Environmental Disclosures

8/3/2019 Environmental Disclosures

1/28

AAAJ15,3

344

Accounting, Auditing &

Accountability Journal,

Vol. 15 No. 3, 2002, pp. 344-371.

# MCB UP Limited, 0951-3574

DOI 10.1108/09513570210435870

Received September2001Revised January 2002Accepted March 2002

Environmental disclosures inthe annual report

Extending the applicability andpredictive power of legitimacy theory

Gary O'DonovanVictoria University, Melbourne, Australia

Keywords Environment, Disclosure, Case studies

Abstract Much of the extant research into why companies disclose environmental information inthe annual report indicates that legitimacy theory is one of the more probable explanations for theincrease in environmental disclosures since the early 1980s. Legitimacy theory is based on the idea

that in order to continue operating successfully, corporations must act within the bounds of whatsociety identifies as socially acceptable behaviour. The purpose of the practical research undertakenand reported in this paper is to extend the applicability and predictive power of legitimacy theory byinvestigating to what extent annual report disclosures are interrelated to: attempts to gain,maintain and repair legitimacy; and the choice of specific legitimation tactics. The quasi-experimental method adopted utilised semi-structured interviews with senior personnel from threelarge Australian public companies. The findings indicated support for legitimacy theory as anexplanatory factor for environmental disclosures. Moreover, findings about the likelihood of specificmicro-legitimation tactics being used in response to legitimacy threatening environmental issues/events, and dependent on whether the purpose of the response is designed to gain, maintain orrepair legitimacy, are reported.

Introduction

Given current corporate practices, not one wildlife reserve, wilderness or indigenous culture willsurvive the global market economy. We know that every natural system on the planet isdisintegrating. The land, water, air and sea have been functionally transformed into repositoriesfor waste. There is no polite way to say that business is destroying the world (Hawken, 1993, p. 3).

It is commonly acknowledged that the main aim of for profit corporations is togenerate acceptable returns for their shareholders. Hawken's statementemphasises the emergent, if not already accepted, belief that large corporationshave to satisfy a broader group of interested stakeholders, whose interests aremore than just financial. The increased use and application of the term ` the triplebottom line'' (Elkington, 1999) in the corporate arena, to explain a corporation's

financial, social and environmental performance and its link to the idea ofsustainable development, is one indication of this increased awareness.

Corporations are social creations and it has been argued that their existencedepends on the willingness of society to continue to allow them to operate(Reich, 1998). The idea of a social contract between business and individualmembers of society suggests that, while the main aim of a business is to makeprofits, it also has a moral obligation to act in a socially responsible manner(Shocker and Sethi, 1973). This obligation is the basis of an intangible socialagreement or contract between business and society. The idea of a social

The current issue and full text archive of this journal is available at

http://www.emeraldinsight.com/0951-3574.htm


2/28

Environmentdisclosures in th

annual repo

34

contract is an integral part on which ``social theories'' such as stakeholdertheory (Clarkson, 1995; Mitchell et al., 1997; Roberts, 1992), legitimacy theory(Guthrie and Parker, 1989; Mathews, 1993; Patten, 1992; Sutton, 1993),accountability theory (Gray et al., 1995) and political economy theory (Buhr,

1998; Guthrie and Parker, 1990) have been developed in an attempt to explainvarious aspects of corporate social behaviour. While it has been argued thatthese are not fully fledged theories and that they are still being developed, theydo, however, provide useful frameworks for studying corporate socialbehaviour (Gray et al., 1996). The distinction between these theories is oftenblurred and there appears to be a great deal of overlap. All are concerned withinterplay between the corporation and its stakeholders as it is encompassed inthe idea of the social contract. The main distinction between them is theviewpoint from which they are observed and tested.

``Bourgeois'' political economy theorists (Gray et al., 1996) hypothesise thatmanagement disclosure decisions are linked to a broad range of interconnectedpolitical, social and economic influences and that legitimacy theory andstakeholder theories are more specific theories developed within a politicaleconomy framework. Stakeholder theory is based and tested on the direct effectthat stakeholders have on management decisions about a corporation'sactivities and disclosures (Roberts, 1992). Accountability theory is based on therights of the principal (stakeholder) to require information (Gray et al., 1995).Legitimacy theory is analysed from a managerial perspective in that it focuseson various strategies managers may choose to remain legitimate (Deegan et al.,2000; Patten, 1992). Gray et al. (1996) argue that legitimacy theory is a variantof stakeholder theory, which adds conflict and dissension to the picture and canbe employed to explain more specific information about corporate socialpractices. Legitimacy is the theoretical perspective adopted in this paper.Information about its composition, nature and implications in relation to socialand environmental disclosures is well covered in a number of existingpublications[1], hence reference to its background and to recent studies will belimited here.

Legitimacy theory is derived from the concept of organisational legitimacy,which has been defined as:

. . . a condition or status which exists when an entity's value system is congruent with thevalue system of the larger social system of which the entity is a part. When a disparity, actualor potential, exists between the two value systems, there is a threat to the entity's legitimacy(Dowling and Pfeffer, 1975, p. 122).

Legitimacy theory posits that the greater the likelihood of adverse shifts in thesocial perceptions of how an organisation is acting, the greater the desirabilityon the part of the organisation to attempt to manage these shifts in socialperceptions. In order to remain legitimate, organisations may conform with or,in a number of different ways, attempt to alter social perceptions, expectations,or values as part of a legitimation process (Dowling and Pfeffer, 1975;Lindblom, 1994). It is generally agreed, that if a corporation changes itsactivities or attempts to alter other's perceptions of its activities, these must be


3/28

AAAJ15,3

346

accompanied by disclosures (Deegan et al., 2000; Cormier and Gordon, 2001). Ifnot, the intended audience will be unaware of what it is the company is doing ortrying to achieve and legitimacy will be problematic.

Suchman (1995) contended that the choice of legitimation tactics and public

disclosures an organisation makes will differ depending on whether it is tryingto gain, maintain or repair legitimacy. The extent to which relationshipsbetween these variables exist has not been tested. In this context it is arguedthat studies about whether voluntary social and environmental annual reportdisclosures are related to legitimacy motives have, to some extent, stagnated. If``legitimacy theory'' is to develop at a micro level and to continue to provideuseful insights in understanding motivations for the disclosure of social andenvironmental information, these relationships must be understood.

The main purpose of this paper is to refine the use and application oflegitimacy theory by investigating possible links between: a potentiallylegitimacy threatening environmental issue/event; the choice of legitimationtactics, resulting in annual report disclosures, and whether the purpose of thechoice of tactics is to gain, maintain or repair legitimacy. The approach taken inthis paper is deliberately more functionalist than critical. It attempts, in anexploratory way, to discover ways in which micro components of legitimacytheory can be identified and how they effect disclosure decisions.

The remainder of this paper is presented as follows. A description of thebasic principles involved in managing legitimacy is followed by a discussionon the types of legitimation tactics related to particular legitimation purposes(gain, maintain, repair). The specific tactics/disclosure approaches chosen foruse in this investigation are introduced next along with an explanation of the

importance of the annual report as a means of communicating the tactics. Adescription of the method and data analysis techniques adopted for thepractical part of the investigation is then provided and is followed by adiscussion of the findings. The paper concludes with a discussion of somelimitations in interpreting the findings, opportunities for further research andan evaluation of the practical and theoretical importance of the findings.

Managing corporate legitimacyIt is acknowledged that legitimacy is conferred by outsiders to the corporation,but may be controlled by the corporation itself (Ashforth and Gibbs, 1990;Buhr, 1998; Dowling and Pfeffer, 1975; Elsbach, 1994; Elsbach and Sutton,

1992; Pfeffer and Salancik, 1978; Woodward et al., 1996). This indicates thatchanges in social norms and values are one motivation for organisationalchange and also one source of pressure for organisational legitimation.

