Utilitarianism in CSR Reporting: The Maximum Good for Stakeholders

Transcription

1 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March Utilitarianism in CSR Reporting: The Maximum Good for Stakeholders Dr. L. J. Chaarlas Associate Professor in Commerce St Joseph s College(Autonomous) Tiruchirappalli chaarlaslj@yahoo.co.uk Ms. Noorunnisha, Assistant Professor in Commerce Holy Cross College(Autonomous), Tiruchirappalli, India noorie1983@gmail.com Abstract The emerging belief that corporations have a greater responsibility to civil society than solely that of driving the economic system through generation of profits has placed pressure on companies to integrate social and environmental considerations in to their business models. Making a report or public disclosure of the social and environmental impacts of firm s practices as a corporate citizen has become an important policy. It is one among the evaluation measures followed by government and stakeholders to measure the impacts of corporate activities, to identify best practices and to promote continuous improvement in firms performances. While it is common understanding that evolution of CSR reporting has been driven by external pressures, the reason for which corporations choose to act in a socially responsible manner include some of the internal triggers also. These drivers are most commonly given by the stakeholders, who get affected by company s performances. With hundreds of corporations now producing reports on their CSR practices, there is staggering variations as to what is reported, in what form and for whom. The paper aims at providing a utilitarian reporting model to the corporate sector as an elbow to bring uniformity as well as transparency in measuring their performances with others. Keywords: Corporate Social Responsibility, CSR Reporting, CSR Hype, Misconception of CSR, Utilitarianism.

2 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March Introduction The emerging belief that corporations have a greater responsibility to civil society than solely that of driving the economic system through generation of profits has placed pressure on companies to integrate social and environmental considerations in to their business models. Making a report or public disclosure of the social and environmental impacts of firm s practices as a corporate citizen has become an important policy. It is one among the evaluation measures followed by government and stakeholders to measure the impacts of corporate activities, to identify best practices and to promote continuous improvement in firms performances. While it is common understanding that evolution of CSR reporting has been driven by external pressures, the reason for which corporations choose to act in a socially responsible manner include some of the internal triggers also. These drivers are most commonly given by the stakeholders, who get affected by company s performances. Anything designed to be useful for the growth of stakeholders gain momentum in their eyes. A company has responsibility towards its employees, environment, customers, communities, shareholders, and governments. The stakeholder is not only concerned about the growth and profitability of the company; he is also keen on his growth out of the company s progress. Hence, their expectations from the company is needed to be satisfied by providing him with the right details of financial, social, environmental and ethical practices of the company. There fore, there arises a need to bring in an utilitarianism in the preparation of CSR repots. The scope of CSR reporting: The scope of CSR reporting varies among companies. Some companies may only focus on their environmental performance (environmental reporting), or also include their health and

3 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March safety performance (environmental, health and safety reporting), or just focus on social aspects (social reporting). If a company is reporting on all three aspects of sustainable development, then the reporting will typically be called CSR or sustainability reporting. The scope of CSR is reflected in the following pyramid. Figure : 1 Carroll s CSR-pyramid with four kinds of duties / responsibilities for a company Source: Carroll Why companies go in for CSR reporting? Today, the approach of companies towards CSR reporting has become either a profit motive or compulsion from external environment forces. The main reasons of reporting are found to be the followings: Securing / enhancing good reputation

4 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March Accepting and living social responsibility for retaining business in society (The survival purpose) Striving to be better than competitors or gaining a competitive advantage over competitors Securing the License to operate External pressure from stakeholders Swimming with the trend As a result, these influences make the reporting superfluous and just a work of compulsion. The Non-Utilitarianism in CSR Reporting: CSR reporting become difficult and ineffective, due to the confusion prevailing on what to report, in what form, to what level of detail, to what audiences and for what uses. i) Misconception of CSR There are many misunderstandings or misinterpretations about corporate social responsibility. One is to confuse it with philanthropic corporate giving and the other is to abide by the law and concentrate on extension services. Nearly 12.4 per cent of the Indian companies pursue strategic philanthropy as social responsibility as compared to 48 per cent of MNCs. Charity is pursued as CSR by 35 per cent of Indian companies and 62 per cent of MNCs (Fernando. A.C, 2009). This data show the deviation between the real and perceived meaning of CSR. However, the factors of environmental care, human rights, transparency have not been focused by them. Though there are few corporate citizens like TATA, known for their voluntary dedication on the upliftment of community; taking responsibility for their actions and

