Why Companies Produce CSR Report … Term Paper
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All publicly-traded firms are obligated to perform financial reporting by law, and this is done according to specified standards so that there is a high level of consistency between the reports. This makes for ease of comparability between companies, even those in different industries, and this transparency reduces risk to investors. Thus, financial reporting serves the purpose of promoting the capital markets as a safe, transparent and reliable place in which to invest capital. As the concept of sustainability became more in vogue, companies began to undertake sustainability and corporate social responsibility (CSR) reporting
While CSR reporting works in a slightly different way. While it does serve the same purpose of communicating things about the company to external stakeholders, CSR reporting does not follow a set format, and therefore the contents of CSR reports are not comparable across firms. Further, it is not a legal requirement. Thus, CSR reporting is strictly a corporate communications tool. This begs the question of what it is that firms wish to communicate, why, and to whom. As CSR reporting gain greater attention, several motivations for this reporting stood out. These are moral obligation, reputation, sustainability and recruiting. This paper will examine the motivations behind CSR reporting, which will include sustainability reporting and other types of reports that companies voluntarily produce for the benefit of external stakeholders.
The easiest of the potential explanations for CSR reporting to dismiss is moral obligation. Logically, if moral obligation is treated as a category distinct from the pursuit of corporate social responsibility, then no company has a moral obligation to communicate anything. They may have an obligation to behave in a socially responsible manner, but that obligation is distinct from the actual reporting of their actions. Arguably, firms have a greater moral obligation to report their financial situation than they do the actions that they engage in with respect to CSR. Shareholders, certainly, gain little from CSR reporting, especially in its current form of being entirely arbitrary and therefore not comparable across companies.
But CSR also derives from the stakeholder view, where a corporation has a number of different stakeholders, and thus is answerable to many entities, not just to shareholders as in the old Friedman worldview (Donaldson & Preston, 1995). Under this theory, it could be argued that the corporation has an obligation to report its activities to other stakeholders. However, there is no consistency in CSR reporting -- it is entirely voluntary and arbitrary with respect to what is reported, and how measurements are done. Thus, this type of reporting does not appear to be done with any moral obligation in mind, as there is no consistency by which such reports would genuinely be useful to other external stakeholders. In some instances, there have been attempts at devising consistent methodologies, at least within certain sectors (O'Connor & Spangenberg, 2007) but these efforts have not gained any particular traction either with industry or with external stakeholder groups. Again, if there was any sort of moral obligation, it could only really be met with consistent reporting, as any other type of reporting ends up being not particularly meaningful.
If one accepts the idea that there is no moral obligation to report activities, there still can be a moral obligation to perform socially responsible activities. Certainly, once a trend has started to report such activities, a company already performing them almost has to report it. But do companies report just because they are doing good things? One of the issues with that idea is that different companies take entirely differing views on what sustainability and social responsibility are as concepts -- companies are essentially free to work with their own definition (Nielsen & Thomsen, 2007), which makes the pursuit of such concepts almost entirely self-serving in nature.
But for sustainability itself, there is merit to tracking a firm's progress, despite the self-serving nature of defining your own measures of success, and your own means of measuring. Companies typically use internal measures to evaluate performance and in that sense CSR reporting fits with that paradigm, but for one thing -- the report is published for the public. Even there, however, there is logic in publishing the results of the reporting for those who are theoretically the affected stakeholders -- the community in particular. If the environment and external stakeholders are the audience for CSR reporting, then it stands to reason that the report needs to be made public, simply as a matter of reporting the facts. This argument is undermined somewhat by the use of self-determined measures, of course.
That said, the CSR report can create motivation among managers in the same way that financial reporting does. When external stakeholders are able to know what a company is doing, they can then hold the company responsible for their efforts. In that sense, sustainability efforts can be improved by the publication of CSR reports, because managers know that they will be held accountable. Even if the measures are arbitrary, if managers know what those measures are, and that they will be held accountable by not only internal stakeholders but external ones as well, that can definitely increase motivation to set and pursue CSR-related objectives.
Reputation and Recruiting
Recruiting is tied to reputation, because a company's reputation is tied closely to its employer brand -- the better than external stakeholders see a company, the more power that gives the company is dealing with external stakeholders, and recruiting is merely one form of that. Companies routinely see their social responsibly reputation as part of their external and internal branding, which naturally will encompass both recruiting and retention efforts (Simmons, 2009).
A lot of factors validate the hypothesis that reputation is a key driver of CSR reporting. Companies report voluntarily and the communications are external. Unlike with financial reporting, what is reported and how is not standardized, which means that the company has complete control over the message. Unerman (2008) argues that CSR reporting is very much a component of strategic risk management, as it creates evidence that the company can use to demonstrate its level of corporate social responsibility, and ensures that this evidence is matter of public record.
The use of CSR as a reputation management tool has been interpreted cynically as greening the corporate identity, an attempt to greenwash the way the public sees a company (Rolland & Bazzoni, 2009). In a sense, the company is trying to project something about itself, though this need not be interpreted in a cynical manner, but simply as the company communicating something about itself. After all, even though there is no means by which the claims a company makes in its CSR can be consistently, independently verified, this communication is not as transparent as would be the case otherwise. The company has more control over the narrative, which allows CSR reporting to be a reputation management tool in a way that something like financial reporting can never be.
Wal-Mart regularly publishes a CSR report, and this report highlights some of these principles. The report is 146 pages long, and as such focuses on a number of different areas. The company defines what it will measure and what it will report on. For Walmart, sustainability mostly means reducing waste, which is rightly sees as a drag on profits. Thus, Walmart's report is aligned well with what it already does. This framing allows the company to enjoy many successes, while avoiding entirely issues where its performance might be more controversial. Thus, there is an element of greenwashing, even though the achievements themselves are very real. But the framing itself is always on the bright side -- for example, opening stores in food deserts is hardly an altruistic act to provide food for the poor; it is opening a new store in an area where there is market opportunity. So some of the framing is fairly blatant in terms of seeking to portray everything the company does in the best possible light. The report is corporate communications, to show the external world how hard Walmart is working towards these different objects, but they also explain this clearly in terms of the impacts that its efforts have on the business. For Walmart, the impacts are quantified, in terms of process outcomes and in terms of financial outcomes.
Where Walmart actually does seek out efficiency and waste reduction, and has the ability to demonstrate the impact on the bottom line, and the power to have its initiatives rolled out across an entire industry, other companies are a little bit more obvious about the fact that their CSR reports are almost entirely about corporate reputation management. PepsiCo publishes an annual CSR report, for example. Ultimately, producing vast quantities of empty calories and shipping them around the world is the antithesis of responsibility and sustainability, but the company produces the report to highlight how they are being less destructive. They discuss, for example, what they are doing about fresh water supplies. The true sustainable path is… [END OF PREVIEW]
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