The illustration in Figure 1 adopts the perspective that threats to present orpotential legitimacy emanate from a corporation's negative association with anissue/event (Brown and Deegan, 1999; Nasi et al., 1997). The area marked X inFigure 1 represents congruence between corporate activity and society'sexpectations of the corporation and its activities, based on social values andnorms. Areas Y and Z represent incongruence between a corporation's actions


4/28


annual repo

34

and society's perceptions of what these actions should be. These areasrepresent ` illegitimacy'' or legitimacy gaps (Sethi, 1978). The aim of thecorporation is to be legitimate, to ensure area X is as large as possible, therebyreducing the legitimacy gap. A number of legitimation tactics and disclosureapproaches may be adopted to reduce the legitimacy gap.

The status of a corporation's legitimacy may be difficult to establish, giventhat a corporation's legitimacy is based on social perceptions and values whichcan and do change over time. In order to manage legitimacy, corporations needto know how legitimacy can be gained, maintained or lost. At a broad level,Wartick and Mahon (1994) suggest that legitimacy gaps may arise because:

. corporate performance changes while societal expectations of corporateperformance remain the same;

. societal expectations of corporate performance change while corporateperformance remains the same; and

. both corporate performance and societal expectations change, but theyeither move in different directions, or they move in the same direction,but with a time lag.

Corporations whose legitimacy is, or may become, elusive can only successfullymanage legitimacy by identifying important ``manageable'' issues/events at thesame time as identifying groups of stakeholders who have the necessaryattributes to be able to confer or withdraw legitimacy on the corporation inrespect of those issues/events (Neu et al., 1998). It is posited that once

legitimacy is threatened, a corporation will embark on a process of legitimationtargeted primarily at those groups who it perceives to be its ` conferringpublics'' (O'Donovan, 2000), those who have the necessary stakeholderattributes (Mitchell et al., 1997) to confer or withdraw legitimacy. Terms suchas relevant publics (Buhr, 1998; Lindblom, 1994; Neu et al., 1998), constituents(Bansal, 1995) and social actors (Ashforth and Gibbs, 1990; Deephouse, 1996;Pfeffer and Salancik, 1978) have been used to describe stakeholders who maybe potentially influential in determining an organisation's legitimacy. The term` conferring publics'' is both a tightening and amalgam of these terms.

Figure Issues/events a

corporate legitima


5/28

AAAJ15,3

348

If senior management perceive that legitimacy is threatened, then legitimacy

theory can now be described as: the greater the likelihood of adverse shifts in a

corporation's conferring publics' perceptions of how socially responsible a

corporation is, the greater the desirability on the part of the corporation to

attempt to manage these shifts in social perceptions. This description includes

a number of variables that need to be identified and unpacked, including the

ways that ``adverse shifts'' arise and how a corporation might ``manage'' these

shifts (see Table I).

If a corporation consciously changes its activities, one would assume that

managers would be aware of possible effects on legitimacy caused by these

changes. In some circumstances, however, identifying the status of one's

legitimacy can be difficult because a corporation could lose legitimacy even

though it does not change its activities. This may happen to a corporation because:

(1) of a change in the composition of its conferring publics;(2) its conferring publics' values alter because of:

. evolving social awareness (Elsbach and Sutton, 1992);

. regulatory or institutional pressures (Deegan and Gordon, 1996);

. media influences (Ader, 1995);

. interest group pressures (Tilt, 1994);

. corporate crises (Marcus and Goodman, 1991).

Each of these could be important in isolation or may be interconnected, causing

a flow-on effect. For example, media or interest group pressures could causeregulatory or institutional pressures, which could lead to an evolving social

awareness on the part of an entity's conferring publics. Contemporary social

issues/events are precursors to legitimacy threats (Brown and Deegan, 1999;

Response/tacticSample tactics: oil company involved in a significant oil spill causingenvironmental damage

A. Avoid (a) Do not enter public debate on the affects or aftermath of the oilspill;

(b) Do not publicise what may be perceived as negative information

B. Attempt to altersocial values

Educate the public on the risks associated with transporting oil andthe positive uses of oil with respect of standard of living measures

C. Attempt to shapeperceptions of the

(a) Reiterate past social and environmental achievements of thecompany;

organisation (b) Indicate the company did not breach any current legislativeguidelines for transport oil

D. Conform toconferring publics'values

Announce an immediate inquiry into the cause of the spill andassure the public that any measures necessary to ensure this type ofaccident does not happen again will be undertaken

Table I.Possible response/tactics to legitimacythreats


6/28


annual repo

34

Patten, 1992). In relation to these issues/events, for a corporation to managelegitimacy effectively, it must:

. identify its conferring publics;

.

establish what are its conferring publics' social and environmentalvalues and perceptions of the corporation (public pressure variables);

. decide on the purpose or aim of any potential organisational response tolegitimacy threats; and,

. decide what tactics and disclosure options are available and suitable formanaging legitimacy, related to the purpose of the organisationalresponse.

It is beyond the scope of this paper to investigate specific public pressurevariables and to identify the nature and composition of particular conferring

publics. The practical part of the investigation is concerned with identifyinglinks between the purpose of the organisational response, the choice oflegitimacy tactics and related annual report disclosures.

The purpose of the corporate response to legitimacy threats: gain,maintain or repair?It has been argued that the choices of legitimation tactics are to some extentdependent upon the different purposes or aims of any organisational response(Ashforth and Gibbs, 1990; Oliver, 1991; Suchman, 1995). Legitimationtechniques/tactics chosen will differ depending on whether the organisation istrying to gain or to extend legitimacy, to maintain its level of current legitimacy

or to repair or to defend its lost or threatened legitimacy.If a large corporation moves into a new, largely uncharted, area for itself and

its stakeholders it will face the task of gaining legitimacy, either for thepropriety of the new activity in general, or for management's own validity asmanagers. This is a ` liability of newness'' (Ashforth and Gibbs, 1990). Inattempting to gain legitimacy, management would tend to be proactive. Theyhave advance knowledge of the change which could possibly threaten theorganisation's legitimacy. Because of this they should, in most instances, beable to control the dissemination of information.

In general the task of maintaining legitimacy is thought to be far easier than

either gaining or repairing it. According to Ashforth and Gibbs (1990, p. 183):. . . once conferred, legitimacy tends to be largely taken for granted . . . Reassessments of

legitimacy become increasingly perfunctory if not mindless.

The challenge for management in maintaining legitimacy is to identify thatconferring publics' needs and wants change over time. Legitimacy represents arelationship with stakeholders that the organisation must keep current.Organisations need to observe, or even anticipate, change and protect pastaccomplishments if they are to maintain their legitimacy (Suchman, 1995).


7/28

AAAJ15,3

350

A potential problem arises if one is to test which tactics are used to maintainlegitimacy. A distinction needs to be made between corporations with differentlevels of legitimacy to maintain. If a corporation is accepted as a good corporatecitizen, acts responsibly or even in a proactive manner in regard to socialissues, the public will have certain expectations in relation to the organisation'ssocial and environmental activities. The less ` legitimacy'' an existingorganisation has to begin with, the less it needs to maintain. Oliver (1991)points this out in reference to institutional pressures on corporations. Sheasserts that when an organisation's performance and survival are onlymoderately dependent upon the good opinion of the public (e.g. weaponsmanufacturers), avoiding the issue may be the extent of an organisation'sresponse to institutional rules and expectations. In the reverse situation, if anorganisation that promotes itself as extremely socially and environmentallyresponsible were to maintain its legitimacy, it would need to ``keep one step

ahead'' of what its conferring publics would expect of it.Repairing legitimacy has been related to different levels of crisismanagement (Davidson, 1991; Elsbach and Sutton, 1992). The task of repairinglegitimacy is, in some ways, similar to gaining legitimacy. If a ` crisis'' isevolving proactive strategies may need to be adopted, as has been the case forthe tobacco industry during the last two decades (Pava and Krausz, 1997).Generally, however, the main difference is that strategies for repairinglegitimacy are reactive, usually to an unforeseen and immediate crisis, whereastechniques to gain legitimacy are usually ex ante, proactive and not normallyrelated to a crisis.

