Question:
Discuss about the Characteristics of Voluntary Disclosure.
Nowadays public and citizens have enhanced demand and awareness for more information and have depicted an increasing interest in the social framework of business activities. Therefore, with the enhancement of awareness among the citizens, all companies have reacted to the demand of their stakeholders by involving in CSR activities and by going beyond their traditional affairs of concentrating on income and generating value for their shareholders. Further, in India, CSR is perceived as a philanthropic affair that tends to concentrate on what is done with the income after they are made. Overall, much CSR practice in India is a relevant component of responsible business or sustainability as a whole. The CSR practices even support the theory of legitimacy meaning that the actions of the entity are desirable and as per the norms with well established values and beliefs.
The study mainly focuses on the concept of corporate social reporting. The paper attempts to highlight the difference between public sector and private sector companies. The main determinants of the corporate reporting are adequately highlighted. A close understanding on the CSR elements is vividly discussed and the CSR initiatives are discussed in the report. The report gave a correct explanation of the CSR activities and helps in benefiting the society at large.
A close understanding on the components of CSR disclosure reflects that community development (CD) and human resource (HR) are the major stakeholders that must be addressed through the CSR initiatives. The reason behind this can be attributed to the fact that CSR activities that are disclosed in the annual reports of organizations reflects more information on the engagement of companies in community programs, donation, and sponsoring event, art, sport event, etc. Besides, focus on human resource can be attributed to the fact that such component can assist organizations in enhancing and improving their competitiveness. Furthermore, various analysts are also of the view that external consideration of issues allows a company to be more responsible and accountable to the entire society or community (Benabou & Tirole, 2010). Legitimacy is the major consideration for any organization because that constructs the destiny of the organization. It is one of the major area that pertains to social and environmental accounting area. This further assists the organization to sustain as a proper entity in the future because community is the most important stakeholder that allows facilitation of relevant investment decisions. In contrast to this, if internal issues associated with the management of human resources are not being given due consideration, then the engagement of companies in CSR activities cannot assist them in attracting and retaining workforce (Hossain & Reaz, 2007).
In relation to the components of CSR disclosures in India, it can be seen that there are majorly four kinds. These components are firstly, human-related information (HR), secondly is community development information (CD), thirdly is product safety and innovation details (PSI), and fourthly is environmental related information that further consists of disclosures associated with greenhouse gases and other energy disclosures. Community development disclosure entails the actions undertaken by Indian organizations in partnership with the community so that the general society can be offered with skills, resources, and actions that they require to bring positive changes in the community (Brammer & Pavelin, 2006). Further, any social affair undertaken by an Indian entity to groom and retain HR including social performance focused towards the well-being of corporate employees is the CSR for human resource. Further, any activity that can pertain to the efficacy of a customer at large can be considered as a CSR activity under the bucket of product and safety disclosure. Lastly, any kind of activity undertaken by an organization to avoid environmental degradation including prevention of soil, water, and air pollution can be considered under the ambit of corporate social responsibility under the bucket of environmental disclosure. Hence, these are the relevant components of CSR disclosures in India (Murthy & Abeysekera, 2008).
With due passage of the Companies Act 2013 in India, the mandate for CSR has now been formally implemented to the dashboard of the Indian organizations. Such inclusion of the CSR compulsion was an attempt to enhance the efforts of government to deliver the advantages of growth equitably and effectively so that the corporate world could be involved with the development agenda of the country. Previously, CSR disclosures were not mandatory in India and therefore, many public sector enterprises sought undue advantage from the same by restricting their corporate disclosures for the benefit of the users. However, fortunately such CSR has become mandatory for every company in India. The mandatory guidelines framed for the companies assist in mandating a specific percentage of the company’s post-tax profits for the projects of CSR so that a direction can be offered regarding the monitoring, implementation, and reporting of social disclosures. This is the reason why studies have shown that mandating CSR practices in India have made such measures more strategic nature instead of more philanthropic. The major reason behind this can be attributed to the fact that CSR is considered strategically relevant to both the private and public sectors of Indian economy, and this has been possible by the government of India’s attempt in mandating the CSR disclosure measures (Scott, 2009).
