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Accounting, Organizations and Society 32 (2007) 649–667 www.elsevier.

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Corporate social reporting and stakeholder accountability: The missing link
Stuart M. Cooper a, David L. Owen
b

b,*

a Aston Business School, Aston University, Birmingham B4 7ET, United Kingdom International Centre for Corporate Social Responsibility, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, United Kingdom

Abstract Recent years have witnessed a significant degree of administrative reform, in terms of the increasing number of major companies proclaiming their social responsibility credentials, and backing up their claims by producing substantial environmental, social and sustainability reports. The paper critically evaluates the degree of institutional reform, designed to empower stakeholders, and thereby enhance corporate accountability, accompanying these voluntary initiatives, together with that potentially ensuing from proposed regulations, later rescinded, for mandatory publication of an Operating and Financial Review by UK quoted companies. It is concluded that both forms of disclosure offer little in the way of opportunity for facilitating action on the part of organizational stakeholders, and cannot therefore be viewed as exercises in accountability. Ó 2007 Elsevier Ltd. All rights reserved.

Introduction Recent years have witnessed a significant increase in the number of major companies in Europe, the USA and Australia proclaiming their social responsibility credentials, and backing up their claims by producing substantial paper, or

web based, environmental, and more recently, social and sustainability reports (see, for example, KPMG, 2005). Perhaps not surprisingly in view of the fall-out from Enron and similar affairs, reputation building appears to provide a primary motivating factor for companies going down the Corporate Social Responsibility (CSR) path. Thus, for example, Business in the Community’s (2003) ‘business case’ for CSR notes that it offers: ‘‘. . . a means by which companies can manage and influence the attitudes and perceptions of their stakeholders, building their

* Corresponding author. Tel.: +44 (0)115 846 6798; fax: +44 (0)115 846 5667. E-mail address: David.Owen@nottingham.ac.uk (D.L. Owen).

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potentially in the interests of improved accountability (Power. there has been a dramatic quickening of pace of administrative reform in terms of companies producing stand alone social and environmental reports. Influential standards and guidelines which increasingly inform leading edge reporting practice. 2003. whilst acknowledging the increase in reporting per se. Firstly. 2006). which is itself underpinned by the principle of inclusivity.’’ (AccountAbility.M. 3) The degree of administrative reform has certainly been substantial in terms of the production of new accountings which heighten levels of organisational transparency. 2002. unequivocally suggest that it can. ‘‘Inclusivity concerns the reflection at all stages of the . Owen. decisions and actions. questions arise as to whether exclusive reliance on the ‘business case’ to encourage such initiatives is capable of promoting institutional reform sufficient to empower organisational stakeholders. policies and relevant standards and adequately communicated these responses in its report. Swift. whilst slightly later (2005) figures from the consultancy organization Salterbaxter suggest that the number now exceeds 80%. 2005. . D. . & Bebbington. for example. notes that: ‘‘A primary goal of reporting is to contribute to an ongoing stakeholder dialogue. 1994). 1 AccountAbility’s subsequently issued Assurance Standard further underlines the stakeholder accountability credentials of the reporting process in promulgating the principles of materiality. In particular. it has been suggested that prevailing stakeholder engagement practices have little to do with extending accountability and amount to nothing more than exercises in stakeholder management and corporate spin (see. The materiality principle requires the assurance provider to state whether the reporting organisation has included in its report information required by stakeholders to enable them to make informed judgements. ‘‘. and most fundamentally. & Hunt.1 However. Gray. 18) Notwithstanding the democratising potential of corporate social reporting claimed by the GRI and AccountAbility. a quality reporting process is quite simply governed by the principle of accountability.650 S. for example. completeness and responsiveness. Owen. Recent developments in the United Kingdom suggest that the time is now opportune to re-visit these claims and counter claims. notably the Global Reporting Initiative (GRI) and AccountAbility’s AA1000. . 9) For AA1000. Organizations and Society 32 (2007) 649–667 trust and enabling the benefits of positive relationships to deliver business advantage. Secondly. p. Gray. whilst the completeness principle calls for an evaluation of the extent to which the organisation can identify and understand material aspects of performance. & Bowerman. The former. O’Dwyer.’’ (p. 2000. the prospect of mandatory reporting .’’ (AccountAbility. reporting process over time of the aspirations and needs of all stakeholder groups – those groups who affect and/or are affected by the organisation and its activities. Owen / Accounting. i. Reports alone provide little value if they fail to inform stakeholders or support a dialogue that influences the decisions and behaviour of both the reporting organisation and its stakeholders. the Assurance provider evaluate whether the reporting organisation has responded to stakeholder concerns. Finally. 2001). 1997). 2000. p. the responsiveness principle requires that. Humphrey. 1999. Stakeholder views are obtained through an engagement process that allows them to be expressed without fear or restriction. accountability to all stakeholder groups. with KPMG’s latest (2005) triennial survey of reporting practice indicating that 71% of the FTSE 100 produced such reports. 2003. have expressed severe reservations over its quality. Swift.L.’’ (GRI. .e. Cooper. 7) It should be noted here that some researchers. so that this potential heightened accountability may be realised (Owen. p. particularly in terms of demonstrating an ecologically and eco-justice informed approach to ‘sustainability’ issues (see Gray. severe reservations have been expressed in the academic accounting literature as to the degree of participatory role played by stakeholders in the process.

3 It was decided to exclude environmental reports from the analysis as our initial scrutiny indicated that for these reports the reporting process was much less likely to be informed by stakeholder engagement than that of their social and sustainability counterparts. P/2004/177. May 2004) publication of draft regulations on the Operating and Financial Review (OFR). stakeholders and society in general’’ as three possible recipient groups and concludes that the free market (for goods and services. In this paper we start from the premise that accountability is considered as ‘the duty to provide an account (by no means necessarily a financial account) or reckoning of those actions for which one is held responsible’ (Gray. for illustrative purposes we draw upon a number of reports short-listed for the Social and Sustainability categories of the 2003 ACCA UK Sustainability Reporting Awards Scheme. or has not. which it was envisaged would become a statutory requirement for all quoted companies. Cooper. Not only does it have discipline specific meanings.L. The remainder of the paper begins with a consideration of accountability and its theoretical underpinnings. social impacts and impacts on the wider community where that information is necessary for an assessment of the company’ (DTI News Release ref. Gordon Brown. 1996. but even within the accounting domain there is a distinct lack of consensus as to what being held accountable actually entails.2 Under the provisions of these regulations a company would have been required to provide information on policies ‘towards its employees. The question remains. indeed. a move that led to a legal challenge by Friends of the Earth. in November 2005. however. but contends that there are a number of relevant preconditions if accountability is to be advanced. Benston’s free market view of corporate accountability privileges shareholders and has its philosophical foundations within neoclassical As discussed later in the paper the proposed mandatory OFR was withdrawn by the Chancellor. Organizations and Society 32 (2007) 649–667 651 was raised by the Department of Trade and Industry’s (DTI. Owen. p. D. customers and suppliers as well as its impact on the environment. 5 May. Fifteen reports were short-listed under the latter two categories. ‘murky’ term that does not lend itself to precise definition. 38). p.M. 88) identifies ‘‘shareholders. to whom is the account made? Benston (1982. within the following two sections. Those utilised are: Sustainability reporting category BAA BHP Billiton BT Group National Grid Transco Premier Oil Scottish Power Shell International The Co-operative Bank Social reporting category BAT BNFL Engineering Camelot Group CIS 2 . Owen / Accounting. To this end. we are concerned with assessing their potential for enhancing stakeholder accountability. For the purposes of this analysis the three SME reports short-listed have been excluded. used as an analytical framework to consider whether accountability has. In particular. 2004).3 together with an analysis of the somewhat long drawn out processes which led to the publication of the DTI’s OFR draft regulations. These preconditions are then. for finance and corporate control and for managerial services) alongside ‘monitoring services’ will serve shareholders and other contractual stakeholders well. Accountability and its theoretical underpinnings As Sinclair (1995) points out. been extended by ‘leading edge’ reporters and by the development of the OFR within the UK. This section identifies a number of competing conceptions of accountability. Our aim in the present paper is to undertake a critical evaluation of the extent of institutional reform accompanying current ‘leading edge’ reporting initiatives. A key objective of this paper is to offer some contribution to public policy debate. & Adams. accountability is a somewhat multi-faceted and. The paper’s final section provides some concluding comments with specific regard to the power relations within modern society and the implications this has for present and future accountability practice. together with that potentially ensuing from the proposed OFR regulations.S.

