Corporate Social Reporting: Emerging Trends in Accountability and the Social Contract

Such a situation arises, at least in part, from a failure to examine the social foundations and

assumptions which invest the subject (Tinker, 1984a, 1984b, 1985). For traditional accounting,

however, potential chaos remains suppressed because of an attachment, by practitioners and

academics alike, to a belief in a benignly passive role for accounting in capitalist society and an

acceptance of the dominant rights of investors and financial markets. Furthermore, the traditional

financial reporting function is highly observable and, being enshrined in law, no questioning of its

legitimacy is apparently required.

For CSR, on the other hand, these conditions do not hold – the subject struggles for legitimacy; it

clearly question the unique dominance of investors as the primary (or at least the only) participants

in the organization; it is clearly non-passive in that it must always imply some assumption about

the desirability and direction of social change; and, in exposing the fundamental beliefs of the

protagonists (about society, politics and even the human species itself), CSR naturally increases

the opportunity for basic and profound disagreement. Furthermore, when the traditional

intellectual baggage of accounting is hauled across to try and articulate the issues of CSR, it is

exposed for the flaccid paraphernalia that it is (Gray et al,. 1987, Chapter 4).

It is perhaps not surprising, therefore, to find that CSR has no unifying paradigm. Despite this, this

article attempts to identify some of the major themes which have emerged in the short life of CSR

and to demonstrate that a potentially fruitful framework for CSR would appear to be developing.

This framework, based on exploration of the concepts of accountability and the social contract,

appears to be paralleled by an emerging exploration of these and related issues in mainstream

accounting (see for example, Booth and Paterson, 1982; Gaa 1986; Gjesdal 1981; Ijiri 1983;

Robert and Scapens, 1985; Tricker, 1983).

Figure 1 attempts to categories the major themes of discord which run through the debate on CSR

(see Gray et al., 1987; Perks and Gray, 1978; Mathew, 1984, 1985; Parker, 1986; Puxty, 1986).

Societal Assumptions about Assumed and/or Criteria to be Form that the

Assumptions CSR’s Role in the Imputed Applied in Social Report

Society/Organisation Purpose of CSR Selection of Should take

Relationship Activity Information to

be Reported

Radical change Controlled and None Not relevant External Social

(left wing) innocuous audits (perhaps)

legitimation

Marginal Element of the social Discharge of Accountability Compliance-

change contract accountability with-standard

External social

audits

Demonstrates Enhance Convenience, Narrative

Corporate corporate image cost disclosure

beneficence Legally

required

disclosure

No change None Increase special User needs Social income

interest groups Total impact statements and

property rights accounts balance sheets

e.g. accountants “Truth”

 Radical change Interferes with None Not relevant Legally

(right wing) liberty required

disclosure

Although the figure could, inevitably, be further refined, we believe that it captures the essential

issues that have run though the mainstream CSR literature for the last fifteen years. (We should

perhaps note at this stage that the obvious omission of direct reference to preparers and information

recipients is not significant as they naturally follow from the other elements in the figure.)

Employing a degree of simplification we shall conceptualise discussion about, and research into,

CSR as a dialectic between four positions:

1. The extreme left-wing of politics (the “left-wings radicals”)

2. The acceptance of the status quo

3. The pursuit of subject/intellectual property rights

4. The extreme right-wing of politics (the “pristine capitalists” or “right-wing radicals”)

These categories are not discrete and can be further refines (we will examine this possibility

below).

We shall argue that a central core and framework for CSR can be seen to be emerging from the

debates that are taking place within those adopting the second position; that the third position can

frequently be ignored as irrelevant to the development of CSR; and that those occupying the first

and fourth positions must be seen as constant challengers of the status quo – which, of course, has

implications for far more than CSR and provides a healthy debating atmosphere in which

assumption and preconceptions are continually under siege. This can be related to the factors in
Figure 1. The extremes of the political spectrum share a belief in the irrelevance of CSR for other

than strictly instrumentalist aims. For the “Pristine Capitalists” (typically Friedman, 1962;

Benston, 1982. 1984; but see also Den Uyl, 1984; Mathews, 1986; Walton, 1983; Mulligan, 1986;)

any imposed CSR will interfere with liberty and beyond a compliance with legally required

disclosure should only be considered by companies to the extent that it helps the company: though,

for example, legitimation of activities (C.K. Lindblom, 1984) or the forestalling of further

expenditures (Parker, 1976, 1977). For the “left-wing radicals”, CSR must generally be considered

innocuous legitimation and thus a misleading irrelevance which is more likely to strengthen the

present power distribution than achieve any other aim. However, CSR in the form of external

social audits can possibly be used by the sense alone, is to be considered desirable.

