In accordance to the law, companies are expected to provide to the stakeholders financial statements that show their performance in given financial year. These statements help in financial decision making. The problem is that the financial statements do not tell the whole truth about the performance of the companies and the overall effects to the society. The expectations are that companies are able to generate revenues such that they can pay dividends to the shareholders, as well as provide goods and services to the society in addition to meeting their daily expenses (Contrafatto, 2013). The total well-being to the society should be positive for an organization to be said to be doing well in its operations. However, companies fail to provide an economic and environmental report, and this means that it is difficult to make appropriate decisions. Companies have been under pressure to provide these reports more than before, and this is why the topic has been of interest. There is, however, an argument over the motivation behind the economic and social reports. In this paper, the arguments over whether social and environmental reports are prepared to enhance credibility, and corporate image are the major motivation behind the reports is evaluated.
In the first place, risk society theory is one of the theories that explain the reason companies engages in social and environmental reporting. According to this theory, the members of the society now know the risks that they face as a result of environmental degradation as well as health related problems due to pollution (Jones, 2011). As such, they have various ways of dealing with companies that fail to respect the environment that they live in. Additionally, the companies are also aware that the existence of the environment is based on whether the environment will continue to supply the required raw materials.
Consequently, it is obvious that engaging in social and environmental activities and offering a report is a way of dealing with the risks that the companies face. By providing the report, they are assured that the society will support them and will not engage in activities that may affect their future existence such as boycotting their goods or even attacking the employees in the workplace and damaging property in the workplace. Based on this theory, companies are after managing the risks that they face, and do not in any way aim at enhancing corporate image and credibility.
Legitimacy theory also argues that there exists a social contract that is created between organizations and the stakeholders in the society. As such, the organizations have to make their operations legitimate by ensuring that they continuously build trust by engaging in environmental and social protection, and reporting their efforts regularly. This means that the reporting process is more than just enhancing image and credibility. Their business may become "illegitimate" and they can lose their operational license and support to continue with operations in the society if they do not support the society as well as protect the environment.
There is a political economy theory that also explains further, the reason there is a need to appropriately management the environment and support the society is due to the fact that there are laws and regulations that are set by the political system. The political system can make it impossible to operate, through huge taxation due to damage that organizations cause to the environment (Buchholtz, 2014). The political system is keen to ensure that organizations internalize their externality, hence ensuring that the society does not suffer because of the pollution.
Since companies are keen to ensure that the political environment does not make them exit the market, they are keen to ensure that they do something to help protect the society as well as the environment. Once they have social support, they are assured that they will survive even in the future (Buchholtz, 2014). This tells that the environmental and social reporting is motivated by the fear that the companies needs to survive in the future, and this will be guaranteed if they do whatever the political system wishes to be done.
Organizations have also been motivated by the demand for environmental and social reports. The members of the society have been interested in ensuring that they live in a safe environment and that they receive support from organizations that operate in the environment they live. The assumption is that the society gives the companies a conducive environment to operate, and this is why they also deserve some reward. It is hence not a favor, but demand from the society that the companies engage in the protection of the environment as well as in the support of the society (Staden, 2011).
To achieve sustainability, organizations have to ensure that they achieve competitive advantage. Competitive advantage can be achieved if organizations have a good market that will ensure continued demand for their products in the future, as well as reduce the operational costs such that the net profits will be increased. One of the strategies of wooing more customers is through supporting the society, to prove to the stakeholders that the company is not after exploiting the customers through huge profits, but part of profits are actually used to improve the welfare of the society (Buchholtz, 2014). Creating such a perception means that the customers will prefer buying products from the company with the expectation of more future benefits.
When it comes to the environment, investing in clean energy is now becoming an important way to reduce levels of pollution which can lead to tax benefits, as well as reduce the costs of operations in an organization. Reduced costs and tax benefits mean that the profitability of the company improves (Brockett, 2013).
Based on the theories and literature examined, it is evident that there is more to do with social and environment reporting among companies. There is no doubt that the companies would create a perception in the minds of the members of the society that the organization is credible, and this can enhance the image of the company. However, the major motivation behind the reporting is something far from this. The companies needs to avoid the risks that they face from the members of the society who are conscious that the do a great favor to the organizations that operates within the society. Since the business organizations are now aware of this, they are after developing a tactic that will ensure that they survive in the future market. To be ahead of the competitors, the various companies have been keen to provide environmental and social reports with the assumption that they will gain the confidence from the members of the society. Their true inner motives are not good image and credibility.
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Brockett, A., & Rezaee, Z. 2013. Corporate sustainability: Integrating performance and reporting. Hoboken, N.J: Wiley.
Contrafatto, M., & Burns, J. 2013. Social and environmental accounting, organizational change and management accounting: A processual view. Management Accounting Research, 24(4), 349-365. doi:10.1016/j.mar.2013.10.004
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