Valuing stakeholders and credible CSR

Value creation stakeholder accounting

Few management concepts are more influential in the corporate responsibility field than stakeholder theory and few management journals more august than the Journal of Management Studies. Which is why a special issue on the subject of accounting for stakeholders in all their fangled guises (i.e. not just shareholders) marks a remarkable development for the academic mainstream. The theoretical scope of this fascinating compendium ranges from monetising stakeholder claims (a combination of time, security and priority) and defining social return on investment through to critiquing the public accounting profession and analysing how managers should capture stakeholder voices in accounting system recording.

Setting the tone and direction of the special issue is the introductory article, whose co-authors include Edward Freeman, the widely cited pioneer of stakeholder theory. This opening paper is nothing if not ambitious. Essentially, Freeman and his colleagues are setting about rewriting global financial accounting norms. Their purpose: to develop a system that more accurately captures the value creation that an inclusive approach to stakeholder-led management provides. This effort is as necessary as it is bold. The authors’ conviction is that accounting is not ultimately about looking backwards to what has happened in a firm, but setting markers by which future decisions can be made.

For all their scholarly chutzpa, the authors do not ditch 200 or so years of accountancy theory. Instead, they seek to take its essential tenets and reconstitute them with broad stakeholder inclusivity in mind. The result is what the paper defines as “value creation stakeholder accounting” or VCSA. One of the main differences between Freeman et al’s proposed approach and conventional non-financial reporting is the prioritisation the former gives to risk. Every domain of knowledge classification requires an invariant; in VCSA, this common denominator is the sharing of the risks among various shareholders. The three core elements of social value accounting (accounting, value-creation/entrepreneurship and stakeholder theory) are all analysed through a risk lens. So for accounting, for instance, the risk element relates to lack of precision. For value creation, in contrast, the authors’ concerns centre on how risk-sharing generates value (answer: through a four-phase framework that the paper calls activities, alignment, interaction and reciprocity).

There is plenty of conceptual cleverness on show here, but the test – as ever – is in its practicability. Here, Freeman and colleagues make a valiant stab at suggesting a mechanism by which their VCSA methodology might move from the blackboard to the board room. The solution hinges on two factors. The first is a full assessment of a firm’s exposure to so-called “sink-the-boat” and “miss-the-boat” risks (i.e. those arise for stakeholders from a business’s decision to either act or desist from acting), which can only be achieved when possible outcomes for all stakeholder groups (not just the outcome for shareholders) are taken into consideration. Playing into this is the second factor, which is the proposal to ditch the “entity convention” of accounting (which puts the firm at the centre of accounting) and the “proprietary convention” of accounting (which is used for corporate partnerships, and which invites a multi-stakeholder perspective to accounting).

The paper concludes with a brief comparison between the value creation stakeholder partnership accounting mechanism on the one hand, and a balanced-scorecard approach and a triple-bottom-line accounting approach on the other. Neither of the latter is found to be fully compatible, suggesting a veritable new departure.

Freeman, E et al, Nov 2015, “Stakeholder Inclusion and Accounting for Stakeholders », Journal of Management Studies (Special Issue), 52 (7): 851-877.

CSR communication: closing the credibility gap

Everyone knows that corporate social responsibility communications – however well-intentioned – suffer a credibility gap with the wider public. What no-one seems to know is how to resolve it. It is into the midst of this debate that this punchy paper jumps. Emerging from the political (i.e. non-instrumental) CSR literature, the authors build their case around a Habermasian approach to communication. In essence, this applies four “validity claims” (truth, sincerity, understandability, and appropriateness of communication) to determine which forms of corporate messaging do and don’t hold moral legitimacy. The important thing about moral legitimacy is that, unlike cognitive and pragmatic legitimacy, it’s not attributed by one party to another but negotiated through the communication process. Or, in real world terms, it’s about how what a company does coincides with what society expects it to do (and not about it saying what it does with limited proof and zero feedback: aka standard public relations).

Social media encourages feedback

Credibility gaps emerge when communication undermines one or more of the validity claims. Avoiding untruths, lack of sincerity and unintelligibility should be straightforward. Where firms often trip up is defining “appropriateness”, which, at its most basic, the authors narrow down to styles of communication that are symmetrical, transparent and two-way. These core principles accord with Habermas’s theory of deliberative democracy. As the paper states, deliberation involves “consideration, discussion, and weighting of ideas with multiple actors” and implies “a balance of power of actors involved and democratic will formation based on ethical discourse combined with economic bargaining”.

With these pre-conditions in mind, the authors lay out a typology of communication. This divides tools for communicating between those that are instrumental (i.e. aimed at using CSR to meet the firm’s economic goals first) or deliberative, and between those that are published and unpublished (such as a CSR strategy paper, internal code of ethics, or stakeholder dialogue sessions).

The authors push strongly for the deliberative option. So take online communications: web 2.0 applications such as social media networking platforms, blogs or wikis are rated above unidirectional CSR statements on web pages that do not allow for responses. In supporting deliberative communications that concord with Habermas’s four validity claims, the authors acknowledge that they are indulging “ideal speech” that may seem implausible in reality. At the same time, they argue that discourse participants must all have the same opinion; what’s important is that they come together to find a consensus among themselves for the public good in a discursive process.

The paper succeeds in placing CSR communication at the heart of political CSR theory, as well as tying recent developments in online technology and wider network theory into its typology. One theoretical problem, however, is the failure to grapple with the notion that non-corporate stakeholders may engage in instrumental communication of their own (especially in the social media realm which is not controlled by companies). In addition, their typology has yet to undergo any empirical testing. A longitudinal case study would represent a worthy next step.
Seele, P, and Lock, I (Oct 2015), “Instrumental and/or Deliberative? A Typology of CSR Communication Tools”, Journal of Business Ethics, 131: 401–414

On Campus

The United Nations Principles for Responsible Management Education, a leading network of academic institutions promoting values-led business principles, has seven new members. The list includes Germany’s Cologne Business School, Derby Business School in the UK and Brazil’s Insper.

Harvard, Yale, Princeton and their other Ivy League peers are hosting their annual All Ivy Environmental and Sustainable Development Career Fair on 4 March 2016 at Columbia University. 

stakeholder engagement  social value  Academic news  Business School Bulletin 

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