The two theories selected for discussion include Stakeholder theory and Legitimacy theory. The following are the list of journal chosen for the report, Accounting and Business Research Taylor & Francis Online, Accounting and Finance John Wiley & Sons, Inc, Accounting, Auditing and Accountability Journal, Accounting, Accountability, and Performance. Stakeholder theory has been defined as a theory which looks at relationships which exist between the different stakeholders and a particular organization. The legitimacy theory, on the other hand, entails providing an understanding of various actions and activities of a particular organization and such usually relates to the environmental and social matters. Much of the information on the two theories are explained in the report as discussed below.
According to Jensen (2017 p.80), the stakeholder theory is an accounting theory which takes into account the various relationships which exist between the different stakeholders and a particular organization. It mainly focuses on the treatment of a variety of stakeholders in an ethical manner. The groups and individuals who influence and also often affected by the achievements of organizational goals.
There are a variety of entities which the stakeholder theory can be used and such include, profit-oriented organizations whose primary goal is to obtain profit for the shareholders (Miles, 2017 p.450). The other types of entity are the voluntary associations which are typically established to attain certain purposes. Such an organization allows the members to exit freely if they want.
Cooper (2017 p.45), argues that the accounting information has a variety of roles which it plays in the stakeholder theory and such include, provision of various information to the stakeholders about the performance and activities of a particular organization. Additionally, the accounting information enables the stakeholders to evaluate the information provided and such information relates to the performance of an organization socially and environmentally (Andriof, Waddock, Husted and Rahman, 2017 p.80).
Stakeholder Theory According to Accounting and Business Research Taylor & Francis Online
Stakeholder Theory and Internal Marketing Communication
One of the fundamental elements of a successful internal marketing strategy is effective two-way communication. The critical drivers of growth and profit are customer loyalty which is attained through the satisfaction of the customers. The internal marketing, however, can help in establishing the service culture in an organization. Apart from considering the various values of the customers, the employees’ concerns should also be looked into, and this is because they do have a great impact on the service quality offered to the customers (Guest, Namey, Taylor, Eley and McKenna, 2017 p.700). The stakeholder theory emphasizes the equal treatment of all the stakeholders, and hence the employees must be treated fairly just like the clients of an organization.
According to the journal, the stakeholders can be defined as a fiduciary duty which is exercised to all the individual and groups who have an interest in the business enterprise. It emphasizes the transformation which involves moving from the customer satisfaction to the stakeholder satisfaction. The stakeholder theory calls for respect of all the stakeholders’ rights including both the customers and the employees and this should be in the formulated policy by all the corporations (Guix, Bonilla-Priego, and Font, 2017 p.10). Additionally, the stakeholder concept tends to assess a particular business enterprise in regards to the relationships which exist between the individuals who influence the success and failure of such an organization. According to the stakeholder theory, the success of any internal marketing entirely depends on communication between the various stakeholders and therefore it is necessary to establish a communication-based model of marketing which involves all the stakeholders including the government regulators, community, customers, shareholders, media, employees and suppliers among others.
There should, therefore, be a media which allows for communication among the various stakeholders of the company and therefore as a sole proprietor, it would be prudent to develop a particular media to help in the internal marketing of the organization by enabling communication among the stakeholders and the organization as a whole. Also, the employees must be respected in every organization, and this is because it enables them to satisfy the various needs of the internal and external customers (Guix et al.2017 p.10). The stakeholder theory aims at the creation of ethical organizational culture and climate which would constitute mutual trust among the different stakeholders.
Stakeholder Theory According to Accounting, Accountability and Performance Journal
According to the Accounting, Accountability and Performance Journal, stakeholder theory aims at determining the societal norms, and this involves the acknowledgment of various relevant stakeholders including their needs in a particular organization. It is therefore of significance that the managers of various firms be aware of the stakeholders (Theodoulidis, Diaz, Crotto and Rancati, 2017 p.180). The stakeholders are defined as those groups and individuals who are critical to an organization to enable it to survive through the attainment of the set objectives. The various stakeholders’ interest must, therefore, be taken into account by an organization to become successful and gain a competitive advantage over its other key competitors in a particular set of an industry. Further, it is argued that the varying requirements of stakeholders are fundamental and this is because they are a reflection of the norms and needs of a particular community.
