Should CSR be Regulated?

after my post regarding the importance of CSR for business, now I am trying to post whether CSR practice should be regulated or not. Again this is the part of my Social and Environment Accounting course revision :p *hope you not get bored*. 

as the names suggest, mandatory reporting means that the CSR repoting practice is enforced by the law whereas in voluntary regime means that companies voluntarily disclose the CSR report albeit there is no regulation for CSR reporting.

Carrot and Sticks Report (2013) demonstrated that in the last 7 years, mandatory CSR reporting practice were remarkably increased. It implies that CSR had obtained a significant importance that it had to be regulated. in Indonesia, for instance, in 2012 BAPEPAM-LK enforced the listed companies to disclose their CSR activities either in the annual report or in the stand alone report. meanwhile in the UK, the companies act of 2006 required the listed companies to disclose about their responsibility towards the environment, employee, social community, and supply chain issue. 

However, even though the trends of voluntary CSR reporting practice appear to be decreasing, the voluntary CSR reporting had initially developed long before the mandatory initiative emerged. Global Reporting Intiative (GRI) was a non-profit institution formed in 1997 by Ceres and Tellus institute with the aim to give guidelines for CSR sustainability reporting. GRI guideline is considered as the most influential guideline in the world that it is considered that it encourage the engagement with multiple shareholder. Moreover, GRI guideline for “triple-bottom-line reporting” would broaden financial reporting into a three-dimensional model for economic, social and environmental reporting. when GRI G3.1 was launched, it provided 42 strategy and profile indicators (e.g CEO statements, governance,etc), and also with 84 performance indicators (55 core indicators) in the area of environment, social, and economic. However, not all of the indicators need to be reported by companies. companies might choose which score that they want, the score is ranging from A+ to C. If companies want to get A+ they should disclose all 42 strategy and profile indicators and also 55 performance core indicators. Nevertheless, this GRI G3.1 guideline obtained a critic that even though the environmental indicators were useful, the social and economic indicators were considered less inspiring (Bebbington et al., 2014)

The critics toward GRI G 3.1 catalized the launched of  G.4 guidelines whose indicators are based on the materiality principle: material aspect that influence stakeholders’ assessment and decision. companies are encouraged to engage with stakeholders to identify the material aspect for them and companies will include the material aspect in their CSR report. The assessment of report comprehensiveness would be optional, companies are free to choose either the core option given (to report with at least one indicator identified as material aspect) or comprehensive option (to report with all indicators identified as material aspect).

Despite the fact that recently mandatory reporting is mostly practiced, the necessity of CSR to be regulated is still highly contested.

Bebbington and Gray (2007) and Unerman an O’Dwyer (2007) pointed out that companies are rejecting the regulation because it makes them less flexible to report their CSR practice. Moreover, companies want to leave the impression that environment is safe in business hand. Moreover Bebbington et al’s (2013) study demonstrated that voluntary reporting practice is more effective relative to mandatory reporting practice. the study focus in Spain where CSR reporting is highly regulated and in the UK where initially there was no binding system about CSR reporting but many companies were engaged in CSR reporting practice. Arguably, the development of normativity plays a vital role in the succeed or failure of reporting practice. In the UK the norms were arise from a shared believe facilitated by ACCA. in 1991, ACCA initiated a dialogue to develop best practice in CSR reporting scheme. ACCA gave reporting award to the companies with best reporting practice. such action gave rose to peer benchmarking that encourage companies to be on the top. Beyond this tipping point, norms were internalized and further acquired as a taken for granted quality whereby all companies recognize the norms as binding. Furthermore, ACCA scheme was complemented by other initiative such as certification scheme, industry association, and business consultancies that therefore reporting CSR were highly associated with competitive advantage. Finally in 2006, the ACCA voluntary scheme was transformed into quasi-legal in which UK prime minister stipulated the scheme to the section 417 of UK Company act 2006.