We can see (by exclusion) that the vast majority of literature on CSR falls into our second and

third categories – the “middle ground” in which the status quo is accepted (although variously

interpreted) and explicit, and overt ambition is neither to destroy capitalism nor to refine,

deregulate and/or liberate it. It is on this “middle ground” that we wish to concentrate and to which

we now turn.

The “Middle Ground” of CSR

There are three themes which run through the middle ground of CSR. In terms of the issues shown

in Figure 1, the three themes are represented by commentators:

1. Who assume that the purpose of CSR is to enhance the corporate image and hold the,

usually implicit, assumption that corporate behavior is fundamentally benign;

 2. Who assume that the purpose of CSR is to discharge an organisation’s accountability under

the assumption that a social contract exists between the organization and society. The

existence of this social contract demands the discharge of social accountability;

3. Who appear to assume that CSR is effectively an extension of traditional financial reporting

and its purpose is to inform investors. (This last theme falls between the other two themes

and overlaps with them – see Figure 2.)

The first theme, that of the “corporate defenders” is a most peculiar phenomenon. Whilst

commentators might accurately observe that voluntary CSR is almost bound to enhance the

organization, recommending CSR on the basis that it enhances the organization’s image or because

the organization is best place to judge what information should be reported would seem to be very

difficult to justify. Walton attempts such a justification based upon the (unexamined)

assumption/belief that society and organizations are in complete harmony: that they share a

mutuality of interest and thus, what is good for one must therefore be good for the other. Although

such a view is rarely made explicit, its spoor is evident in much influential writing on CSR. Whilst

one may successfully sustain an argument along these lines on the ground of exhorting

organization to experiment with CSR, its stature as a formal framework for the development of the

CSR, its stature as a formal framework for the development of the CSR discipline begs very serious

question. In the first place, one must ask how this theme of CSR might be differentiated from

advertising. We are at a loss to identify any significant difference (other than the fact that

advertising is regulated to some degree in many countries). Secondly, and altogether more

substantively, one must wonder whether commentators who subscribe to such a position also

favour total deregulation of financial reporting. If society does not trust organizations to give a full

ans honest financial account of themselves, we doubt that any society is likely to trust them to
provide a full and honest social account. This theme has few implications for the more procedural

issues of CSR (the fourth and fifth columns of figure 1: the form that the report should take will

presumably be driven by advertising considerations and cost; and the criterion that is applied in

the determination of information would presumably be convenience.

Turning now to the third theme – CSR as an extension of financial reporting to investors – we find

an equally improbable set of implicit assumptions underlying and driving the development of CSR.

Much of the early pioneering work on CSR sought either to explicitly couch CSR within a

traditional accounting framework or to adopt the tools of traditional accounting as self-evidently

appropriate. The reasons for doing this have never been satisfactorily explained. Stated reasons are

typically either:

1. Because financial measurement is a universal measure, financial accounting is itself a

universally appropriate medium; or

2. Because users are familiar with this form of presentation as a basis for decisions

Both reasons strike us as ludicrous. The dangers and the probable infeasibility of appropriate

financial values being placed on organizational social activity have been well rehearsed. Thus,

other than in its role as a perfectly legitimate area of pure intellectual enquiry, we cannot see such

an approach as having any direct bearing on the practical development of CSR, particularly as

CSR largely purports to be a response to widespread societal questioning of the propriety of

measuring things solely in terms of their market value. The second reason does not have even this

justification. The only users who can even vaguely be assumed to have a familiarity with financial

statements are management and investors. Even if management could be shown to find financially

quantified statements useful for their decision making, this does not give rise to a justification for

designing external reporting systems according to the preferences of internal users.

Alternatively, designing CSR systems for use by investors appears to be highly questionable. To

do so would seem to require one of two assumptions: either

a. Investors are the dominant users in CSR as in financial information, or

b. CSR information helps improve capital market efficiency and this benefits society.

The first assumption effectively denies any raison d’etre for CSR; the second is highly tendentious

and light in empirical support. Despite this, CSR as information primarily directed at investors,

explicitly or implicitly, has been the major growth industry in CSR publication and, particularly

in CSR empirical research. Research into whether investors say they find CSR useful; fifth, and

whether CSR is related to profitability or correlated with share price movements is so inconclusive

that if the research proves anything, it is that we are probably being led up something of a blind

alley.

It strikes us that, a priori, investors are likely to be almost entirely uninterested in CSR except in

so far as it influences their financial position. Shareholders (as involved owners) may, however,

be a different matter. A particular example of the latter may be considered to be that of the “ethical

investor”. Although early empirical work raised considerable doubts as to the efficacy of such a

group as an agent of change in the development of CSR, there appears to have been a dramatic

upsurge in interest in the concept of ethical investment since the publication of these studies. This

is particularly apparent in the rapid growth of “socially responsible” mutual funds/unit trusts in the

1980.