An organization that is formulating certain policies must include the needs and rights of the stakeholders due to their influence on the success or failure of a particular firm. When an organization has identified the different stakeholders including their requirements, it will be now easy to design an information flow which will typically result in better performance of such an organization. Additionally, the stakeholder theory seems to address some of the relationship powers in the community and this is because the various powers of the stakeholders are vital due their influence on the legitimacy of a particular organization (Hyndman and McKillop, 2018 p.145). Such power of the stakeholders is based on their capacity to manipulate and thus be heard in the society. An organization must, therefore, acknowledge the importance of all the stakeholders since they determine the various societal norms. Also according to the stakeholder theory, the stakeholders are the primary actors during the enforcement of a certain critical policy which are aimed at correcting a variety of deficiencies in performance and therefore they are all important.
The legitimacy theory has often been used to comprehend the various actions and activities of a particular organization, and such usually relates to the environmental and social matters. The theory is typically based on the social contracts (Merkl-Davies and Brennan, 2017 p.450). A business must act in a way which is acceptable by the society to ensure that it survives for a long time and therefore an organization should operate based on the expectations of the social contract. The legitimacy of an organization illustrates how the social contract existing between the society and business enterprise is to be sustained. According to the organizational legitimacy, an organization by recognizing that their operations relate to a value system which is consistent with that of society to operate indefinitely (Bellucci and Manetti, 2017 p.110). To operate in a way that is acceptable by the society, it must take into account the various rights of the public and not just the shareholders.
According to Dube and Maroun (2017 p.30), an organization can obtain its legitimacy through a variety of ways, and this includes, by educating and informing the community on the different changes in their operations and activities. Also, an organization can obtain its legitimacy by changing the views of the society, and this should not include changing their behavior. The legitimation by an organization can also be obtained by manipulating the perceptions of society by diverting their attention to certain other matters which are not of concern (Smith, 2017 p.50). An organization can disclose information on their relationship with the society with a variety of goals such as the elimination of the negative news which could be in public. The other goal is to provide information on their strengths with the aim of non-disclosure of information about the negative activities.
Legitimacy Theory According to Accounting and Finance John Wiley & Sons, Inc.
According to the journal, the legitimacy theory primarily emphasizes on the level of analysis of a particular organization (Dumay, de Villiers, Guthrie and Hsiao, 2018 p.1430). Also, the theory looks at the various responses of an organization towards the social and environmental disclosures and therefore it expects all the organization to disclose some of the social and environmental activities to the public irrespective of the results, whether negative or positive. There are a variety of ways through which an organization can manage their legitimacy, and this could be based on the way it selectively provides information or even the ambiguous language it uses to prevent the release of negative activities to the society.
There are a number of ways that organizations use in the management of their legitimacy. For example, some of the organization fail to provide forthright information to the public by revealing their current situation. However there are other organizations which genuinely communicate forthright information to the community, and this entails disclosing the current situation of events in the organization (Carnegie and Napier, 2017 p.1650). Additionally, some of the organizations tend to maintain their legitimacy by changing the expectations of their performance, and this entails disclosure of predicted profits of the organization.
Legitimacy Theory According to Accounting, Auditing and Accountability Journal
According to the journal, legitimacy theory focuses on voluntary disclosures as being part of the legitimization process. Additionally, the theory primarily deals with the various processes and perceptions of different competing groups in society since this helps to sustain the operations of an organization (Rivera, Muñoz and Moneva, 2017 p.490). The legitimacy theory also aims at ensuring that a variety of organizations are operating within the norms and bounds of the society. An organization’s legitimacy can be defined as the generalized perceptions of the society on the activities of a particular business enterprise which are considered to be desirable and appropriate. However such actions must be based on values, belief, and norms of a society.
According to García?Sánchez and García?Meca, (2017 p.490), the legitimacy of an organization varies, but this is not permanent since it cuts across all the cultural and stakeholder groups in the community. An organization, therefore, applies a variety of strategies to maintain its legitimacy. The legitimacy of an organization can be improved by using symbolic actions which constitutes communicating the public image.