However, Unerman and O’Dwyer (2007) asserted that the voluntary disclosure of CSR reporting is closely related with business case whereby companies were reporting to pursue the economic benefit that information in CSR report is disclosed in the selective manner therefore the reporting credibility could not be confirmed. Employing the reflexivity theory, Unerman and O’Dwyer (2007) argued that effective regulations could assure that the information in CSR report is verifiable and not included in a selective manner as the regulators are perceived as the expert system whereby stakeholders could place their trust. whenever outside stakeholders read the CSR report they might confirm that the report is credible without checking to detail. Moreover, the regulations might also reduce the perception of risk faced by stakeholder from business activities. 

Criado-Jimenez et al (2008) also suggested that compulsory CSR Reporting standard could increase the disclosure quality because under specific disclosure requirement and enforcement mechanism (such as auditing), reporting companies would be liable for any misstatement.

Nevertheless, there are some finding suggest that even though mandatory SER exist, companies still fail to make disclosure or when they do the quality of such disclosure remains low. Bebbington et al., (2013) demonstrated that even though the regulation brought the significant increase in disclosure, only a few having attained full compliance. Spanish companies were indicated not disclosing the environmental liabilities. 

Criado-Jimenez  et al (2008) explain the non-compliance of business is due to the impression management strategies applied by companies. this strategy includes: Aquiescence (comply with the standard), Avoidance (concealing the non compliance), and Defiance (ignoring explicit norm). Criado-Jimenez demonstrated that the impression management practice was exist within Spanish companies. As regulation regarding CSR reporting was enforced, the number of Spanish companies disclose the CSR item in the annual report was increased significantly. Moreover, the disclosure over bad news was increased more than the disclosure of good news. However, there was a concealment practice took place that the total number of good news disclosed was twice higher than the bad news. The ritualism practice also occurred since it was indicated that companies disclose the bad news in other media than the annual report. Plausibly, companies wanted to leave the impression as conform with the law so that the stakeholders will trust them. Moreover, companies quality of disclosure was also low that it only disclose 20% out of the regulation required.

Bebbington et al (2013) also explained that the non-compliance might be occured since the standard is lack of clarity. from their study in Spanish companies it was indicated that the regulations required the companies to disclose the environment liability yet the standard did not give a guidance how to recognise and measure the environment liability. Moreover, contrast with UK norms which was arose due to the consultation progress, there was no such process in developing Spanish CSR standard. consequently, the standard was not internalized within the Spanish companies.

to sum up, current practice of CSR, both mandatory and voluntary have some benefit and limitation. Mandatory reporting standard could encourage companies to increase their disclosure and also increase the trust of the stakeholders because they perceived the report as credible. Nevertheless, some evidence suggest that there were some limitations of mandatory disclosure such as the lack of disclosure extend, the low quality of disclosure, and the ritualism practice. On the other hand, voluntary disclosure standard could be easily internalized within companies however many of the stakeholders doubted the credibility of the voluntary CSR reporting since it is closely related with companies enlighted self-interest

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Should Business Involve in CSR?

Corporate Social Responsibility (CSR) appears to be  a widespread phenomenon among business. what really CSR is? why business should involve in CSR practice? How to practice a good CSR? Here I try to elaborate the origins of CSR, it’s definition, and how to practice

CSR: Setting The Scene

Actually, business awareness about CSR had started around the World War II in 1945 and followed in the Cold War to prevent the hegemony of communist influence (Carrol and Shabana, 2010) . Yet, we would not go that far. we would start from year 1984 when Union-Carbide’s plant explosion kill thousands of life, the companies should bear the consequences regarding its irresponsible business operation (Maguire, 2011). Within a week, Union Carbide’s share price was plunged to approximately 27% while it also had a burden for the litigation claim. this accident had further created awareness for companies to act in a socially responsible manner. Arguably, this accident happened as previously business was perceived as a profit-oriented entity as the main goal was just to create wealth for stakeholders (Friedman, 1962).