literally to hold them ‘‘as if suspended before us’’. On the basis of a commonly agreed analysis. 2003) provide an important insight into the ‘‘possibilities of accountability’’. p. honest and unbiased ideal speech situation debate among all stakeholders should therefore lead to the acceptance by all stakeholders of a democratically determined consensus view of corporate responsibilities. 11). 102) . 691) The work and writings of Roberts (1991. 247) Roberts (1996. alternative views need to be weighed and a preferred view selected (which may be one of the original alternatives or a new view that emerges from the discussion).652 S. namely ‘‘discussion’’ and ‘‘dialogue’’. but. . in Rorty’s terms. p. If applied to the corporate arena the result of: ‘‘an open. Dietrich.4 Mouck (1994). 20) This potential for. . 3. Cooper. p. all participants must ‘‘suspend’’ their assumptions. 58). . following Bohm. In a dialogue. Specifically Roberts (1996) drawing upon the work of Senge. but a richer grasp of complex issues. ‘free discussion’ to improve accountability has similarities with the ‘Ideal Speech Situation’ framework of Habermas (1992).’’ (Senge. p. At the centre of Mouck’s conception of corporate social accountability is Rorty’s contention that: ‘‘.’’ (Unerman & Bennett. which are already difficult to meet. For Roberts (1996. 59) concludes that ‘‘dialogue as a process and practice of accountability’’ has the potential to ‘‘restore the balance’’. but suggests that this falls ‘‘outside the scope of accounting. D. p. argues that when these philosophical foundations are questioned they are ‘‘all but destroyed by the work of Richard Rorty and others who have promoted the ‘‘linguistic turn’’ in the social sciences’’ (p. as Senge does not recognise hierarchical power as an obstacle to dialogue. as cited in Mouck. The ability of stakeholders to exercise these rights must not be prevented by the coercive power of any other participants (Habermas. 243) Roberts (1996) continues. discussions converge on a conclusion or course of action. decisions are made. dialogues are diverging. we shall call ‘‘true’’ or ‘‘good’’ whatever is the outcome of free discussion . for such dialogue to be possible three conditions must first be met: 1. distinguishes between two types of discourse. dialogue is impossible where hierarchical power exists. . More recently. as ‘‘hierarchy is the means whereby individual and group interests come to be extracted out of the questioning process that dialogue establishes and 4 Benston (1982. all that matters for liberal politics is the widely shared conviction that . p. 1990). that these conditions. are insufficient. . Roberts (2003) has argued that what is needed is an ‘‘extra-corporeal accountability’’ through dialogue ‘‘with those most vulnerable to the effects of corporate conduct’’ (p.’’ (p. Bohm and Levinas. In contrast to the Habermasian inspired discussion above Roberts builds upon the work of Senge.’’ (Rorty. recognize that the reporting of ‘‘negative externalities on the general public. When a team must reach agreement and decisions must be taken. is not likely to be self-regulating’’. 1990. Organizations and Society 32 (2007) 649–667 economic theory. 84. 263). Such dialogue can result in a movement beyond the views of the individual participants (Senge. 102) does. Broadbent. they do not seek agreement.L. When they are productive. however. p. On the other hand. 1992). 2. there must be a ‘‘facilitator’’ who ‘‘holds the context of dialogue. 2004. 1996. however. ‘‘In a discussion. p. and Laughlin (1996) argue that an ‘Ideal Speech Situation’ framework would enhance accountability by providing all stakeholders with the right to enter the discourse and to ‘‘present their views and to challenge the views of others’’. 1989.M. Owen / Accounting. 1990. such that the ‘‘instrumental pursuit of power and profit’’ cannot be undertaken ‘‘without regard to the wider social or environmental consequences of the pursuit of such interests’’. some discussion is needed. following Bohm. . all participants must regard one another as colleagues. complex issues are explored. 1994.’’ (Senge.