An environmental accident of the magnitude of the Exxon Valdez oil spill is

an example of a crisis that warranted repairing legitimacy. It is argued that, inthis situation, legitimation tactics suitable to gain or maintain legitimacy wouldtend to be less useful, as they would already appear to be discredited to a greatextent. The occurrence of the crisis itself implies that any previous legitimationtechniques were:

. . . nothing more than puffery regarding performance (Ashforth and Gibbs, 1990, p. 183).

The majority of empirical research into managing legitimacy has beenconcerned with responses to issues or events that were widely publicised andbrought the industry or corporation in question into the public spotlight. Thesestudies have, in the main, been concerned with organisational responses

consistent with the purpose of repairing or defending legitimacy (for example,see Elsbach, 1994; Sutton and Callahan, 1987). Moreover, much of the researchseeking to explain the increase in environmental disclosures in annual reports,using a legitimacy framework, has also been linked to ``negative'' events orcrises (Patten, 1992; Deegan and Rankin, 1996; Walden and Schwartz, 1997),conducted ex postand consistent with attempts to repair legitimacy.

An evaluation of the literature in this area suggests that the organisationalresponse will take on a different form and will have different characteristics,depending upon the purpose of the response. It is contended that the different


8/28


annual repo

35

purpose and different characteristics will result in different legitimation tacticsand disclosure approaches being used. There has been a lack of research intothe types of tactics/strategies and disclosures used to gain or maintainlegitimacy. These areas are given consideration in the practical part of thisinvestigation.

Communicating legitimation tactics: environmental disclosure andthe annual reportLiterature on managing legitimacy both explicitly and implicitly states thatcontrolling and communicating tactical responses is one means of managinglegitimacy (Dowling and Pfeffer, 1975; Lindblom, 1994; Sethi, 1978; Suchman,1995). The annual report has been the major communication medium and datasource for researchers investigating motivations for environmental disclosures(Gray et al., 1995; Unerman, 2000).

The annual report has long been considered to be a major public document,which is a pivotal presentation by a company and has significant influence onthe way financial markets and the general public perceives and reacts to acompany (Anderson and Epstein, 1995). It has been argued that the inclusion ofvoluntary information in the annual report can be, and is, used by managers tosend specific signals and messages to the public (Salancik and Meindl, 1984). Ithas also been emphasised that the inclusion of information in the corporateannual report is used to persuade readers to accept management's view ofsociety (Amernic, 1992) and that annual reports are both reflective andconstitutive of a wider set of societal values (Dyball, 1998). These views areconsistent with management using the annual report for legitimation purposes.

It has been recognised that corporations voluntarily disclose social andenvironmental information in the annual report to send messages to ``society''and other corporate stakeholders about their social and environmental actionsand activities (Deegan et al., 2000; Frost and Wilmshurst, 1998; Gibson andO'Donovan, 2000). Corporate management identified a list of perceived benefitsto the corporation in reporting environmental information to diverse groups ofstakeholders (Coopers & Lybrand Consultants, 1997). The benefits included:aligning management's values with social values; pre-empting attacks frompressure groups; enhancing corporate reputation; providing opportunities tolead debates; securing endorsements; demonstrating strong management

principles; and demonstrating social responsibilities.These assertions were supported in empirical work undertaken by Brownand Deegan (1999), O'Donovan (1999) and Simmons and Neu (1998), whoconcluded that the annual report is used by management to respond to publicpressure, especially in response to negative media reports. Moreover, ininterviews with senior corporate managers, O'Donovan (1998) discovered thatmanagement saw the use of the annual report as a way of correctingmisconceptions the public may have formed about a company/industry and itsenvironmental activities. One interviewee saw the annual report as a way of:


9/28

AAAJ15,3

352

. . . allaying public fears about the industry . . . we can educate the public about what we do inregard to environmental issues and do this from our point of view (O'Donovan, 1998, p. 97).

From an annual report user's perspective, research indicates that stakeholderswant to see an increase in corporate environmental disclosures in the annualreport (Dierkes and Antal, 1985; Anderson and Epstein, 1995). In the mostcomprehensive study to date in Australia, Rankin (1996) found that 68 percent ofthe stakeholders she surveyed sought environmental information from the annualreport in the first instance, with 43 percent seeking this information from othersources. The results of this survey highlight the importance of the annual reportas a source of environmental information. More specifically, Tilt (1994) discoveredthat members of environmental groups, such as Greenpeace and the AustralianConservation Foundation, considered the annual report as the main source whenseeking information about a corporation's environmental performance.

The emergence of stand-alone environmental reports in the late 1990s (KPMG,

1999), has led to questions about the relative importance of the annual report asthe main medium a corporation chooses to disclose environmental information(Unerman, 2000). However, Gibson and O'Donovan's (2000) study found that theamount of environmental information disclosed in the annual reports ofAustralian companies from 1983 to 1997, was still on an upward trend at the endof 1997, despite a number of the companies in the study producing separateenvironmental reports from 1994 onwards. O'Donovan (1999) also discoveredthat managers believe that the audiences for separate environmental reports aredifferent than those of annual reports and that the emergence of these reports willresult in more detailed information in the stand-alone reports which will often becross-referenced to annual reports. The implication was that the necessity for

annual report disclosures was unlikely to decrease, and may in fact increase.It is acknowledged that in situations where issues/events require more

immediate and widespread responses to legitimacy threats, other means ofcommunication including media releases and advocacy advertising may beused instead of, or in conjunction with, the annual report (Zeghal and Ahmed,1990). Nonetheless, the main focus of this study is the corporate annual report.

In evaluating the methods used in prior research on legitimacy theory andsocial disclosures, only a few researchers (Buhr, 1998; Campbell, 2000;O'Donovan, 1999; O'Dwyer, 2000) have used methods to gather qualitative dataabout management's views and perceptions, related to disclosure decisions,directly from management. The majority of the research conducted to confirm

legitimacy motives for disclosures has used ex postcontent analysis[2] of annualreports and/or other published data in an attempt to establish a relationshipbetween increased disclosures and environmental issues/events. Using ex postdata alone is limited in usefulness as they only allow for explanations about datathat were actually disclosed. Gathering data, directly from management, abouttheir perceptions and from an ex ante perspective is more useful in evaluatingreasons for certain environmental disclosures and, more importantly, whydecisions not to include environmental information were made. The predominantuse of content analysis alone in extant research has not extended the testing of


10/28


11/28

AAAJ15,3

354

template, during the interviews as the respondent answered. The vignetteswere presented in the same order (1 to 4 Table II) for each interviewee. Whileit is acknowledged that the presentation order of the vignettes may haveinfluenced disclosure choices, the consistency of order reduced the possibilityof getting less comparable responses. The interviews were audio-taped andwere subsequently transcribed for analysis purposes. Each interview lasted

approximately one hour.Using the vignettes in this way allowed the respondents to indicate, ex ante,which legitimation tactics they would be likely to choose in given situations andmost importantly, why choices were made and others were not. By collectinginformation on an ex ante basis, relevant information about the thinking,perceptions and thought processes of management was more likely to bediscovered than would be the case if management were responding solely aboutwhy past disclosures were made. It is argued that using the vignettes also allowedfor the likelihood of getting more ` honest'' responses, given the interviewees werenot responding to sensitive disclosure issues related directly to their owncorporations. In turn, the interviewer was able to ``push'' a bit harder for answers

than otherwise might have been the case if the questions were corporation specific.The interviewees were very experienced in composing, editing and

compiling environmental disclosures for the annual report in the companies forwhich they worked. The fact that the situations, companies and industries inthe vignettes differed from the interviewees' companies does not contaminatethe findings of the study, although it is acknowledged that some institutionalpressures may differ between industries. Nonetheless, it is contended that thelegitimacy tactics and disclosure approaches provided in this exercise weregeneric enough to be useful and relevant for the purposes of this study.