Apparently, companies are the part of society, they take the resources, employees and raw materials, from society. sometime companies’ operations give negative externalities to the environment such as pollution and waste (Gray et al., 2014). The intertwined relationship between companies and societies, inevitably, creates companies responsibilities to act in a socially desirable manner otherwise their going concern would be threatened (Shocker and Sethi, 1973).

in the same year as Union-Carbide’s plant explosion, Freeman created a “stakeholders theory”, the theory which becomes the foundation of  most CSR practice and research. this theory asserts that businesses have to be responsible to all of their stakeholders otherwise their survival could be threatened. the stakeholders involve every parties that are affected by business operations, including, employees, supplier, environment, communities, government, and so forth.

Debate About CSR Definition

albeit it is reasonably clear that CSR is arises as there is a relationship between business and society, the definition of CSR remains inconclusive. Dahlsrud (2008) suggested that there is at least 37 different definitions about CSR. However, the most used definition is the CSR pyramid by Carrol (1991).

* I don’t know why I can insert picture, so let me just describe*

Carrol (1991) divided the CSR pyramid into four stages. First stage is economic responsibility inthis stage companies have to be responsible for themselves at the first instance
through achieving sufficient profitability. The second stage is legal
responsibility
which defines that companies have to be responsible in
obeying the law. The third stage is ethical responsibility which implies
that companies have the responsibility to do the right things (for instance Starbucks use only the fair trade coffee for its product to deliver the best quality for customer).And the last and
considered to be placed on the top of pyramid is philanthropic
responsibility
in which companies are expected to improve the quality of
life (currently many companies engage in this type of responsibility through giving the donation to less-fortunate people).

Carrol’s definition achieve a huge success as it had been used in many CSR research for more than 25 years! the pyramid also clearly depicts that businesses’ responsibility is not only to create profit, but also to comply with the regulation, operate in ethical way, and improve society’s quality of live.

However, this definition was contended by Gray et al., (2014) as it is unclear of why economics motives become the foundation of the pyramid. does each stage of the pyramid is optional that a business might choose in which stage they want to be?

Motives of Doing CSR

Carrol and Shabana (2010) explained that one of the motives to engage in CSR practice is the business case which means, people wants to practice CSR merely if they could see the direct impact between CSR and companies financial performance. companies involve in CSR in order to reduce cost and risk, increase competitive advantage, increase reputation and legitimacy, and obtain a win-win outcome. However, the study result about CSR influences to companies’ financial performance is inconclusive. Some research suggest that it has positive relationship, some demonstrate a negative relationship, while the other assert that it has no relationship at all. the inconclusive finding of the studies do not necessarily means that the variable used is incorrect. CSR practice supposed to be different across companies thus the result might be different. another plausible explanation is, it supposed to be a mediating variable amidst  the CSR and companies’ financial performance such as, customer satisfaction.

Van Marewijk (2003) added that companies adopt CSR practice because they face corporate challenge. Nowadays, in order to obtain substantial success, companies have to practice High Quality management in which they have to integrate the business. companies have to be able to manage their scattered employee, the supply chain, and the surrounding societies. another reason is currently businesses are intersected with government and civil society as well that therefore businesses have to act in a responsible manner toward the government and societies. 

Another attempt to define businesses’ motives in CSR is appeared through Garriga and Melle
(2004) work in mapping CSR’s view into four groups of theories: instrumental
theories, political theories, integrative theories, and ethical theories.
The
instrumental theories viewed CSR as a mechanism to achieve profit.
Porter and Kramer’s (2006) view on CSR as the tool to achieve competitive
advantage could be grouped in the instrumental theories. The political
theories
stated that companies have to be responsible to the societies
since social duties and rights are emerged as a consequence of relationship
with societies. One example of political theories is the assumption of social
contract which asserts that companies have a responsibility to act in “socially
desirable”
way (Shocker and Sethi, 1973). The integrative theories
viewed that CSR is about balancing various social demands. One of contributors
to this theory are Deegan (2002) view about the importance of treating every
stakeholder fairly to achieve companies’ sustainability. Finally, the ethical
theories
defined that CSR as an ethical consequence companies need to
fulfil since they have developed the relationship with societies. The ethical
theories
contribute to the idea that CSR involve the responsibility to both
current and future generation 