While the quantum of reporting under CSR has become mandatory with the development of section 135 (Companies Act), there is also some kind of inflexibility in the inbuilt law associated with the reporting choices of a company’s CSR activities. This is because the act instead of rigidly explaining the boundaries of CSR specifies in annexure VII that the company has free choice to potentially undertake such CSR activities, thereby making such disclosure attempts discretionary on the part of them (Kruger, 2015). In simple words, as far as section 135 is under consideration, the law undertakes explain or comply approach that does not specify any penalties for non-compliance. Overall, it can be seen through the evaluation of various surveys in India that even though several companies have taken on board the concept of CSR reporting within their framework, yet such CSR reporting seems to be in a confused state (Bauer & Hann, 2010). This is because individual companies have defined their own reporting choices for CSR that ultimately transforms all activities undertaken in the name of CSR to be philanthropic in nature. Nonetheless, it seems that the CSR reporting choices in India has been evolving in the framework of profit distribution as a whole (Wicks & Colle, 2010). This implies that contributions to the legitimacy theory have been done and this theory is a powerful mechanism that stress upon the social and environmental disclosures.
As the business environment is getting complicated, good CSR practices can assist in providing the following benefits. Firstly, various CSR initiatives allow companies in India to invest in developing community livelihood by accommodating them into their respective supply chain. This can assist in benefiting the communities by enhancing their level of income. Besides, this also assists in offering these companies a secure and additional supply chain. Secondly, CSR disclosure practices in India can also assist in generating a favorable image and other branding advantages to the companies that will continue to prevail until such companies carry on with the CSR programs (Albuquerque et.al, 2013). Furthermore, this also allow the companies to position themselves as effective and responsible citizens of the corporate world. Lastly, various studies have also provided that human resource programs in the framework of CSR disclosure can play a key role in retaining, attracting, and motivating employees. This is done by interlinking the company’s ability of undertaking such steps with their respective CSR commitments.
Based on various studies, it has been seen that professionally managed organizations are very aggressive in corporate social and disclosure measures. This is because they involve professionals in all three phases of such measure (introduction, implementation, and assessment). Besides, some professional entities also engage in CSR by themselves, as they possess limited focus within their affairs (Thomas, 2016). In addition to such limitation, it has also been witnessed that most of the social and disclosure practices of corporations tend to confine reporting their respective schemes and other details but do not even appropriately reflect the actual issues in the implementation of CSR at several phases of economic growth (Adams, 2002). In simple words, no organizations reflect how they carry on their CSR practice, or how they recognize and select NGO’s and strategic partners. Furthermore, no details of CSR monitoring can also be found in the reporting measures. In addition, it is also unknown whether organizations pursuing special CSR departments have in reality undertaken any capacity building on CSR and its disclosure (Paradise & Rogoff, 2009). Another limitation to the existing study of CSR disclosure is that since stakeholders are illiterate that prevents them from comprehending the CSR details, it may be better if the content of such reporting measures had been restricted to the scheme details.
Conclusion
Business entities all over the world are now realizing their stake in the community together with involvement in several environmental and social affairs. The only requirement of the hour is to frame effective strategic policies and instruments based on the history of the company, its content, peculiarity in interconnection with its respective stakeholders so that the implementation of CSR can be undertaken towards its defined goals, that is sustained social, economic, and environmental growth.
References
Adams, C. A., 2002, ‘Internal Organisational Factors Influencing Corporate Social and Ethical Reporting beyond Current Theorising’, Accounting, Auditing & Accountability Journal, vol. 15, no.2, pp. 223-250.
Albuquerque, R, Durnev, A, Koskinen, Y 2013, Corporate social responsibility and firm risk: theory and empirical evidence, Boston University.
Bauer, R & Hann, D 2010, Corporate environmental management and credit risk, Maastricht University.
Benabou, R & Tirole, R 2010, ‘Individual and Corporate Social responsibility’, Ecnomica vol.11, pp. 1-19
Brammer, S. & Pavelin, S., 2006, ‘Voluntary Environmental Disclosures by Large UK Companies’, Journal of Business Finance & Accounting, vol. 33, no. 7, pp. 1168-1188.
Hossain, M, & Reaz, M., 2007, ‘The Determinants and Characteristics of Voluntary Disclosure by Indian Banking Companies’, Corporate Social Responsibility and Environmental Management, vol. 14, pp. 274–288.
Kruger, P 2015, ‘Corporate goodness and shareholder wealth’, Journal of Financial economics, pp. 304-329
Murthy, V & Abeysekera, I 2008, ‘Corporate social reporting practices of top Indian software firms’, Australasian Accounting, Business and Finance Journal, 2(1), 22-34.
Paradise, R & Rogoff, B 2009, ‘Side by Side: Learning by Observing and Pitching In’, Ethos, vol. 37, pp. 102–138
Scott, C.M 2009, Green Economics. London: Earthscan.
Thomas, S.A 2016, The Nature of Sustainability, Chapbook Press. Grand Rapids, Michigan
Wicks, H & Colle, D 2010, Stakeholder Theory, State of the Art, Cambridge University Press
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