VignetteFictitious environmentalissue/event

Designated purposeof response

Legitimation tactic/intention of annualreport disclosureapproaches provided

Vignette 1ABC Co Ltd

Decision to introducenew environmentallydamaging technology

Gaining A. Avoid

Vignette 2XYZ Cosmetics Ltd

Recycling decision tobe made about usingplastics instead ofrecyclable paper

Maintaining high B. Attempt to altersocial values

Vignette 3Military Hardware Ltd

Water pollution housing estate beingplanned wherecorporation currently

operates

Maintaining low C. Attempt to alterperceptions of thecorporation

Vignette 4Ashforth Refining Ltd

Large oil spill inAustralian capital city

Repairing D. Conform toexpectations

Table II.Fictitiousenvironmental issues/

events, purpose ofresponse and intentionof disclosure approach


12/28


annual repo

35

Data analysisThe interview data were analysed in two distinct stages: first usingquantifiable analysis techniques for the closed questions; and second, usingqualitative techniques to search for recurring themes from the open-ended

answers. Answers to closed questions, which utilised a Likert scale forresponses, were analysed by aggregating and averaging the responses fordisplay purposes. Further, a technique based on an analytic hierarchy process(Saaty, 1980) was used to provide a systematic means of quantifying decision-maker perceptions in situations involving primarily qualitative data. A ``trade-off'' concept was also used where users' perceptions were captured on asystematic pairwise basis across the variables in the structure (Weil et al.,1996). In this investigation, for each annual report disclosure approach underconsideration, the interviewee was required, first, to indicate a preference for aparticular disclosure approach; and second, to provide a measure of preferencetowards the disclosure approach. The ` trade-off'' linked the likelihood ofchoosing an annual report disclosure to a ranked preference.

Answers to the open-ended questions were initially placed in a ``question-by-question'' matrix that allowed the reduction and display of the interview data in aform which assisted in identifying key points and recurring themes. The matrixdesign allowed for the inclusion of selected quotations from the interviewsconsidered pertinent to the question and, where applicable, researcher memosand notes were included to assist in uncovering recurring themes and patterns.

Finally, to bring the data together, a qualitative-quantitative linkagetechnique known as ``quantizing'' (Miles and Huberman, 1994) was used. A two-variable conceptually ordered display matrix was the quantizing tool developed.

Developing the matrix helped to reduce, combine and display the quantitativeand qualitative data in a form which aided in identifying relationships betweenthe specific purposes of the corporate response (gain, maintain, repair) and thechoice of legitimation tactics resulting in annual report disclosures.

It is important to note that the ` cases'' in the developed matrix were the specificpurposes of gaining, maintaining (high), maintaining (low) and repairinglegitimacy, not the interviewees or the corporations. The known variable was thepurpose of the corporate response and the four ``cases'' (gain, maintain high,maintain low, repair) were ordered on that variable. The intention of the matrixdesign was to aid in establishing relationships between these purposes andseveral aspects (mainly the alternative disclosure approaches) of the lesser-

known variable, the intention of the annual report disclosures. When examiningthe two-variable conceptually ordered display matrix, if the analysis did notindicate clear patterns or indicated contradictory findings, the investigator re-examined answers to the closed questions and/or the open-ended answers in theinterview transcripts in an attempt to help guide the analysis.

FindingsIn displaying the findings (Figures 2-6) it should be noted that the intervieweeshad four disclosure approaches to rank and that these were scaled to five for


13/28

AAAJ15,3

356

Figure 2.Significance of issues/events for eachlegitimacy purpose

Figure 3.Gaining legitimacy:likelihood of choosingand ranking of annualreport disclosureapproaches


14/28


annual repo

35

display purposes. This was done to allow for easier comparison with both the

significance of the issues/events and the likelihood of choosing a response, both

of which had five response choices. Figures 2-6 are used as ` pictorial

indicators'' for the reader and no statistical significance is tested or should be

placed on the average rankings and likelihoods displayed in the Figures.

Although the findings are based on an amalgamation of the quantitative and

qualitative, space limitations precluded using as many of the respondents'

Figure Maintaining legitima

(high): likelihoodchoosing and rankingannual report disclosu

approach

Figure Maintaining legitima

(low): likelihoodchoosing and rankingannual report disclosu

approach


15/28

AAAJ15,3

358

direct quotations as was considered desirable to represent the findings.Selected direct quotations are used where appropriate to represent the generalthrust of the open-ended responses. Where these are included in the paper, the

letters A-D, in brackets in the quotations, correspond to the specific approachbeing discussed (Table II).

In establishing the significance of the issues/events supplied (Figure 2), itwas not surprising that the event that caused immediate negative publicreaction (Vignette 4 Ashforth Refining Ltd), which required legitimacy to berepaired, was considered the most significant of the four issues/events. Alsopredictable were the responses which related to maintaining legitimacy. The

interviewees considered that the corporation with low legitimacy to begin with(Vignette 3 Military Hardware Ltd) would not see the issue of polluting a

creek which ran through a planned housing estate as being important to thesocial standing of the corporation. Conversely, they considered that XYZCosmetics Ltd (Vignette 2), which was portrayed as being environmentally

responsible, would view the relatively much lower environmental impact issueof using non-recyclable packaging material, as being between very andextremely significant.

The issue/event related to gaining legitimacy was also considered to be very

significant. This result was, perhaps, a little unexpected, given the `newness'' ofthe issue and the current lack of public awareness about it. Nevertheless, the

magnitude of the potential environmental damage coupled with an awarenessof the potential negative effects of the issue becoming public knowledge,contributed to the level of significance given to the issue.

Figure 6.Repairing legitimacy:likelihood of choosingand ranking of annualreport disclosureapproaches


16/28


annual repo

35

The results relating to gaining legitimacy (Figure 3) indicated that attempts toalter social values were most likely to be adopted and conforming to social valuesleast likely. In this scenario, the environmental issue was set up in such a waythat its environmental impact was not known by anybody outside the senior

managers of the corporation. Attempting to alter social values is a proactivestrategy that suggests the corporation may wish to get its message across beforethe issue becomes more ` public'' and less controllable by the corporation itself.

The high likelihood given to the avoidance approach was not unexpectedconsidering that the general public did not know the issue in the case and it islogical to think that the corporation would wish to restrict the public'sknowledge of this event as long as it could. When ranking the approaches,however, this choice did lose favour relative to the intention of altering socialvalues. This suggests that while making no disclosure was attractive, thesignificance of the issue prompted a more proactive response, rather than areactive one. In many ways, however, these two most preferred choices are atodds. The avoidance approach implies a management style of secrecy, a do-nothing approach or an attempt to buy some time, while the attempt to altersocial values can be seen as a proactive attempt by the corporation to confrontthe issue and bring it into the open, by putting the corporation's own positiveinterpretation on it. Reasons to make no disclosure were best summed up bythe following quotation:

. . . I figure in this corporation that, as a manager, you would go the no disclosure mode. (A) Imean you have nothing to gain by disclosing this now.

Two factors emerged in respect of attempting to alter social perceptions. First,the environmental issue in the case was seen to be substantial enough to

deserve more than just a ``window dressing'' approach of merely highlightingthe past social and environmental achievements of the corporation; and second,it was noted that this approach could be chosen in conjunction with attempts toalter social values, or as a disclosure option, not necessarily linked to this, orany other specific, environmental issue/event.

You might do (C) anyway, but you may be more likely to do this if you wanted to soften theaudience for the future.

It was clear that the least preferred disclosure approach was to conform to what``society'' expected. This was not unexpected as the facts of the case indicatedthat the decision had been made and the economic viability of the corporation

was questionable if the new technology was not used. References toshareholders, governments and employees, in relation to the significance of theissue, suggested that another reason that this was clearly the least supportedchoice was that ``society'', as a homogeneous group, was not an importantstakeholder in respect of gaining legitimacy.

The second vignette was designed to portray a corporation with a high level oflegitimacy to maintain. While not having anywhere near the environmentalimpact of the situation described in the first vignette, the issue/event was deemedto be more significant. Clearly the disclosure approach least likely to be chosen


17/28

AAAJ15,3

360

was to avoid the issue and make no disclosure (Figure 4). Each respondentidentified that the reputation and beliefs of this corporation determined it wouldnot be an option to avoid any environmental issue brought to its attention.