Concluding Remarks

despite the various motives of businesses doing CSR and the elusiveness of CSR definition, one thing remains constant is CSR arisese as there is a relationship between business and society that therefore business bear the responsibility to act in a socially desirable way. My lecturer said, despite the fact that companies’ motive to engage in CSR is to achieve competitive advantage, CSR is originally not created for that purpose, business is a part of society and has to deliver the best for society, unless we want to see the future generation is collapse. 

last day we were escorting our friends from Manchester to enjoy Glasgow. we bring them to Pollok Park. located in the city side, Pollok Park is the largest green space in Glasgow. The feeling when you reach this park was a mixed of relax, freedom, and peace. this is a very recommended place to visit after you deal with numerous assignments. However, It is quite difficult to reach this place from Glasgow West End. you have to take a subway to Queen Street and get a train until Pollokshaw West or Maxwell Park, afterward you still have to walk around 15 minutes to reach the park.

days after exam

Hi Ya!

my exam was finished almost a week ago. I think I’ve gave the best for the exam, the result? yeah as long as I’ve performed my best I will not regret the result, whatever is it. There was a bit incident during my Management Accounting and Control exam, we were given two answer books before the exam started. I thought that the other book is for additional book in case we need it. however, I did not notice that each section of the exam had to be answered in two separate exam books. Oh pity me! I’ve just noticed that 5 minutes before the exam end. when the exam ended I asked my class mates if they answered in one book or two books. luckily, many of them answered in just one book :P, yet I still feeling restless, so I asked my program administrator if it was okay if such case happened, she said it was okay and I started to get a bit relax. the lessons I’ve take is to look before I leap and to notice the surrounding even it is the smallest thing. Sometimes people fall not because a big stone but because a small stone.

now I will just praying that the result will be the best that I can make my parents proud 🙂

some random reflection

oh, hi tumblr! been a long time not get in touch with you! even I forget when is the last time I update my blog, seems my tumblr becomes dusty *what a bad owner am I 😛

okay, I want to tell what I am feeling recently. you know exam is almost coming and I see student here is very ambitious! even the library is still occupied until midnight, when you come a bit late to the library you will find it difficult to find the chair (this remind me to my previous workplace when I have to find the chair if coming late). at first, I was thinking that graduate learning style won’t be too different from undergraduate. Yet this is completely wrong!. the learning structure might be the same, though some is not, but what make the different is, you have to be critical for certain things, for the existing theory, for the circumstances around you, you can not accept things as it is! you know truth is only from Allah other than that you have to be skeptic (more or less this reflects graduate taught). I find it very hard for me to deal with this situation, I used to learn everything as it is, memorizing each line of the book yet today only memorizing is absolutely not enough, I have to read between the line, find another sources of material, learn to write, etc. I feel that I am not confident enough to become a lecturer, if I compare my self to the existing lecturer in my campus such as  Bu Dwi and Bu Silvi, I see myself just like a speck of dust, they have numerous amount of publication, participates in accounting standard setting, even by seeing Bu Dwi’s blog or just talking with bu Silvi I became enlighted (oh my God i’m about to cry) . But one thing that pump up my spirit is Bu Dwi words, when she said, ‘UI students are smart student and they have to be taught by smart lecturer’. and also my ustadz statement ‘Women have to be smart, they will be the first teacher for their children, the future of nation is in women hand!”. okay ran, just be optimist and do the best„ laa hawla wa laa quwwata illa billah

Glasgow

1-12-2014

indrikhairatip:

shadicasper:

#BreakingStereotypes

Itu bukan “doctor” tapi “dentist” hoho *liat peralatan di belakangnyaa #koreksi

Eat the whole cake up :3