Mahadevo-2011-Legitimacy & Stakeholder Theory

Accounting Forum 35 (2011) 158–175
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Accounting Forum
journal homepage: www.elsevier.com/locate/accfor
Changes in social and environmental reporting practices in an

emerging economy (2004–2007): Exploring the relevance of
stakeholder and legitimacy theories
Jyoti Devi Mahadeo a , Vanisha Oogarah-Hanuman a , Teerooven Soobaroyen b,∗
a
Faculty of Law and Management, University of Mauritius, Reduit, Mauritius
b
Centre for Research in Accounting, Accountability and Governance, School of Management,
University of Southampton, Highfield, Southampton SO17 1BJ, UK
a r t i c l e i n f o a b s t r a c t
Keywords: We examine social and environmental reporting (SER) practices of listed companies in the
Social and environmental reporting island economy of Mauritius. Based on a content analysis of annual reports, quantitative
Emerging economy and qualitative changes in SER were analyzed in light of recent developments in corporate
Stakeholder theory
governance and with regard to the prevailing social and political contexts of this emerg-
Legitimacy theory
ing economy. We find a significant but selective increase in the volume and quality of SER
over the period under review (2004–2007). We rely on Suchman’s (1995) conceptualiza-
tions of legitimacy to argue that the changes in SER are related to a need for companies
to demonstrate an affiliation to pro-social objectives (moral legitimacy) and, to a lesser
extent, are motivated by the need to manage specific stakeholders (pragmatic legitimacy).
More specifically, the increase in ethical disclosures reflects an attempt at gaining pro-
cedural legitimacy in response to criticisms of corruption and unfair/unethical business
practices. Furthermore, the increase in social disclosures can primarily be seen as a mech-
anism to gain consequential legitimacy in response to concerns that local companies are
not sufficiently contributing to the country’s social development. We suggest that future
empirical research should devote more attention to the specific characteristics of emerging
economies (such as levels of corruption and unethical business practices and the level of
corporate governance) and examine whether these can explain patterns of corporate SER
in a given national context or on a cross-country basis.
© 2011 Elsevier Ltd. All rights reserved.
1. Introduction
The practice of social and environmental reporting (SER) remains of topical interest due to its variability across corporate
or national contexts, the debate on its various drivers and motivations and its potential role as a social accountability
mechanism (see, for example, Gray, 2010; Owen, 2008; Parker, 2005). Legitimacy theory has gradually emerged as the
dominant socio-political explanation (see, for example, Campbell, 2000; De Villiers & Van Staden, 2006; Gray, Kouhy, &
Lavers, 1995a; Neu, Warsame, & Pedwell, 1998; Owen, 2008; Parker, 2005), but many commentators question whether
this theory can provide a comprehensive explanation of SER practices (Amran & Devi, 2008; Cormier, Gordon, & Magnan,
2004; Owen, 2008; Parker, 2005; Tilling & Tilt, 2010). Furthermore, SER evidence from emerging economies remains limited
(De Villiers & Van Staden, 2006), although it has been growing, predominantly within the Asian region (see, for example,
∗ Corresponding author. Tel.: +44 23 8059 8962; fax: +44 23 8059 3844.
E-mail addresses: j.mahadeo@uom.ac.mu (J.D. Mahadeo), v.hanuman@uom.ac.um (V. Oogarah-Hanuman), t.soobaroyen@soton.ac.uk (T. Soobaroyen).
0155-9982/$ – see front matter © 2011 Elsevier Ltd. All rights reserved.
doi:10.1016/j.accfor.2011.06.005
J.D. Mahadeo et al. / Accounting Forum 35 (2011) 158–175 159
Amran & Devi, 2008; Belal & Owen, 2007; Elijido-Ten, Kloot, & Clarkson, 2010; Haniffa & Cooke, 2005; Islam & Deegan, 2008;
Ratanajongkol, Davey, & Low, 2006).
Informed by the above, the aim of this study is to analyse the extent of SER practices in Mauritius. We rely on content anal-
ysis to identify, classify and quantify changes in the SER disclosures of listed companies over a four-year period (2004–2007).
This period of investigation coincides with two contextual events that we consider to be of key relevance to SER in Mauritius.