’’ Therefore the challenges that dialogue raises against the interests of those in power will probably be resisted because it threatens the hierarchy. 2004). in contrast to Benston’s (1982) corporate accountability. in addition to our concerns as to whether stakeholders are able to enter into some form of purposeful communicative action with corporations. and associated power differentials between accountor and accountee. 1985). 38). but we believe. seeking to bring influence to bear on the organization. however. with corporate management and government. that a particularly sharp contrast to the perspective adopted in this paper is offered if one were to consider accountability in a Foucauldian sense. 1984) to enhance accountability. p. 6 As we noted at the outset. we suggest that there must be a purpose to this ‘‘communicative action’’. which may not only shape managerial subjectivities but also offer ammunition to influential outside parties. 203). there is a distinct lack of consensus amongst researchers as to what is to be understood by the term ‘accountability’. as did Unerman and Bennett (2004). This section of the paper commenced by defining accountability as ‘the duty to provide an 5 We acknowledge that an important criticism of both the dialogic and ideal speech models lies in the practical difficulties in creating the appropriate conditions for them to be possible.S. Such effects should be apparent through corporate decision-making processes and given the conception of accountability discussed here. or ‘‘new courses of action’’ (Senge. of course. p. 1991).5 Further.L. Cooper. a ‘‘democratically determined consensus view’’ (Unerman & Bennett.6 with a key objective being to offer some contribution to public policy debate. One anonymous reviewer quite rightly noted. relationship (Roberts & Scapens. must result in instances where decisions made are not done so purely on the basis of shareholder primacy. who should be allowed to speak? The practical difficulty of applying such models has been recognized in the literature (see Power & Laughlin. and Senge and Bohm have all been used to point towards the potential for some form of ‘‘communicative action’’ (Habermas. This giving of an account is only one part of Stewart’s (1984) accountability framework. Specifically Habermas’ ‘‘ideal speech situation’’ and Bohm’s conditions for ‘‘dialogue’’ have been identified in the literature as relevant for improved accountability. 247). for example. How successful such influence might be in changing organizational priorities is. Thus. . Gray et al fail to address the issue of effective utilization of information by recipients. D. open to major question in an economic order which in its endless pursuit of ‘shareholder value’ routinely privileges returns to investors over all other economic and social interests (see Collison. From the perspective of an ‘Ideal Speech Situation’ for such communicative action to be possible within a corporate setting stakeholders would require a forum where they were able to present their views and challenge the views of others. but also its value in terms of ‘‘facilitating action’’ (p. The writings of Rorty. as it would be impractical for all stakeholders to speak. but rather result in an ‘‘understanding’’ (Puxty. Therefore. and associated accounting. in terms of facilitating action on their part. that some movement towards these conditions is better than none and would indicate improved accountability. we suggest that if accountability is to be achieved stakeholders need to be empowered such that they can hold the accountors to account. Owen / Accounting. Arguably. discussion and dialogue. 1990. 1996. it should not be ineffectual. notably NGOs. avowedly normative (Cooper & Sherer. In order to do so we consider the extent to which the conditions for an ‘‘Ideal Speech Situation’’ and for dialogue are present. and Sugden (2000) emphasise that this conception of accountability requires not only the provision of information. 1984). 1996).M. This paper draws upon this literature and considers whether current accountability practice enables stakeholders to enter into discourse. therefore.. Here disclosure in itself can be instrumental in terms of enhancing accountability in that it creates a new form of visibility. we also consider the potential for new corporate environmental and social disclosure initiatives to enhance stakeholder accountability via empowerment. Habermas. account (by no means necessarily a financial account) or reckoning of those actions for which one is held responsible’ (Gray et al. that lie at the heart of any accountability. as this also requires that the accountee has ‘‘the power to hold to account the person who gives the account’’ (p. 16). For example. Bailey. Organizations and Society 32 (2007) 649–667 653 then imposed on others. The standpoint adopted is. 2003). Harte.

the ACCA has been proactive in promoting the establishment of similar initiatives in Europe. listening to and understanding the concerns of stakeholders. p. social and sustainability reporting. given the nature of the awards. supported by specific examples.M. ‘‘Corporate governance provides the framework within which we observe and enhance our socially responsible behaviour. 4) Accompanying acknowledgement of an accountability relationship with identified stakeholder groups is a commitment to be responsive to stakeholder concerns and needs. North America and the Asia-Pacific region. relates to twelve social/ sustainability reports that. and developing practical programmes of action to address them.7 In total fifteen reports were short-listed. that the relationship with stakeholders is one of accountability of the organisation to the latter.’’ (BNFL Corporate Social Responsibility Report 2003. Each of the reports was analysed with specific regard to comments concerning how the reporting companies engage with their stakeholders and what effect. acting as an ongoing pressure for reporting reform. 7 . p. The reports analysed in this section are prepared by the companies and so therefore the evidence provided must be considered in this light. media. Safety. Pressure Groups. p. p. such stakeholder engagement has. customers. or is not. 2002/03. Most forthright in their commitment in this regard are the following: ‘‘We recognise the importance of accountability to stakeholders and are aiming for a higher level of engagement and interaction. but for the purposes of this analysis the three reports produced by SMEs have been excluded. Community.’’ (BAA Stansted Towards Sustainability Report. 2002. if any. has been made towards improved stakeholder accountability. suppliers. for example. Corpo- Launched in 1991. ‘‘. particularly with the communities in which we operate. if any. . Thus. In addition to operating the UK scheme. 14) ‘‘We are accountable to eight stakeholder groups: Public. governments. Organizations and Society 32 (2007) 649–667 Extending stakeholder accountability via corporate governance reform? The Evidence from ‘Leading Edge’ Reporters This section of the paper considers what progress. Environment and Community Summary Report 2003. It does so through an analysis of a number of reports short-listed for the Social and Sustainability categories of the 2003 ACCA UK Sustainability Reporting Awards Scheme. in ringing tones BAA (Stansted) proclaims a commitment to pursuing. A notable feature of all of the reports analysed lies in the impression conveyed.L. could be argued to be amongst the best such reports produced in the UK. 69) ‘‘Our goal is to make BNFL an increasingly transparent company-one that is accountable to a wide range of stakeholders including employees. 5) ‘‘Premier understands that it is accountable to a broad set of stakeholders and is guided by the multi-stakeholder approaches of the GRI in its disclosure of information about performance. regulators.654 S. D. the ACCA awards scheme has been particularly influential in terms of publicizing the issue of corporate environmental. a stakeholder partnership approach to the decision-making process on new developments and other issues affecting the wider community. Employees. tracing ‘leading edge’ reporting practice and. p. unions. . 7) The central importance of corporate governance arrangements in terms of addressing stakeholder concerns is clearly highlighted in Scottish Power’s Environmental and Social Impact Report (2002/03. explicitly or implicitly. 10). NGOs and the general public. local communities.’’ (Premier Oil Sustainability Performance Report. One consideration throughout the analysis is the extent to which rhetoric relating to stakeholder accountability is. p. Africa. Retailers. Owen / Accounting.’’ (Camelot web based Social Report 2003.’’ (BHP Billiton Health. This analysis. therefore. Cooper. Environment and Shareholders. Suppliers. via the annual published reports of the panel of judges.