There was not a distinct preference for any of the other three approaches, as

indicated by the closeness of the average likelihood of choosing theseapproaches. The ranking of the approaches failed to clarify the situation. Thisdemonstrated that, while the issue was very significant, no one legitimationtactic and disclosure approach was clearly preferable to maintain the high levelof legitimacy the corporation enjoyed.

Attempting to alter social values appeared to confirm that the intervieweesperceived that XYZ believed it enjoyed a high level of legitimacy. The feelingwas that it would be unlikely to risk losing this unnecessarily and therefore thedecision about the environmental impact of the packaging decision would nothave been made in the first place without due consideration of its environmentalreputation and legitimacy. The popularity of this disclosure approach indicatedthat the interviewees believed that XYZ was a corporation confident enough ofits image to speak from a position of knowledge and authority.

Attempting to alter social perceptions of the corporation and conforming tosociety's wishes were also possible options and were both ranked accordingly.An example of the common argument put forward in support of choosing theconforming approach was:

Yes we are going to respond to public opinion. We're definitely going to do that, because thatis the basis on which we survive (D).

The ``closeness'' between the preferred approaches, along with the qualitativeanalysis in this case, clearly highlighted indecision about which approach to

take, but just as clearly indicated that, perhaps because of the indecision,including more than one of the approaches was most likely. All but one of thesix respondents suggested that they would consider using all three of theapproaches. This was best explained in the response:

I think the way to remedy this issue is to simply explain the practical social and economicreasons for decisions on the banning of our normal paper packaging in favour of plastic (B).We would then go on to talk about environmental initiatives the corporation's adopting (C) aspart of the same disclosure. I think then we could say, because it flows on quite simply, that ifthe public opinion doesn't like the approach we've taken, then we're happy to change it (D).But clearly, we thought that we're acting on customer feedback. Perhaps we haven't been haven't made the right judgement there, but the tone definitely would be indicating that if the

public opinion had been misread by us or the position misjudged, we'd certainly change ourattitude to it. We would probably use all these approaches.

The vignette relating to maintaining a low level of legitimacy producedmarkedly different results from the one designed to test responses relating to aperceived high level of legitimacy. This issue/event was considered to be onlyof moderate significance (Figure 2). The general reasons given for this relatedto the low existing legitimacy of the corporation, the fact that it appeared tohave government support and because the issue/event was unlikely to affecteconomic performance greatly.


18/28


annual repo

36

One would expect a corporation with the characteristics portrayed in thisvignette not to be too concerned about legitimacy motives in annual reportdisclosures. The ideas of communicating a message consistent with intentionsto conform to social values and attempts to alter social values, were not likelyto be chosen. These two approaches were, almost without exception, the twolowest ranked and least likely options (Figure 5).

Avoidance (making no disclosure) and attempting to alter society'sperceptions were most preferred. A recurring theme in arguments supportingno disclosure was that the corporation was complying with all of the currentlaws and regulations, therefore it did not need to do any more than that tomaintain whatever ` poor'' reputation it already had.

I think it's highly unlikely you'd make any disclosure. This corporation does not need to doanything as it has a poor image anyway (A).

This corporation does not need to make any disclosures. They have nothing to gain (A).

While making no disclosure was the most popular choice, the idea of disclosingsomething to deflect attention about the issue was also considered very likely.It seems that the main reason for this appeared to be that at some point in timemanagers believed a stance ought to be taken. This stance did not seem to bedirectly concerned with the existing level of legitimacy of Military Hardware,which was acknowledged to be of little importance, but more of an approachconsistent with an ``enough is enough'' approach and the corporation is notsolely to blame.

If the corporation sought to align itself with the institutions that support it(governments and government authorities), knowing the public do not approve

of its activities, they are in essence cultivating a thought in the public arenathat perhaps the corporation is not at fault. The corporation has institutionalsupport for its activities, so perhaps it is those institutions that are to blameand the expectations placed on the corporation to act above and beyond thecurrent requirements are not realistic.

Well if the corporation's going to dispose of waste that way, I would look at sharing theblame. In a way you're putting a bit of it onto the EPA because the EPA's saying it's OK to doit that way (C).

This ``shared'' blame approach indicated that decoupling strategies were alsogiven some prominence by interviewees, confirming the idea elaborated by

Lindblom (1994) that a fifth tactic based on the idea of altering expectations ofthe corporation was a likely legitimation tactic in this case.

In respect of repairing legitimacy, all interviewees indicated the eventinvolving a significant oil spill was extremely significant (Figure 2). Threecommon themes emerged: first, the disruption the event caused the public;second, the fact that it was widely publicised; and third, how this would impacton the reputation of the corporation. The importance of the significance of theevent for this purpose was more important to the choice of legitimation tacticsand annual report disclosures than it was for the purposes of gaining and


19/28

AAAJ15,3

362

maintaining legitimacy. This is understandable because if the event were notconsidered to be significant, then, in normal circumstances, there would be nolost legitimacy to regain.

From an environmental perspective, the perceived importance of major oilspills, linked to the repercussions of the 1989 Exxon Valdez oil spill, gainedsome prominence. Three of the interviewees made passing reference to ExxonValdez and one indicated how important the accident was for oil corporationsand the environment in saying:

[This issue is] extremely significant. The Exxon Valdez has permanently put oil spills andrelated effects on the agenda for any corporation associated with major oil spills.

The immediacy and urgency of events causing legitimacy to be repaired also``demand'' that corporations respond (react) in a timely manner. As one wouldexpect, avoiding the event was the tactic least likely to be adopted, whereasconforming to social values, albeit symbolically, and altering perceptions weremost likely to be chosen. Acknowledging responsibility and reassuring societythat all steps will be taken to ensure the event does not recur (conforming),coupled with an account of past environmental achievements (alteringperceptions) are, clearly, the most likely tactics to be used (Figure 6).

Reasons for choosing the conforming approach centred on the need to be seento be proactive and to portray the image of a repentant (without directlyapologising), responsible corporation and one that was in control of the situation.

The thing is what you would end up doing is just saying that it happened and youemphasised what the good things you did about it and what you intend to do (D).

You should adopt the open approach and not to try and get out of it. You are at the public's

will a bit here, so don't rock the boat.

While choosing to conform, a couple of responses indicated a desire to``decouple'' the corporation from the event, by linking the dangers of operatingin the industry.

I think (D) is most likely and I think we'd also indicate a whole-hearted support of externalenquiries by authorities into construction standards and maintenance standards for this sortof equipment across the industry, because clearly we're not doing anything different, but it'shappened to us, and I think the whole industry has to learn from it.

The disclosure approach consistent with altering social perceptions was seenas being supplementary to conforming. While a popular option, it was unlikely

it would have been chosen as the sole disclosure.

After conforming . . . You then go into saying the corporation does have a good record andthat accidents do happen and you will try and minimise these events in the future (C).

The ``no disclosure'' approach did not enjoy any support, either as a likelydisclosure or as a ranked preference. The main theme discovered was that themanagers believed that the public would not let the corporation get away with``doing nothing'' or ``staying silent''. In this context, appearing to be ``doing'' theright thing was extremely important to the corporation, even if it was not


20/28


annual repo

36

actually doing anything substantive. The unanimous reaction frominterviewees was that any issue/event, which attracts strong and immediatenegative public reaction, necessitates a quick and very public response fromthe corporation involved if a loss of reputation is to be averted.

Attempts to alter social values by explaining to the public the environmentalhazards involved with oil refining, that the public would need to accommodate,garnered some guarded support, but was considered to be a somewhat riskyapproach. It appears that only those managers who did not feel the need toyield to public pressure would seriously consider this option. Most thought theapproach was fraught with danger. It was mentioned a number of times thatcorporations do not wish to appear to be lecturing society in the wake ofnegative public sentiment.

