management, legitimation, and impression management strategies. However, the business case falls far short of accountability, and whilst organisational claims of social and environmental responsibility proliferate, we continue to witness evidence of irresponsible corporate social and environmental activities. Therefore a number of questions may be raised with respect to organisational S&ER and S&EAA, which are explored further in the following chapter.
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Chapter 5 – Development of Research Question and Propositions