engender a culture of ethical behaviour and moral responsibility and link business success with the needs of our full range of stakeholders. It is the means by which we achieve our objectives. for example. The latter group’s responsibility is to act as independent advisors in the development of the company’s external reporting procedures and produce a substantial statement on its activities in the annual BT Social and Environmental Report.8 In a number of cases (for example. it is debatable as to how much such initiatives achieve in terms of empowering stakeholders and thereby democratising the whole CSR process. 8 Eight of the twelve reports analysed clearly state this to be the case. D. The crucial point here is that the external participants (as far as may be ascertained) are appointed by corporate management. The Panel reports to the main board and both reviews and signs off the annual social report. National Grid Transco’s Risk and Responsibility Committee and Premier Oil’s CSR Advisory Committee) a small number of external advisors are co-opted in order to bring in additional specialist skills. 19) Most highly developed in terms of incorporating an external dimension into CSR internal governance procedures are Camelot and BT. Effective corporate governance is built on accountability. All 12 reports. forums at which stakeholder groups (predominantly employee and local community groups) are directly represented are confined to consultative committee type structures. Environment and Community report 2003. In fact each of the reports identifies a wide range of stakeholder dialogue and engagement processes employed. Thus. Owen / Accounting. express a clear commitment to engage with their stakeholders so that concerns of the latter may be adequately addressed. completely separated from the key strategic decision-making arena. . is certainly a step forward in transparency terms. telephone interviews. comprising of senior executives and reporting to the main board. which brings together representatives of senior management. Significantly. National Grid Transco notes that their ‘framework for responsible business’ was developed with the help of ‘‘4000 stakeholders . with BT representatives reporting back at each meeting on progress made against the Panel’s recommendations.L. Safety.M. which more enlightened organisations have operated for many years-certainly before the new wave of CSR practices achieved their current level of popularity. BT operates an even more elaborate structure via a 15-member (including twelve external members) Stakeholder Advisory Panel. leaders of several key NGOs and community opinion leaders. integrity and transparency. rather than being elected by those they purport to represent. and to what purpose.S.’’ Generally corporate governance arrangements have involved setting up a CSR Steering (or similar such) Committee. in addition to advising on strategies for continuous improvement. including employees. Whilst the bringing in of an expert external dimension into CSR governance procedures. together with a separate Independent Advisory Panel comprising four external members. . such as questionnaire surveys. . The former utilises an Advisory Panel for Social Responsibility.making. p. appears to represent a more ambitious project in this context. It determines how authority is distributed and used. focus groups. liaison panels and discussion forums. Cooper. chaired by a non-executive director and comprising individuals ‘with professional expertise in stakeholder concerns’ each of whom focuses on the concerns of a particular stakeholder group. although the company is at pains to point out that: ‘‘The Company is not bound by the advice of the FCR. Organizations and Society 32 (2007) 649–667 655 rate governance is our management ethos.’’ (BHP Billiton Health. and the FCR does not necessarily endorse the Company’s decisions. BHP Billiton’s sixteen strong Forum on Corporate Responsibility (FCR). BAA (Gatwick) refers to working with stakeholders in developing a new sustainable development policy. The former group ‘meets twice a year to share insights into societal trends and expectations’ which help shape corporate policies and practices. in addition to outlining the nature of the internal governance structures employed. with a direct line established to main board level decision.

3) Unfortunately.’’ Even more intriguingly. it should also be borne in mind that. the crucial question from a stakeholder accountability perspective has to be whether the engagement and ‘‘dialogue’’ processes they are invited to participate in do meaningfully influence specific aspects of corporate decision-making. despite disappointing sales figures in 2003. no specific instances in which shareholder interests have taken second place. are subsequently offered to substantiate this particular claim. and rather believing that. We also incorporated multi-stakeholder feedback from previous Scottish Power Environmental Sustainability and Community reports.’’ (p. whilst 388 retailers failed to reach increased sales targets introduced under a sales improvement programme and had their terminals removed (p. whilst in a similar vein BAT draw attention to developing their new ‘statement of business principles’ on the basis of dialogue with external stakeholders. to whom its provisions do not apply. Two of these priorities are impact on employees.M. six of the twelve reporters make specific reference to stakeholder consultation being employed in order to identify issues to be reported upon. 42) and investment in retail. .656 S. BAT’s Social Report 2002/03 expresses this philosophy most succinctly. Organizations and Society 32 (2007) 649–667 government. whilst stressing the importance of listening and responding to stakeholder views goes on to note ‘‘That’s not to say that all our stakeholders always agree with each other on our priorities of resource allocation. Owen / Accounting. Nevertheless. whose Social Report 2003 features nine ‘priorities’ identified with the aid of stakeholder engagement and representing ‘‘issues and actions that we believe are critical if we are to build a growing and respected lottery’’ (p. commissioned research to establish stakeholders’ views on the relevant issues to cover in this report. Additionally. customers and regulators’’. Of course it must be acknowledged that Camelot has been fully transparent on these matters. 8 of the social report summary). ‘‘all our retailers are seen as critical partners in the ongoing success of The National Lottery’’ (p. Camelot has always declared healthy profits. D. in situations of distributional conflict. . Furthermore. investors. offered enhanced redundancy payments and job seeking support as well as softening the effect of the sales improvement programme by designating 821 retailers as community outlets. Cooper. Such scepticism is perhaps encouraged in the case of Camelot. 28). ‘‘.’’ (p. . satisfaction and performance management’’ (p. .L. BTs report. and in particular it should be possible for decisions reached to be in the interests of stakeholders other than shareholders. 3) Encouragingly. Fairly typical here is Scottish Power’s statement that it: ‘‘. In fact. media. pressure groups. the interests of shareholders will not necessarily take precedence over the interests of other stakeholder groups and our business strategy is designed to promote social justice in the workplace and in our external relationships in the countries where we operate. 3) As our previous section concluded. In the absence of such information one can perhaps be forgiven for being somewhat sceptical. whereby no conflict is seen between promoting shareholder interests whilst being responsive to the needs of other stakeholders. Premier Oil’s Sustainability Performance Report 2002 claims that. 7 of the social report summary). a couple of reporters do spell out in clear terms the likely prevalence of stakeholder (and shareholder) conflict. Given these claims it is somewhat significant to note that during the year in question 8 per cent of staff were made redundant (p. . For most reporters this does not appear to be an issue as they happily subscribe to the business case ‘win–win’ scenario. . ‘‘we need to improve staff morale. the standard ‘capitalist rules of the game’ are more likely to apply.’’ (p. under the heading ‘Responsiveness’. with the financial ramifications clearly spelt out. 44). far from it! And even single stakeholders can offer paradoxical and conflicting views. it is a private company whose shares are held equally by five quoted . ‘‘Corporate social responsibility is integral to our approach to the management of our business globally and to building long term shareholder value.

’’ (csr network’s Verification . Owen / Accounting. BAA and Scottish Power) is the assurance provider’s obligation to stakeholders specifically referred to. where the engagement is referred to in the following terms: ‘‘This assurance report is made solely for CIS in accordance with the terms of our engagement.’’ (p. in most cases (7 of the 9 that claim to be following AA1000). & Townley. Our work has been undertaken so that we might state to CIS those matters we have been engaged to state in this report and for no other purpose. These organisations claim some evidence that they undertake a significant amount of communication with their stakeholders. we have a situation where the assurance provider is appointed by corporate management and. We are concerned. For example: ‘‘The approach adopted to reporting through an ESIR. Overwhelmingly (in 75% of cases) assurance providers make specific reference to carrying out their work with reference to the AA1000 Assurance Standard which. . are groups with whom the company needs to develop its closest relationships in delivering its vision as the operator of The National Lottery. have no formal hold over Camelot (with the exception of shareholders) but rather.S. and. Shell and CIS) the company itself is acknowledged as the principal in the assurance exercise. Cooper. Clearly. It is widely recognised that audit is an integral part of the accountability process (Power. More significantly. ‘‘. the assurance statement is not addressed to the organisation’s stakeholders.’’ (p. Strange. for this report or for the conclusions we have formed. Organizations and Society 32 (2007) 649–667 657 companies.M. To the fullest extent permitted by law. Cooper. to which all twelve reporting organizations submitted themselves. if they report to anyone. supported by internet based performance reports. more usually assurance providers’ comments concerning responsiveness are couched in far more general terms. that only in three cases (Co-operative Bank. may be established. 2001) and as evidence of this process the assurance statements provide a valuable insight. has a profound stakeholder orientation. To further consider this question we turned to the operation of the assurance process. report to the same constituency. Gendron. therefore. we do not accept or assume responsibility to anyone other than CIS for our work. Most damning in the context of the assurance exercise in any way acting as a mechanism to enhance stakeholder accountability is KPMG’s assurance work (carried out in accordance with the AA1000 Standard) for CIS’s Social Accountability Report 2002. as to whether such communication can be considered to result in any effect upon accountability. comprise a successful response to stakeholder research. Basically here. amongst other things. as this purports to provide an independent verification of the reports produced. D. as opposed to (enlightened?) stakeholder management. however. some evaluation of this is offered. 1997. corporate governance mechanisms have not evolved in such a way that stakeholder accountability. . whilst in the other three (BAT. and is highly circumscribed in that that these stakeholders. in terms of action facilitation. A particularly detailed evaluation of responsiveness appears in ethics etc’s audit statement accompanying the Co-operative Bank’s 2002 Partnership Report which notes. and thereby not subject to the usual stock market pressures for short term returns. 12) It is precisely the lack of any formal hold being possessed over corporate management by noncapital provider stakeholder groups that ensures an overall lack of accountability.L. as noted in the introduction to this paper. However. 75) Another important aspect of the AA 1000 Assurance Standard is the company’s degree of responsiveness to stakeholder concerns. and inclusion of marketplace and workplace data and information. and in clear contrast to the financial audit report addressed specifically to shareholders. In nine cases the report has no addressee. the bank’s response to falling levels of customer satisfaction and staff concerns over pressure at work and career progression. It is perhaps significant to note here that for Camelot accountability to stakeholders is demonstrated by ‘listening and learning from them in a variety of ways’.