Conclusions

The findings from this investigation continue to support legitimacy theory as anexplanation for the decision to disclose environmental information in the annualreport. Moreover, the applicability of legitimacy theory was enhanced during thisinvestigation. The collection of open-ended interview data, directly frommanagers and from an ex ante perspective, enabled the discovery of more explicitreasons for environmental disclosure decisions than has previously been the casewith much of the extant research into social and environmental reporting.

At a micro-level, the predictive capacity of legitimacy theory has beenenhanced. The findings from the research are summarised in the legitimationdisclosure response matrix (Table III). The matrix indicates how likely it is thatcertain legitimation tactics, in the form of an annual report disclosure approach,

will be chosen based on the perceived significance of an environmental issue/event to the corporation and the particular purpose of the legitimation response.

It was clear from the findings that the significance of an environmental issue/event has a major affect on environmental disclosure decisions. Only two levels ofsignificance are included in the matrix, high and medium. The findings indicatedthat if an issue/event was of low significance, it would not, in most circumstances,

Legitimation tactic/intention of annual reportdisclosure approach

Purpose ofresponse

Significance ofissue/event to co. Avoid Alter values

Alterperceptions Conform

GainingHigh

MediumLikelyLikely

Very likelyUnlikely

LikelyPossibly

Very unlikelyPossibly

Maintain highHigh

MediumVery unlikely

UnlikelyVery likely

PossiblyLikelyLikely

Very likelyPossibly

Maintain lowHigh

MediumLikely

Very likelyPossibly

InconclusiveVery likely

LikelyVery unlikely

Unlikely

RepairHigh

MediumVery unlikely

UnlikelyUnlikelyUnlikely

Very likelyVery likely

Very likelyLikely

Table ILegitimation disclosu

response matr


21/28

AAAJ15,3

364

be considered a threat to a corporation's legitimacy and would not normallywarrant the use of legitimation tactics and specific annual report disclosures.

Columns 3 to 6 represent the four categories of annual report disclosuresrelated to the legitimation tactics formulated for the purposes of this

investigation. Rows 3 to 7 represent the conclusions from this investigation inrelation to how likely it is that the five legitimation tactics/annual reportdisclosure approaches will be adopted in relation to the purpose of thecorporate response and the significance of the issue/event to the corporation. Afive-point qualitative scale was used to indicate the likelihood of a disclosureapproach being adopted. The labels used in this scale in the matrix were verylikely; likely; possibly; unlikely; and very unlikely.

The overarching conclusion reached as to why corporations discloseenvironmental information was that environmental disclosure decisions weremade on the basis of presenting the corporations in a positive light. This outcomecame through repeatedly in the data analysis and is consistent with results ofprior research (Deegan and Gordon, 1996; Deegan and Rankin, 1996; Simmonsand Neu, 1998). This suggests that the decision usefulness value of voluntaryenvironmental annual report disclosures for users of annual reports may bequestionable, despite research suggesting that the annual report is a majorsource of environmental information for stakeholders (Rankin, 1996; Tilt, 1994).This is borne out by the likelihood that the annual report disclosure approachintended to alter perceptions would be chosen irrespective of the purpose of thecorporate response and the significance of the event. This tactic/approach wasthe only one of the four tactics/annual report disclosure approaches that was, atleast, ` likely'' to be adopted in response to every issue/event.

This reinforces the idea that the annual report is a public relations documentand is used by management to portray a positive picture of a corporation'ssocial and environmental performance. It suggests that the information contentof environmental disclosures in the annual report is general rather thanspecific, unlike other forms of communication (e.g. media releases, stand-aloneenvironmental reports). It might be also be argued that the managers' targetaudiences are those that are less knowledgeable about, or less interested inspecifically using, environmental information in the annual report.

This apparent lack of substance in current environmental reporting in theannual report, however, may not be as misanthropic as it first appears. If onecompares the quantity and quality of corporate environmental disclosures

today with those of 20 years ago, it might be argued that a transformation incorporate thinking and action is taking place. Evidence of this transformationis found in the increased production of separate annual environmental reports(KPMG, 1999). Whether this ``transformation'' has more to do with symbolismthan substance is an area that could be researched further.

Results from this investigation have led to the addition of specificcomponents to the theory and, it is argued, enhanced the predictive power oflegitimacy theory in relation to why certain annual report disclosures are made.The contents of the legitimation disclosure response matrix could be expressed


22/28


annual repo

36

as hypotheses and tested further in order to establish the extent of relationshipsbetween the identified variables and manager's intentions for making ex postannual report environmental disclosures. The ``results'' in the matrix could alsobe used as a basis to indicate if corporations' tactics are changing over time,

perhaps indicating a shift from symbolic to more substantive disclosures,which may be more consistent with a corporation truly attempting to becomemore legitimate. The results from this study and the framework adopted couldbe used to assist in making judgements as to the ``value'' and usefulness ofenvironmental disclosures in the annual report.

Limitations and opportunities for further researchFrom a theoretical perspective, it should be noted that concentrating onlegitimacy theory, as an explanation for increased environmental disclosures,does not invalidate the likelihood that other social theories have explanatorypower as well. The imprecise distinction between legitimacy, stakeholder andpolitical economy theories should continue to be examined and explained. Careshould also be taken in generalising too much from the results of this study.The study is exploratory in nature and while the methods used delivered agreat deal of useful qualitative data, it must be remembered that the resultswere based on six in-depth interviews with personnel from three companies.

There are two methodological caveats to be noted in relation to the findings.First, in order to be able to test legitimacy theory at a micro-level, it wasconsidered necessary that the researcher choose the environmental issues/events, which precipitated legitimacy threats. Second, the researcher alsosupplied the legitimation tactics and annual report disclosure approaches from

which the interviewees had to choose. If this had not been done it is doubtfulthat the objectives of the investigation could have been achieved.On an intra- and inter-industry basis, individual corporations have different

characteristics; social and environmental goals; perceptions of the importanceof social and environmental goals to their conferring publics; and other externalpressures on them at any point in time. These perceptions and pressures willalso change over time. It is posited that these different characteristics, goals,perceptions and external pressures, which may often be unrelated to anenvironmental issue/event at the time the issue/event is at its peak importance,will influence the decision to disclose environmental information and the choiceof specific annual report disclosure approaches. The effect these external

pressures had on the choice of annual report disclosures was not tested in thisstudy. Moreover, at any point in time, corporations have multiple issues/eventsto deal with, and multiple conferring publics' views to manage in relation tothese issues/events. The levels of interconnectedness and the effect of multipleissues/events and multiple conferring publics' views were not tested for duringthis investigation.

There are a number of directions, related to this investigation, in whichresearch could proceed. While this investigation used environmental disclosuresas a proxy for public pressure and ultimately, legitimacy, the methods adopted in


23/28

AAAJ15,3

366

this investigation could be used for any issue/event that has the potential to havea social impact on a corporation. In this investigation, the annual report wasidentified as being the major way corporations communicated social andenvironmental information to various stakeholders. One could use the methodsadopted in this research to identify how other means of communication are usedin managing legitimacy. For example, the effect that the publication of stand-alone environmental reports and the use of the World Wide Web has had on thequantity and quality of annual report disclosures and the choice of legitimationtactics is an area which appears timely to research further.

The authority of any theory is often connected to its longevity (Eisenhardt,1989). Longitudinal studies could be conducted, using a combination ofinterviews with management and ex post annual report/environmental reportcontent analysis, to see if increased environmental disclosures continue to beexplained by legitimacy theory. Moreover, this should allow researchers to

discover to what extent legitimation tactics/disclosure approaches used in thisinvestigation continue to be used and this may lead to the identification ofadditional legitimation tactics and disclosure approaches.

An obvious extension of legitimacy theory is to establish whether theadoption of legitimation tactics and annual report disclosures has the desiredeffect on its intended audiences. In other words, to what extent do legitimationtactics work? To do this, future researchers would need to collect data fromgroups at whom management target legitimation tactics (conferring publics),and discover the groups' views, before and after the legitimation process. Onlyvery limited research has been conducted in this area to date (Elsbach, 1994).

Notes1. For a detailed explanation and summary of many of the studies linking social and

environmental disclosures to legitimacy theory see O'Donovan (1999).