5 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March maintenance of transparency in their dealings, there are many corporations still ignorant of or purposefully ignoring to understand the real meaning of CSR, for they decisively want to hide their deficiencies of core functions towards CSR. This leads to complications in reporting, because reporting a mere charitable work, may not amount to reporting the CSR responsibilities assumed by the organization. ii) CSR Hype It has become a fashion for many corporations to make a hype of their CSR activities. This leads to a danger of including too much information in CSR reports. The corportations need to focus on the key CSR issues that the organizations face and assume responsibility for. Indentifying the company s key issues through an internal check as well as through carrying out dialogue with the company s stakeholders asking their suggestions in finding out the social and environmental challenges of their company. iii) Credibility in Reporting The target audiences are increasingly requesting that the information presented by the report should be factual and reliable, for there is no examination and evaluation of the information provided in the CSR reports by any verification agency. The missing of authenticity in CSR reports makes it unreliable and normally considered to be the superfluous statements of companies. iv) Disinterested Audience and Waste of Investment Majority of the investors and professional stakeholders have very less time or no interest in reading long reports and CSR researches. There has been a great increase in CSR Surveys and research publications of all kinds all over the globe. Reading volumes of data makes the target group disinterested and tired. As it stands, vast amount of money and time go wasted into

6 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March reports, and it is well known by people carrying out this investment that stakeho lders at whom the reports are aimed largely don t read them. Big companies spend at least half a million dollars on reports that no one reads. (Mallen Baker, 2005) v) Dangers of Full Disclosure and Damage of Reputation There are clear cut barriers faced by firms, that openly report problems, mistakes, pollution, etc. in their operations. Firms are inclined to focus more on the good news of corporate philanthropy and voluntary initiatives, than bad news in their production and supply chain functions. The companies try to hide such negative impacts of their operations out of the reports due to the fear of losing their corporate image and reputation. vi) Less Awareness and Limited Circulation There is a great disadvantage faced by companies in reaching out their audiences not because they are disinterested in reading reports but due to the limited awareness on the publication of CSR reports. Companies with the investor strength amounting in lakhs fail to reach them and make them read their CSR reports. Many investors are ignorant of the fact that their company issues CSR reports. How to bring in Utilitarianism? There are a number of major challenges to making CSR reporting effective and useful. Questions remain in different sectors and countries on what to report, in what form, to what level of detail, to what audiences, and for what uses. There are real challenges even for those committed to reporting to design information systems that are accessible, easy to understand, useful, and rigorous.

7 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March Typically, CSR reporting will contain information on the company s CSR visions, strategies, goals, programmes as well as its social, environmental and economic performance over the reporting period (typically the timeline is aligned with the company s financial year). The performance can be portrayed either through the use of quantitative indicators (for example the total amount of greenhouse gas (GHG) emissions resulting from the company s operations over the last financial year, or the amount of GHG emission per employee) or qualitative descriptions (for example describing the staff volunteering programmes the company has in place or its policies on equal opportunities). Companies typically also include information about their progress on reaching their CSR goals. Good CSR reporting will include information on how the company engages with its key stakeholders, the expectations that these stakeholders have of the company s social and environmental performance, and how the company is responding to these expectations. The following points discuss the ways and means for making CSR reporting more clear and transparent. i) Adopting Information Disclosure Strategies CSR reporting supports basic market dynamics. One of the central assumptions of market economics is that full information is required for the efficient functioning of markets. Information disclosure strategies attempt to deal with the market failures of information asymmetry and externalities. Faulty or incomplete information, it is hypothesized, may lead stakeholders to make economic or social decisions which are actually not in their best interest. The basic purpose of information disclosure programs is thus to provide interested parties with more and better information upon which to base their decisions. As the WBCSD asserts, If business believes in a free market where people have choices, companies must accept