It has found very little evidence of any real external stakeholder presence within internal corporate governance mechanisms and the way the assurance process. Camelot and BT. stakeholder accountability has been enhanced. Overall. The report is timely and freely accessible to CIS stakeholders.658 S. Organizations and Society 32 (2007) 649–667 Statement for Scottish Power’s Environmental and Social Impact Report [ESIR] 2002/03) ‘‘CIS has well-developed processes to respond to the views of its stakeholders identified in the stakeholder engagement process.’’ It is also of relevance to note here that in some cases doubt prevails as to how stakeholder dia- logue informs reporting practice. an issue drawn attention to in the assurance provider’s statement. it is not possible to ascertain from a reading of the reports how. In the absence of government regulation.M. in addition to courses of action decided upon.’’ (Assurance Report of KPMG Audit Plc for CIS’s Social Accountability Report 2002) ‘‘Camelot has demonstrated both the willingness and ability to respond to the concerns raised by its stakeholders in relation to key aspects of the company’s social and environmental performance. this situation is highly unlikely to 9 One notable exception here is the clear description in the Co-operative Bank’s report of how consultation with customers has influenced the review of the bank’s ethical lending policy.’’ This section of the paper has analysed twelve ‘leading edge’ reports with the specific aim of considering the evidence provided on how. actions and performance data included in the report. Owen / Accounting. formal dialogue is undertaken with selected stakeholder groups to understand the information they require. 10 For a fuller discussion of issues raised here see O’Dwyer and Owen (2005). csr network’s assurance statement for Scottish Power offers the following comment: ‘‘Commendably. ‘‘It is difficult to make direct links between a specific consultation exercise and a particular company decision. our conclusion to this analysis is that the rhetoric within these reports provides very little to substantiate claims of enhanced accountability. which is clearly not on the agenda in the prevailing voluntaristic climate dominating matters of CSR policy. if at all. D. Future reports would benefit from an explanation of how this. one is only able to gain an impression of how such dialogue appears to have influenced policy frameworks and the broad range of issues addressed in the report itself. operates10 further fails to provide much comfort. BT’s web based Social and Environmental Report 2003 indeed acknowledges this fact. For example.9 A number of reports. in simply noting in the section ‘Influencing BT’ that. not just in the UK but Europe more generally (see Commission of the European Communities. 2002). however. Cooper. Even in these cases. stakeholder views influence key corporate strategic decision making. .L. which all twelve reporting organisations have submitted themselves to. even amongst leading edge reporters.’’ (Ashridge’s Verification Statement for Camelot’s Social Report 2003) The level of generality with which the issue of responsiveness is dealt with in the above assurance report extracts is symptomatic of a more basic problem. most notably those from BAT. if at all. Quite simply. devote significant space to describing the stakeholder dialogue processes used. Extending stakeholder accountability via civil regulation? The Operating and Financial Review The above analysis strongly suggests that. and the constant dialogue that happens during the running of the business. informs the issues. administrative reform has not been accompanied by any meaningful institutional (or corporate governance) reform designed to extend stakeholder accountability in the sense of facilitating action on the part of the latter.

M. nor does it require problematic governance reform. lies in civil regulation. the proposed OFR content consisted of two elements.such information as will permit the members of the company. Whereas it was initially envisaged that the OFR proposals would form part of a new Companies Bill. . control here is enforced chiefly by markets.33). and rewarding them for exemplary. This section analyses the relevant government. The prospect of mandatory reporting in the UK was raised by the publication of draft regulations on the Operating and Financial Review by the DTI (May. ‘Modernising Company Law’ (cm 5553).’’ (Parkinson. The former comprises a statement of the company’s business. Two elements of the provisions relating to the OFR proposals contained within the White Paper are of particular significance. ‘Modernising Company Law’ (cm 5553). 2001). emphasis added). Cooper. a fair review of performance and financial position and a fair projection of future prospects and events which will. the White Paper went on to note the Government’s intention to establish.L. it has been suggested. Secondly.to make an informed assessment’’ of the company (paragraph 73. rather than the law. Gray. Provision for mandatory publication of an OFR first appeared in the July 2002 White Paper. is unlikely to evolve voluntarily as far as social disclosure practice is concerned. how far reaching these effects might be is crucially dependent on channels being available whereby non-capital providing stakeholders may be empowered to effectively utilize the information provided. ‘‘It does not depend on altruism. 2004). . conduct. 37) However. . for example. ‘‘The effects of the requirements regarding disclosure of policies and performance with respect to workforce. ‘The Operating and Financial Review Working Group on Materiality’. was duly appointed and produced a consultation document on 27 June . by penalising companies for socially disapproved. Significantly. environmental and social and community issues are potentially far reaching. Owen / Accounting. . An independent group of experts. which itself represented the outcome of a seemingly exhaustive three year review of company law by the government appointed Company Law Review Steering Group.of course be for directors to decide precisely what information is material to their particular business’’ (paragraph 4. Organizations and Society 32 (2007) 649–667 659 change.’’ (p. . substantially affect the business. a decision was subsequently taken to ‘fast track’ its introduction by means of secondary legislation under existing company law. he argues. . 25) Parkinson goes on to point out that effective civil regulation can only be brought about in situations where an adequate disclosure regime operates. through to its abolition in 2005.S. social and community issues. in common with social accounting researchers such as Gray (see. The White Paper stresses that it will ‘‘. environmental. The determination of whether ‘duty to consider’ items should appear in the OFR rests on a decision as to their ‘materiality’ in the context of enabling an informed assessment of the business to be made. The latter consists of additional information necessary for members to assess the reporting company. or are likely to.34). The remainder of this section of the paper refers to the progress of the mandatory OFR from its appearance in the July 2002 White Paper. Rather it works with the grain of the profit motive. Firstly. D.3. and relies on public pressure to bring about more socially responsible corporate behaviour.‘compulsory’ and ‘duty to consider’. ‘‘. 2003. . . the stated objective of publishing an OFR is to provide ‘‘. As Parkinson (2003) explains. DTI and Working Group publications and the responses made to them. one which. Amongst matters specified under this heading are policies and performance data concerning employment. p. for Parkinson. The practical advantages of going down this route are that. However. An alternative means of introducing a greater measure of social control over business behaviour. an independent group of experts to help in the process of providing guidance on how directors can assess whether an item is material to their company and hence must be included in an OFR’’ (paragraph 4.