2. Abbot and Monsen (1979, p. 504) defined content analysis as: `à technique for gatheringdata that consists of codifying qualitative information in anecdotal and literary form intocategories in order to derive quantitative scales of varying levels of complexity''.

3. The vignettes were piloted on a senior manager from a large water corporation and afellow university academic. Questions were asked of these people as to the ``reality'' of thevignettes and appropriateness of the disclosure approaches developed. The vignettes wereamended in response to concerns raised during the pilot testing.

References

Abbott, W.F. and Monsen, R.J. (1979), `Òn the measurement of corporate social responsibility:self reported disclosures as a method of measuring corporate social involvement'',

Academy of Management Journal, Vol. 22 No. 3, pp. 501-15.

Ader, C.R. (1995), ` A longitudinal study of agenda setting for the issues of environmentalpollution'', Journalism and Mass Communication Quarterly, Vol. 72 No. 2, pp. 300-11.

Amernic, J. (1992), `À case study in corporate financial reporting: Massey-Ferguson's visibleaccounting decisions 1970-1987'', Critical Perspectives on Accounting, Vol. 3, pp. 1-43.

Anderson, R.H. and Epstein, M. (1995), ` The usefulness of annual reports'', Australian Accountant,April, pp. 25-8.


24/28


annual repo

36

Ashforth, B.E and Gibbs, B.W. (1990), ``The double edge of legitimization'', Organization Science,Vol. 1, pp. 177-94.

Bansal, P. (1995), ``Why do firms go green? The case of organisational legitimacy'', D. Phil thesis,

Oxford University, Oxford.

Brown, N. and Deegan, C. (1999), ` The public disclosure of environmental performance information a dual test of media agenda setting theory and legitimacy theory'', Accounting andBusiness Research, Vol. 37No. 1,pp. 21- 41.

Buhr, N. (1998), `Ènvironmental performance, legislation and annual report disclosure: the case

of acid rain and Falconbridge'', Accounting, Auditing & Accountability Journal, Vol. 11No. 2, pp. 163-90.

Campbell, D. (2000), ` Legitimacy theory or managerial reality construction? Corporate social

disclosure in Marks & Spencer plc corporate reports 1969-1997'', Accounting Forum, Vol. 24

No. 1, pp. 80-100.

Clarkson, M.B.E. (1995), `À stakeholder framework for analyzing and evaluating corporate social

performance'', Academy of Management Review, Vol. 20 No. 1, pp. 92-118.

Coopers & Lybrand Consultants (1997), `Ènvironmental reporting'', On Environmental Reporting,Vol. 2 No. 1, September.

Cormier, D. and Gordon, I. (2001), `Àn examination of social and environmental reporting strategies'',

Accounting, Auditing & Accountability Journal, Vol. 14 No. 5, pp. 587-616.

Davidson, D.K. (1991), ``Legitimacy: how important is it for tobacco strategies?'', Business and theContemporary World, Autumn, pp. 50-8.

Deegan, C. and Gordon, B. (1996), `À study of the environmental disclosure practices of Australian

corporations'',Accounting and Business Research, Vol. 26 No. 3, pp. 187-99.

Deegan, C. and Rankin, M. (1996), ``Do Australian companies objectively report environmental

news? An analysis of environmental disclosures by firms successfully prosecuted by the

environmental protection authority'', Accounting, Auditing & Accountability Journal, Vol. 9

No. 2, pp. 50-67.Deegan, C., Rankin, M. and Voght, P. (2000), ``Firms' disclosure reactions to major social incidents:

Australian evidence'',Accounting Forum, Vol. 24 No. 1, pp. 101-30.

Deephouse, D.L. (1996), ``Does isomorphism legitimate?'', Academy of Management Journal, Vol. 39No. 4, pp. 1024-39.

Dierkes, M., and Antal, A.B. (1985), ``The usefulness and use of social reporting information'',

Accounting, Organizations and Society, Vol. 10 No. 1, pp. 29-34.

Dowling, J. and Pfeffer, J. (1975), `Òrganizational legitimacy: societal values and organisational

behaviour'',Pacific Sociological Review, Vol. 18 No. 1, January, pp. 122-36.

Dyball, M.C. (1998), ` Corporate annual reports as promotional tools: the case of Australian

National Industries Limited'',Asian Review of Accounting, Vol. 6 No. 2, pp. 25-53.

Eisenhardt, K.M. (1989), ``Building theories from case study research'', Academy of ManagementReview, Vol. 14 No. 4, pp. 532-50.

Elkington, J. (1994), ` Towards the sustainable corporation: win win win: business strategies

for sustainable development'', California Management Review, Winter, pp. 90-100.

Elkington, J. (1999), ``Triple bottom-line reporting: looking for balance'', Australian CPA, Vol. 69No. 2, pp. 18-21.

Elsbach, K. (1994), ` Managing organisational legitimacy in the California cattle industry: the

construction and effectiveness of verbal accounts'', Administrative Science Quarterly, Vol. 39No. 1, pp. 57-89.


25/28

AAAJ15,3

368

Elsbach, K. and Sutton, R.I. (1992), `Àcquiring organisational legitimacy through illegitimateactions: a marriage of institutional and impression management theories'', Academy of

Management Journal, Vol. 35, pp. 699-738.

Frost, G.R. and Wilmshurst, T.D. (1998), `Èvidence of environmental accounting in Australian

companies'',Asian Review of Accounting, Vol. 6 No. 2, pp. 163-80.Gibson, K. and O'Donovan, G. (2000), `Ènvironmental disclosures in Australia: a longitudinal

study'', paper presented at the 6th Interdisciplinary Environmental AssociationConference, Montreal, 21-24 July.

Gorman, B.J. (1992), `Àre corporations becoming more socially responsible? an exploratorystudy of social responsibility reporting in Canada'', paper presented at the 15th AnnualCongress of the European Accounting Association, April.

Gray, R., Kouhy, R. and Lavers, S. (1995), ``Corporate social and environmental reporting: areview of the literature and a longitudinal study of UK disclosure'', Accounting, Auditing& Accountability, Vol. 8 No. 2, pp. 47-77.

Gray, R., Owen, D. and Adams, C. (1996), Accounting and Accountability, Prentice Hall, HemelHempstead.

Guthrie, J. and Parker, L. (1990), ``Corporate social disclosure practice: a comparative internationalanalysis'',Advances in Public Interest Accounting, Vol. 3, pp. 159-76.

Guthrie, J. and Parker, L.D. (1989), ``Corporate social reporting: a rebuttal of legitimacy theory'',Accounting and Business Research , Vol. 19 No. 76, pp. 343-52.

Hawken, P. (1993), The Ecology of Commerce, Harper Collins, New York, NY.

KPMG, (1999), KPMG International Survey of Environmental Reporting, KPMG International,Amsterdam.

Lindblom, C.K. (1994), ` The implications of organizational legitimacy for corporate socialperformance and disclosure'', paper presented at the Critical Perspectives on AccountingConference, New York, NY.

Marcus, A.A. and Goodman, R.S. (1991), ``Victims and shareholders: the dilemmas of presenting

corporate policy during a crisis'',Academy of Management Journal, Vol. 34 No. 2, pp. 281-35.Mathews, M.R. (1993), Socially Responsible Accounting, Chapman and Hall, Australia.

Miles, M.B. and Huberman, A.M. (1994), Qualitative Data Analysis: A Sourcebook of New Methods,2nd ed., Sage Publications, Thousand Oaks, CA.

Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997), ``Toward a theory of stakeholder identificationand salience: defining the principle of who and what really counts'', Academy of

Management Review , Vol. 22 No. 4, pp. 853-86.

Nasi, J., Nasi, S., Phillips, N. and Zyglidopoulos, S. (1997), ``The evolution of corporate socialresponsiveness'', Business and Society, Vol. 36 No. 3, September, pp. 296-321.

Neu, D., Warsame, H. and Pedwell, K. (1998), ` Managing public impressions: environmentaldisclosures in annual reports'',Accounting, Organizations and Society, Vol. 23 No. 3, pp. 265-82.