There are four techniques which can be used by an organization to maintain legitimacy, and this is especially when such an organization is faced with the threat of a legitimacy gap. When the performance of a particular corporate does not live to the expectations of the relevant stakeholders, then a legitimacy gap is considered to exist (Rivera et al.2017 p.490). The organizational legitimacy can, therefore, be improved by following ways;
The legitimacy theory has been used as a motivation to disclose results of an organization which is inconclusive, and thus most of the organizations tend to disclose all of their activities to the public to gain their trust for a better relationship.
Conclusion
In summary, the stakeholder theory and legitimacy theory offer motivations for social disclosure. The two accounting theories explain the importance of corporate social disclosure which is to be done by the management of a particular organization voluntarily. The stakeholder theory, for example, puts a lot of emphasis on the respect for the all interests of the stakeholders in an organization and this is because they all contribute to the success or failure of a firm. The legitimacy theory, on the other hand, emphasizes the need for disclosure of information concerning a particular organization to build a public image.
References
Andriof, J., Waddock, S., Husted, B. and Rahman, S.S., 2017. Value maximisation, stakeholder theory and the corporate objective function. In Unfolding Stakeholder Thinking (pp. 65-84). Routledge.
Bellucci, M. and Manetti, G., 2017. Stakeholder and legitimacy frameworks as applied to Behavioural Accounting Research. In The Routledge Companion to Behavioural Accounting Research (pp. 103-120). Routledge.
Carnegie, G.D. and Napier, C.J., 2017. The Accounting, Auditing & Accountability Journal Community in its 30th year.Accounting, Auditing & Accountability Journal, 30(8), pp.1642-1676.
Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.
Dube, S. and Maroun, W., 2017. Corporate social responsibility reporting by South African mining companies: Evidence of legitimacy theory. South African Journal of Business Management, 48(1), pp.23-34.
Dumay, J., de Villiers, C., Guthrie, J. and Hsiao, P.C., 2018. Thirty years of Accounting, Auditing and Accountability Journal: A critical study of the journal’s most cited articles.Accounting, Auditing & Accountability Journal, 31(5), pp.1510-1541.
García?Sánchez, I.M. and García?Meca, E., 2017. CSR engagement and earnings quality in banks. The moderating role of institutional factors. Corporate Social Responsibility and Environmental Management, 24(2), pp.145-158.
Guest, G., Namey, E., Taylor, J., Eley, N. and McKenna, K., 2017. Comparing focus groups and individual interviews: findings from a randomized study. International Journal of Social Research Methodology, 20(6), pp.693-708.
Guix, M., Bonilla-Priego, M.J. and Font, X., 2017. The process of sustainability reporting in international hotel groups: an analysis of stakeholder inclusiveness, materiality and responsiveness. Journal of Sustainable Tourism, pp.1-22.
Hyndman, N. and McKillop, D., 2018. Public services and charities: Accounting, accountability and governance at a time of change. The British Accounting Review, 50(2), pp.143-148.
Jensen, M.C., 2017. Value maximisation, stakeholder theory, and the corporate objective function. In Unfolding stakeholder thinking (pp. 65-84). Routledge.
Merkl-Davies, D.M. and Brennan, N.M., 2017. A theoretical framework of external accounting communication: Research perspectives, traditions, and theories. Accounting, Auditing & Accountability Journal, 30(2), pp.433-469.
Miles, S., 2017. Stakeholder theory classification: A theoretical and empirical evaluation of definitions. Journal of Business Ethics, 142(3), pp.437-459.
Rivera, J.M., Muñoz, M.J. and Moneva, J.M., 2017. Revisiting the relationship between corporate stakeholder commitment and social and financial performance.Sustainable Development, 25(6), pp.482-494.
Smith, M., 2017. Research methods in accounting. Sage.
Theodoulidis, B., Diaz, D., Crotto, F. and Rancati, E., 2017. Exploring corporate social responsibility and financial performance through stakeholder theory in the tourism industries. Tourism Management, 62, pp.173-188.
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