Corporate Accountability Programme. 6). But the CLR and the White Paper also recognise that it is vital for directors to take a broad view of the factors determining the success of their business and. albeit that the information provided in it will clearly. or indirectly. shareholders provide the primary audience for the OFR. Later suggestions made in the consultation document. . A key objective of the OFR is to strengthen accountability. this is clearly relevant to shareholders because of the likely consequential effect on profitability and hence on shareholder returns. Member of the Company Law Review Steering Group) Graham Ward (Senior Partner. So the key question in deciding whether or not an item is material. went on to state their belief in the importance of thinking about other various classes of potential users. In the latter context it is apposite to recall that the White Paper more narrowly interpreted the role of the OFR as being merely one of enabling an informed assessment of the business to be made by its members. for the way the company manages a particular environmental challenge to affect directly or indirectly. emphasis added) Whilst the above extract from the Working Group’s consultation document does not. Accounting Standards Board) Rob Lake (Head of SRI Engagement and Corporate Governance. as part of the total process of good governance. D. Organizations and Society 32 (2007) 649–667 2003. Global Energy & Utilities Group. whilst also highlighting unexplored tensions in reconciling how the interests of shareholders and other stakeholder groups. . in considering the concept of materiality the Working Group. Henderson Global Investors) John Parkinson (Professor of Law.L. Chair (Economist and business consultant.M. Independent Complaints Commissioner for the Financial Services Authority. . If there is the potential. for example. . and the process directors should go through. (paragraph 20 iv pp. significant numbers of people and thus affect its reputation. and rightly. directly challenge the primacy of shareholder interests (note particularly the implicitly narrow interpretation of the word ‘success’) it does muddy the waters somewhat in mentioning the possibility of stakeholders obtaining ‘direct benefit’ from information provided within the OFR. matters of concern for shareholders too. together with how the differing goals of accountability and financial return. . Issues that are of significant interest to customers. may be reconciled. be of direct benefit to other users who may have an interest in the company’s affairs. to suppliers and to society more widely are. ‘‘. Company Reporting Working Party. Advisory Committee for Business and the Environment) Deborah Doane (Head. Insurance & Investment Division. in particular this means recognising the role that all the company’s relationships play in its success. the concept of materiality. either directly. New Economics Foundation) Mark Goyder (Director. and positing as a key objective of that document the strengthening of ‘accountability’. 15–16. as a result of its significance to other stakeholders and thus to the company. University of Bristol. Member of the Company Law Review Steering Group) Gerry Archer CBE LVO (Chairman. The following extended quote encapsulates the thinking of the Working Group in this regard. per the approach of the Company Law Review (CLR) and subsequent White Paper. in deciding what should be included in their OFR’’ (p. Owen / Accounting. the principles to be applied in arriving at a judgement on materiality. .660 S. Cooper. PricewaterhouseCoopers). whilst accepting that. Tomorrow’s Company) Phil Hodkinson (Chief Executive. Significantly. when discussing principles and processes to be followed by directors in resolving materiality considerations also hint at 11 Members of the Working Group were: Rosemary Radcliffe CBE. or will very likely become. of course. including accountability for the way in which such issues are managed. The philosophy of the CLR and the White Paper rests on the proposition that companies are managed for the benefit of their members and thus it follows that the primary audience of the OFR must be the members.should be: ‘‘Does this item matter to the members. HBOS plc) Mary Keegan ( Chair. .11 This addressed ‘‘. to employees.

business associations and other organisations responded to the consultation document and each of the responses was accessed by one of the researchers via the DTI website (www. . p. share the CBI’s concern that it needs to be made clear that a board’s statutory or legal obligations regarding the OFR are limited to shareholders and do not extend to all The quotes provided are illustrative of a wider number of responses. .gov. 12 . nor should we move towards. and to the benefits of consulting with key stakeholders as to the material that should properly appear within the OFR. The responses were considered in terms of both their general and specific comments towards the consultation document and from this process the themes discussed below were developed.’’ (Institute of Directors. for example.’’ (The Hundred Group of Finance Directors. the best that we can say is that CBI members do take some comfort from your consultation on Materiality. a stakeholder model. ‘‘We . Cooper. D. reference made to exploring and understanding the agendas of a range of different stakeholder groups. it is suggested that various guidelines and standards used in the context of ‘stand alone’ environmental and social reporting (whilst not recommending that such reports should not continue to be separately produced) may prove helpful in reaching decisions on materiality questions. organizations.uk/ cld/financialreview). we report the response of business associations. and some individual companies. . The views of. but the tenor of the Consultation Document is an insidious creep in the direction of the stakeholder model and at odds with the White Paper. However.S. and the impact of the activities of the company on. independent third party or reasonableness test. and the key premise you put forward that materiality is a matter for the judgement of each individual board. There is.L. and is not a benchmark set by some separate criteria. less business oriented. we do not support the involvement of external parties in the determination by the board of material matters for disclosure in the OFR. and users of accounts or have equal regard for other stakeholders. Whilst undertaking the analysis it became apparent that there were clearly two very conflicting views on the consultation document. p. Firstly. as is evidenced by the following illustrative quotes. . but have been selected due to the clarity of the position taken.M. Furthermore. In total 79 companies. . The Working Group’s consultation document created a fascinating response. 2) ‘‘It is in shareholders’ best interests for companies to have regard to the interests and concerns of other stakeholders . We do not have.’’ ‘‘.dti.12 ‘‘There must be clarity that the OFR forms part of the current system of company law in this country. others (‘stakeholders’) may well be of relevance in certain circumstances. The business response to the Working Group’s consultation document suggests a great deal of unease at the direction the working group was moving in terms of a perceived move towards some form of ‘stakeholder model’. Organizations and Society 32 (2007) 649–667 661 a desire on the part of the Working Group to establish somewhat more ambitious objectives. . 1 and p.’’ (BT Group plc. However there is ambiguity over whether the board should regard the interests of shareholders as paramount. 4). 1) ‘‘The guidance as phrased by the Working Group could lead to unwarranted prominence of matters included for their significance to other stakeholders. the OFR should not be written to address these other stakeholder groups specifically.’’ (CBI. to the consultation document and then we consider the very contrasting responses of other. Owen / Accounting. Director’s duties are and will continue to be owed to the members’ as a whole. p. We are very strongly of the opinion that it should be the former. and that proposed in the Company Law Review and the White Paper. 2–3) ‘‘For the moment. pp.