8 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March responsibility for informing consumers about the social and environmental effects of those choices. (Dara O Rourke, 2004) Fuller public disclosure of CSR practices can also help to improve a company s reputation and brand value. A positive public image, backed up by transparent operations, can help to recruit and retain top quality employees (who are increasingly concerned about social, environmental, and ethical issues), get a company listed in socially or environmentally screened funds, and improve relations with stakeholders such as host communities. Public transparency may be the single most effective way to win back trust and respond to the current credibility crisis for MNCs operating around the world. ii) Reporting Only Key / Relevant Issues There is a danger of including too much information in CSR report. It is better to focus on the key CSR issues that are faced by the company (material issues) and report on how these are managed. Companies reporting on their CSR performance need to be aware of a few key challenges that they face during this process and how they can o vercome these in order to successfully report on CSR issues. It is necessary to identify the company s key CSR issues through an internal check as well as through carrying out dialogue with company s stakeholders and asking them what they think are the key social and environmental challenges faced by the company(dara O Rourke, 2004). Setting up a system within company will help companies to set goals and responsibilities for gathering information on its performance in these key areas.

9 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March iii) Deciding Whom to be Reported Once this reporting system is in place and there is information to report on, prior to developing the report it is important to identify your target readers and focus the content of the report and level of detail to their information needs. iv) Usage of Standardized Metrics Primitive metrics for many CSR issues, and continuing disagreements on key measures of performance, have led to reports using widely varying indicators, some of which are vague, unclear, irrelevant to major impacts, misleading, or worse. There is also the related problem of CSR reporting being captured by marketing and PR departments of companies.73 Some CSR reporting has become focused largely on reputation assurance and public relations rather than material reporting that can help improve management practices or stakeholder decisions. Continued work is needed on standardized metrics and indicators for reporting. However, metrics in general should be: Agreed upon by key stakeholders (representing what matters to them); Factual, accurate, and verifiable; Reported at regular intervals in relatively simple language or data; Comparable across locations, firms, and products; Flexible/dynamic, so that metrics can change over time; Usable by key stakeholders; Easily accessible. v) Incentives or Mechanisms for Continuous Improvement Efforts are also needed to support continuous improvements in reporting. Stakeholder groups with built-in incentives for using, analyzing, and monitoring the quality of the

10 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March information are central to the long-term sustainability of reporting schemes. In financial disclosure, investors play this role of demanding high quality, verifiable information upon which to base their investments. In environmental disclosure, environmental groups use the data, translate it for wider consumption, and keep pressure on the government and firms to improve reporting. Disclosure systems can also be designed to create incentives and benefits for leading disclosers. Governments can foster certain kinds of disclosure through a range of traditional economic incentives, and through regulatory flexibility mechanisms. Finally, in any system of disclosure it is critical to establish mechanisms to track changes in reporting practices over time, the impacts of this reporting, and whether learning is occurring from reporting (Dara O Rourke, 2004). All of these strategies can be supported or directly advanced through government actions. vi) Marketing the Report The corporate should never forget to market their report once it is completed, for Public Never Demand Without an Offer. Even the best product reaches the customer only when it is marketed efficiently. Though being the best product, the CSR Report, serves the purpose only when it is marketed at the right time with right earnestness. Information on packing and advertisements through well received media may be the best means to market the vital information of the CSR report. Conclusion Today companies have realized that they need to respond to stakeholders concerns not only by changing their practices but also by being more open in reporting on how they have performed against key CSR criteria. Corporates must make a paradigm shift in reporting not just

11 Journal of Economic Development, Management, IT, Finance and M arketing, 4(1), 38-48, March the concept of Triple Bottom Line but of others also to make reporting more comprehensive and inclusive. Thus, reports of CSR performance are demanded to be externally verified, vouched and certified by the organizations rusted by stakeholders. Hence, there needs to be a revolution in reporting of social responsibility. It needs to be clear about its target audiences, and selecting information that is relevant to them. It has to be unbiased in interpretation of facts and should drive performance improvement on a company which is a victim of negative operations. References Baker, Mallen (2005), CSR Reporting faces its next chanllenge, An Article from Business Respect, Issue No:85, July 29, ( (accessed on ). Carroll Archie B (1991); The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organisational Stakeholders, Business Horizons, July-August Dara O Rourke, (2004), Opportunities and Obstacles for Corporate Social Responsibility Reporting in Developing Countries, University of California, Berkeley, (for the Corporate Social Responsibility Practice of the World Bank Group), ( (accessed on ). Fernando. A.C.(2009), Business Ethics: An Indian Perspective, Dorling Kindersley (India) Pvt. Ltd., New Delhi.