O'Donovan, G. (1997), ``The decision to include environmental information in the corporate annualreport: some Australian case study evidence'', American Accounting Association, SouthwestRegion Meeting Conference Proceedings, New Orleans, LA, March, pp. 119-126.

O'Donovan, G. (1998), ` Corporate strategy and environmental reporting: a multinational's perspective'',in Hickey, K. and Kantarelis, D. (Eds), Our Natural Environment: Interdisciplinary Interactions,Assumption College, Worcester, MA, pp. 89-104.

O'Donovan, G. (1999), ` Managing legitimacy through increased corporate reporting: an exploratorystudy'',Interdisciplinary Environmental Review, Vol. 1 No. 1, pp. 63-99.

O'Donovan, G. (2000), Legitimacy Theory as an Explanation for Environmental Disclosures, PhDthesis, Victoria University of Technology, Melbourne.


26/28


annual repo

36

O'Dwyer, B. (2000), ``Corporate social reporting in Ireland: legitimacy denied?'', paper presented

at the School of Accounting and Law Research Seminar Series, RMIT, Melbourne, May.

Oliver, C. (1991), `Strategic responses to institutional processes'', Academy of Management Review,Vol. 16 No. 1, pp. 145-79.

Patten, D. (1992), `Ìntra-industry environmental disclosures in response to the Alaskan oil spill: anote on legitimacy theory'', Accounting, Organizations and Society, Vol. 17 No. 5, pp. 471-5.

Pava, M.L. and Krausz, J. (1997), ``Criteria for evaluating the legitimacy of corporate socialresponsibility'', Journal of Business Ethics, Vol. 16, pp. 337-47.

Pfeffer, J. and Salancik, G. (1978), The External Control of Organizations: A Resource DependencePerspective, Harper and Row, New York, NY.

Rankin, M. (1996), Corporate Reporting The Green Gap, Institute of Chartered Accountants inAustralia, Sydney, October.

Reich, R.B. (1998), ``The new meaning of corporate social responsibility'', California ManagementReview, Vol. 40 No. 2, Winter, pp. 8-17.

Roberts, R.W. (1992), ``Determinants of corporate social responsibility disclosure: an application

of stakeholder theory'', Accounting Organizations and Society, Vol. 17 No. 6, pp. 595-612.Saaty, T. (1980), The Analytic Hierarchy Process, McGraw-Hill, New York, NY.

Salancik, G.R. and Meindl, J.R. (1984), `Corporate attributions as strategic allusions of management

control'',Administrative Science Quarterly, Vol. 29, pp. 238-54.

Sethi, S.P. (1978), `Àdvocacy advertising the American experience'', California ManagementReview, Vol. 11, pp. 55-67.

Shocker, A.D. and Sethi, S.P. (1973), `Àn approach to developing societal preferences in developing

corporate action strategies'', California Management Review, Summer, pp. 97-105.

Simmons, C. and Neu, D. (1998), ``Managing social disclosures'', available at: www.ucalgary.ca/UofC/faculties/mgmt/acc/outlines/neu_courses/cgamag.htm (accessed 7 August).

Suchman, M. (1995), ``Managing legitimacy: strategic and institutional approaches'', Academy of

Management Review , Vol. 20 No. 3, pp. 571-610.

Sutton, B. (Ed.) (1993), The Legitimate Corporation, Blackwell, Cambridge, MA.

Sutton, R.I. and Callahan, A.I. (1987), ``The stigma of bankruptcy: spoiled organizational image

and its management'',Academy of Management Journal, Vol. 30 No. 3, pp. 405-36.

Tilt, C.A. (1994), ``The influence of external pressure groups on corporate social disclosure'',

Accounting, Auditing & Accountability Journal, Vol. 7 No. 4, pp. 47-72.

Unerman, J. (2000), ` Methodological issues: reflections on quantification in corporate social reporting

analysis'',Accounting, Auditing & Accountability Journal, Vol. 13 No. 5, pp. 667-80.

Walden, W.D. and Schwartz, B.N. (1997), `Ènvironmental disclosures and public policy pressure'',

Journal of Accounting and Public Policy, Vol. 16, pp. 125-54.

Wartick, S.L. and Mahon, J.F. (1994), ``Toward a substantive definition of the corporate issue

construct: a review and synthesis of the literature'',Business and Society, Vol. 33, pp. 293-311.

Weil, S., Clark, M. and Wegner, T. (1996), ``Measuring students perceptions of the design features

of a computer-aided learning program in introductory accounting'', paper presented atAAANZ Annual Conference, Christchurch, July.

Woodward, D.G., Edwards, P. and Birkin, F. (1996), `Òrganizational legitimacy and stakeholder

information provision'',British Journal of Management, Vol. 7, pp. 329-47.

Zeghal, D. and Ahmed, S.A. (1990), ``Comparison of social responsibility information disclosuremedia used by Canadian firms'', Accounting, Auditing & Accountability Journal, Vol. 3 No. 1,pp. 38-53.


27/28

AAAJ15,3

370

Appendix. Vignette and interview questions gaining legitimacy. ABC CompanyLimitedScenarioYou have been identified as a senior person responsible for the decision to include (or not

include), environmental information in the annual report. When answering the followingquestions in these fictitious cases, you should adopt an approach consistent with what youperceive to be the corporate culture and social standing of the company as described in the

case.

Case 1. ABC Company Ltd, is a large mining company, whose head office is in Brisbane. Ithas been operating profitably in Australia and overseas for over 60 years. With the recent

sustained, and most likely permanent, fall in commodity prices, the company has been lookingfor new, more cost efficient ways of operating. The company has, after many months of

investigation and deliberation, only today, decided to use an extremely new technology that willcut the cost of mining activities very significantly. The probable side effects of the new

technology indicate that any land used for mining will become unusable by humans and

uninhabitable by animals for at least 50 years from the time the mining operations cease. At thisstage the company has not decided what geographic locations will be chosen to utilise this new

technology.The new technology and its impacts have not been widely publicised to this time. At this

stage the mainstream news media have not reported the issue at all. Only the senior engineersand senior management personnel of the company are fully aware of the future profits to be

gained and the potential environmental impacts of the use of this technology. It is planned to

begin implementing this new technology within the next two years.Questions:

(1) How significant do you believe the environmental issues or events, as described in the

case, are to the social standing of the company? Circle one answer only.

. Extremely significant.

. Very significant.

.

Significant.. Moderately significant.

. Not significant.

Can you elaborate as to reasons for your choice?

(2) With respect to an annual report disclosure, would the magnitude of the issues or events

in this case, result in the likely intervention of senior executive directors in the:

. decision to include or not include a disclosure in relation to this issue or event, (circleone answer only)

YES . . . . . . . . . . . . NO

Please explain your answer

. tone and actual wording of the annual report disclosure

YES . . . . . . . . . . . . NO

Please explain your answer

(3) Indicate how likely you would be to adopt each annual report disclosure approach listed

below, in response to the environmental issues or events identified in the case. Tick onlyone box under each disclosure approach (5 is highly likely, 4 likely, 3 possibly, 2 unlikely,

1 highly unlikely).


28/28


annual repo

37

(4) You are deciding on a disclosure strategy for the annual report in relation to the

environmental issues raised in the case. Place a number in each box ranking your choice

from 1 (most likely), 2, 3, 4 (least likely). Place a number in each box.

Why did you rank these in the order you did?

Case 1. Disclosure approach Rank

Make no disclosure

Highlight the negative economic and social effects of not changing to the newtechnology

Concentrate on past social and environmental achievements of the company

Indicate that your company is a responsible corporate citizen and, if populistpublic opinion dictates, your company will cease plans to use the newtechnology

Case 1. Disclosure approach 5 4 3 2 1

Make no disclosure

Highlight the negative economic and social effects of notchanging to the new technology

Concentrate on past social and environmental achievements ofthe company

Highlight that, if public opinion dictates, your company willnot continue using the new technology

Environmental Disclosures

Documents

Transcript of Environmental Disclosures