. nearly one year after the release of the consultation document.by the board is accurate. as compared to compulsory items. Friends of the Earth. ensure companies are made legally accountable for their social. . The CORE response. . D.’’ (Scottish Power plc. led by a Steering Group which includes Amnesty International (UK). as any disclosure would create a negative financial impact on the company and ultimately its members. Owen / Accounting. . the Corporate Responsibility Coalition (CORE)13 and the fair trade organisation Traidcraft draw clear attention to the weaknesses of the proposed OFR in terms of promoting civil regulation. Christian Aid. that can assess whether the information collected.’’ (p. requiring mandatory reporting and independent auditing of social. 2) The vehemence of these responses is of some significance. ‘‘As the guidance is currently drafted it is not clear why adverse impacts would ever be disclosed. p. environmental and economic matters. indeed. 10) In May 2004. develops this point further in arguing that.’’ (p. We believe that placing an emphasis on the duty of a director to operate in the interest of the company members only perpetuates a system where the more serious an impact is on stakeholders. the major problem with the Working Group’s recommendations is that they exhibit a clear bias towards companies and preserving the status quo in allowing far too much discretion to directors and failing to specify adequate compliance mechanisms and penalties. the responses to the consultation document by the Association of Chartered Certified Accountants (ACCA). 10) For CORE. environmental and economic impacts by placing a duty on directors to consider these matters. ‘‘It is only stakeholders. for example. Significantly. Traidcraft’s response similarly highlights the need to introduce effective compliance and complaint mechanisms whilst also calling for stakeholders to be involved in the assurance process so that they may evaluate the reliability of the information the directors are disclosing.L. and in stark contrast to the position expounded above. The ACCA response. or relevant exclusions. or indeed to the doctrine of ‘enlightened shareholder value’ adopted in the White Paper.’’ (p. They go on to stress the need to. ‘‘. of a particular OFR. 2) It is also pointed out that whereas items such as carbon emissions or health and safety related performance may not be judged material to users narrowly defined as investors or members they may be considered significant for the wider community. but also in view of the fact that the OFR Working Group’s report offers no challenge whatsoever to directors exercising their own discretion in deciding upon OFR content. . the DTI published its ‘‘Draft Regulations on the Operating and Financial Review and Directors’ Report: A consultative document’’ and the Working Group published its ‘‘Practical guidance for directors’’. 2) Additionally. New Economics Foundation and Traidcraft. The DTI draft regulations. not just in the light of today’s ubiquitous claims on the part of leading companies of subscribing to notions of corporate citizenship and responsiveness to stakeholder interests. Their stated vision is. difficult to avoid the impression in the minds of preparers especially of the lesser significance attached to those OFR subjects marked as ‘only when material’. which are affected by the company.M. notes that it will be: ‘‘. 13 .662 S. Cooper. which were designed to implement The Corporate Responsibility Coalition comprises 50 national organisations. Organizations and Society 32 (2007) 649–667 potential users of the OFR. if this is not in fact significant for shareholders. the less likely it is to be disclosed.’’ (p. . ‘to ensure companies are more transparent and held accountable to a wider community of stakeholders through changes to UK company law’. attention is drawn to the necessity for considering some form of formal complaint mechanism whereby stakeholders are enabled to bring forward grievances based on the contents.

14 clearly allay the fears of some shift towards stakeholder. as with other company reporting. For example.3).2. Similarly. ‘‘The financial loss to the company from poorly managing these issues could be direct . emphasis added). directors deciding in good faith what would be most likely to promote the success of the company. To the extent that it is appropriate to consider social and environmental factors this is apparently only necessary when financial loss may ensue through ignoring them. D. The story of the mandatory OFR does not end here though. timeliness and accessibility of information available for shareholders and others’’ (paragraph 2.33). it is hard to see the above OFR proposals leading to much in the way of transparency or meeting stakeholder accountability needs. . whilst the underlying concept remains unchanged). which states the government’s belief that the OFR will lead to.34). that the objective is to ‘‘. The subordination of the social and environmental dimensions of performance to that of the financial as far as OFR reporting is concerned is made particularly clear in paragraph 2. in view of the above. . In January 2005 the Draft Statutory 14 Modifications entailed minor changes to the compulsory disclosure elements. reporting. It is further suggested that. and the Materiality Working Group in their final report (May. the OFR will be relevant to ‘‘.32. in considering environmental and health and safety issues the concern is that a poor record ‘‘. . which are relevant to achieving its objectives and to an assessment of its business. . . through shareholders exercising informed influence over companies that their expectations and those of the wider community will best be met’’ (paragraph 2. taking account of a wide range of factors. rather than to public and private limited companies over a specified size threshold. to the ‘members’ or shareholders’’ (paragraph 3.the way a company manages and utilises its workforce can have a significant impact on the performance of the company’’ (paragraph 3.L. Notwithstanding a reference in the draft regulations to the Government considering a requirement for directors to state the fact where they have concluded that there is nothing relevant to report in respect of social and environmental issues. it is emphasised that the OFR ‘‘. Furthermore. are hardly encouraging in this context. These factors may well include the company’s impact on the environment and on the wider community. within and outside the company. . Cooper. . it is noted that. . . the OFR is addressed. improved transparency and accountability. . who have a variety of relationships with the business’’ (paragraph 2. . . Furthermore. could adversely affect a company’s standing and business prospects’’ (paragraph 3. customers and suppliers’’ (emphasis added). replacement of the ‘materiality’ criterion by one of ‘to the extent necessary’ (this is to bring terminology into line with that of the June 2003 EU Accounts Modernisation Directive. Helpfully. together with the suggestion that social and environmental issues are only of relevance when there are financial implications for the company. the responses of business organisations and individual companies to the OFR Working Group’s consultation document give a rather clear hint as to how the discretion allowed to directors over disclosure decisions is likely to be exercised. . the draft regulations go on to point out that.7). . it is claimed in the draft regulations that the OFR proposals are designed to improve corporate governance via ‘‘.4).5). with improvements to the quality. and that it is ‘‘. employment issues may be of concern solely because ‘‘. and a provision for the mandatory OFR to apply to all quoted companies. Thus. and its relationships with employees. other stakeholders (including employees) and the wider public.M. . or from costs associated with missed opportunities’’ (paragraph 3. . allow shareholders to assess the company’s strategies and their potential to succeed’’ (paragraph 3. ‘‘. .5 of the draft regulations. . ‘‘. Organizations and Society 32 (2007) 649–667 663 the White Paper proposals with very minor modifications.S. Rather strangely. as opposed to shareholder. . indirect . emphasis in original). . . . must reflect the directors’ view of the business’’ (paragraph 3.35). . The absolute primacy given to shareholder interests. whilst prepared for shareholders. 2004) continuing to encourage directors to ‘take a broad view’ in exploring and understanding a wider stakeholder agenda. Owen / Accounting.

. 160) It is quite impossible to envisage stakeholder accountability being established in a situation where company directors acknowledge enforceable duties only to shareholders and.’’ (p. In addition the Accounting Standards Board produced an exposure draft in November 2004 and. Press Release. As Williamson (1997) argues. ‘‘Disclosure of information can only have limited effect . but scrapped. But I understand the concerns about the extra administrative cost of the goldplated regulatory requirement that from April next year all quoted companies must publish an Operating and Financial Review. at least in AngloSaxon capitalism. Other groups after all. Owen / Accounting. Bakan. ‘‘Instead. a far more pluralistic form of corporate governance would be required. For stakeholder accountability to be established. 2005 the Chancellor. pursue a pre-occupation with maximising shareholder value (see Collison. 2003.664 S. So we will abolish this requirement and reduce the burdens placed upon you – the first of a series of regulatory requirements which by working together we can abolish in the interests of the British economy. 2006) The whole OFR consultation process can only leave one more concerned than ever that whilst stakeholders may be ‘consulted’ their opinions are ignored by companies and the government alike. with only minimal changes. 2005. because the likelihood of it leading to action depends on the ability of others to use information in forums in which they have a legitimate voice.M. But this report will no longer have to meet statutory requirements. 2006). D.’’ (Eaglesham & Jopson. introduced just nine months earlier following a 6-year consultation process’’ (FOE. companies would have to produce a ‘‘business review’’ – a ‘‘slimmed down’’ OFR – to comply with European law. The common feature of both approaches lies in the fact that administrative (reporting) reform is viewed in isolation from any necessary institutional reform which may provide the means for stakeholders to hold company directors accountable for actions affecting their vital interests. 2003). particularly employees. in a speech to the CBI (an organization who we noted earlier in this paper was concerned with the ‘‘insidious creep in the direction of the stakeholder model’’) announced: ‘‘Best practice is of course for companies to report on social and environmental strategies relevant to their business. but resulted in a decision that the mandatory OFR could not be justified as it would impose too great a burden upon companies. Gordon Brown. make firm specific investments . Whereas the views of all are seemingly invited it seems the ‘interests of the British economy’ are paramount and that this is equated with business/shareholder interests which any understanding or consensus reached must not prejudice.L. In a further twist the government then agreed an out of court settlement with FOE and decided to widen its consultation on the requirements for company narrative reporting. There would need to be a clear recognition that there are other normatively legitimate stakeholders than simply equity shareholders alone (Phillips. Cooper. 2004). Despite years of consultation having appeared to have eventually produced a relatively business friendly version of the OFR on 28 November. And so briefly the consultation process started again. . & Wicks. and included a postponed starting date to financial years beginning on or after 1 April. 11 January. Freeman. Organizations and Society 32 (2007) 649–667 Instrument was produced. Concluding comments The above analysis suggests that the proposed. mandatory reporting of social and environmental information via the OFR proposals was likely to be as ineffective as voluntary disclosure of such information in a special purpose report in terms of facilitating action on the part of organisational stakeholders.’’ This move was met with astonishment by many organizations and resulted in Friends of the Earth (FOE) instigating legal proceedings as they felt that ‘‘the Chancellor failed to properly consult before abolishing the OFR. 2005 rather than the original date of 1 January. a reporting standard in May 2005.

Of course. but rather the interests of one – the organisation. 2004). 2005) within the decision-making process to favour shareholders over all other interested groups. the government make use of ‘‘one-dimensional’’ power (Lukes. and points out that the ‘organic’ model of corporate behaviour (whereby the corporation has a life independent from its shareholders) describes the behaviour of large companies and their managers somewhat better than does the prevalent principal-agent perspective. one-dimensional power: ‘‘involves a focus on behaviour in the making of decisions on issues over which there is an observable conflict of (subjective) interests. p. 28) respectively. 1996) and coercive (Habermas. (2003) note. What has to be recognised is that despite the claims of writers such as Sternberg (2004). . Limited liability assures that shareowners are not. for whom stakeholder theory is ‘a deeply dangerous doctrine’. D. model of the organisation traditionally focus upon problems in pursuing multiple objectives and balancing benefits for all stakeholders thereby establishing an accountability that is so diffuse as to be ineffective (see. Sternberg. . Cooper. Organizations and Society 32 (2007) 649–667 665 and incur risks in the same way in which shareholders do. their claims are pitched at the level of mere rhetoric which ignores key issues such the establishment of rights and transfer of power to stakeholder groups. the corporation is not coextensive with the shareholders. We also saw that the proposed mandatory nature of the OFR itself. and particularly any potential social and environmental disclosures. This paper provides evidence that the executive management of organizations and.M. 25) and ‘‘the ways in which potential issues are kept out of politics’’ (p. and even accountability. They go on to point out that maximisation of shareholder wealth in itself is an indeterminate objective. 19). or consult on. 2001). It may enter into contracts and own property . in particular.’’ (p. Criticisms of the organic. Furthermore. Gamble & Kelly. As Phillips et al. the diffuse accountability argument can readily be countered by establishing a stakeholder statute prescribing corporate objectives and responsibilities towards specified stakeholder groups (see Kay. In the words of Lukes (2005. in general. for example. 1997). Whilst the corporate lobby apparently espouses a commitment to stakeholder responsiveness.L. It has standing in a court of law. However. . Hierarchical (Roberts. stakeholder. 483) Kay (1997) similarly rebuts the notion that shareholders in any real sense ‘own’ the company.’’ (emphasis in original) The use of one-dimensional power was apparent in how the prominence given to stakeholders was reduced subsequent to the vehement corporate responses to the OFR Materiality Working Group’s 2003 consultation document. as Phillips et al. was removed by Gordon Brown to ensure that not too great a burden was placed on business. Owen / Accounting. seen as express policy preferences. The corporation is meaningfully distinct. it is very difficult to obtain evidence to support or refute such a suggestion. We could suggest that the failure of governments to even consider. 1992) power prevent the form of accountability that can be achieved through ‘‘discussion’’ and ‘‘dialogue’’. personally liable for the debts of the organisation . requiring significantly extended corporate social and environmental reporting is an example of three-dimensional power being used to protect corporations and their shareholders. revealed by political participation. as opposed to having particular and specific claims upon it. perhaps even more worryingly. ‘‘It is an entity unto itself. given the innumerable ways in which it may be pursued. Such government decisions observably favoured shareholder interests.S. (2003) argue. To deny them representation in the governance of the company therefore appears somewhat difficult to justify on moral grounds (see. as Lukes (2005) explained. Top managers are agents for the corporation and this is not merely a shorthand way of saying that they are agents for the shareholders. . It is much more difficult to comment upon whether organizations and the government also favour shareholders through the use of two-dimensional and three-dimensional power where ‘‘decisions are prevented from being taken on potential issues’’ (p. the stakeholder model does not advocate that managers serve the interests of multiple masters. .

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