First, a local code of corporate governance was published by the Mauritian National Committee on Corporate Governance
(National Committee on Corporate Governance (NCCG), 2004) whereby listed companies were expected to adopt its recom-
mendations in their annual reports from 2005 onwards, including the disclosure of “policies and practices as regards social,
ethical, safety, health and environmental issues” (NCCG, 2004, p. 116). The code has explicitly adopted a stakeholder-oriented
approach.1 To the best of our knowledge, this was the first explicit and detailed recognition of the need for companies in
Mauritius to systematically attend to ‘non-economic’ stakeholders (NCCG, 2004, p. 110) in an otherwise heavily shareholder-
focused and ‘private’ business community (Fremond & Gorlick, 2002). Second, political changes in 2005 led to a new agenda
aimed at ‘opening up’ the economy. The business sector in Mauritius was traditionally seen to operate as a small and tightly
knit group characterized by opaque management and quasi-monopolistic practices with little systematic interest in social
action. However, it remains to be fully assessed whether the above changes have led to an increased corporate response in
terms of social responsibility activities and/or SER practices.
The motivations for and intended contributions of this study are threefold. First, there has been relatively little research
on the effects of corporate governance codes in heightening SER practices (Haniffa & Cooke, 2005; Jamali, Safieddine, &
Rabbath, 2008). Many of the codes that are disseminated worldwide are drawn from the OECD framework, which states that
relevant information must be disclosed to all stakeholders (OECD, 2004, p. 22). However, to what extent the concept of the
non-economic stakeholder is accepted by local companies in emerging economies has yet to be fully appreciated. Hence, the
findings from Mauritius are potentially of relevance to other emerging economies that have adopted corporate governance
codes with similar stakeholder accountability implications (Brennan & Solomon, 2008). Furthermore, given the absence of
guidance on the form and content of SER in Mauritius, our findings can be of use to managers and non-economic stakeholders
(such as civil society organizations) in ascertaining how companies have engaged with the stakeholder requirements of the
code. This study can also assist the NCCG in devising or recommending more detailed models of SER to improve corporate
social accountability and improve the usefulness of the disclosures.
Second, there are claims that legitimacy and/or stakeholder-based studies set in an emerging economy do not sufficiently
recognize the social, economic and political factors germane to the country. Haniffa and Cooke (2005, p. 394) argue that this
limitation causes SER practices to be evaluated by the norms prevalent in an Anglo-Saxon culture. In our view, this indicates
a need to uncover the context in which companies engage with SER. In this regard, De Villiers and Van Staden’s (2006) study
of environmental disclosures provides a case in point articulating the links between societal expectations (as perceived by
corporations) in South Africa and changes in disclosures over time. A related issue is the fact that many studies (see, for
example, Amran & Devi, 2008; Belal, 2001) focus only on one year’s data and can only provide a limited picture of how SER
is evolving over time. The fact that SER remains by and large a voluntary practice suggests that companies may take time to
respond to new forms of social accountability.
Third, the ‘fuzziness’ and lack of specificity of the legitimacy perspective (refer to Deegan, 2002, p. 298; Parker, 2005,
p. 846; Tilling & Tilt, 2010, p. 57) have led to claims that it has yet to provide a convincing and coherent explanation for
corporate SER behavior. In this respect, we are drawn to an analytical framework based on Suchman’s (1995) work that, in
our view, combines legitimacy and stakeholder management to understand changes in SER practices. The legitimacy and
stakeholder perspectives are already seen to be complementary and overlapping in providing a macro (legitimacy) and a
micro (stakeholder) framework to explain a firm’s specific actions (Cormier et al., 2004; Deegan, 2002; Holder-Webb, Cohen,
Nath, & Wood, 2009; Tilling & Tilt, 2010). The nature of this overlap has not been considered to a great extent. Hence, we
aim to develop further insights on the relevance of the legitimacy and stakeholder perspectives in explaining SER patterns
in emerging economies.
The remainder of the paper is organized as follows. We briefly explain the stakeholder and legitimacy theories and
concurrently review relevant empirical evidence. The Mauritian context is then considered, with a particular reference to
the code’s expectations and how they might influence SER. Third, the methods and data sources are explained. Fourth,
the findings are presented and analyzed in light of the selected theoretical perspectives. Finally, we conclude with the
contributions and implications of our findings.
2. Literature review
2.1. Stakeholder theory
The literature discusses two main variants of stakeholder theory: a normative (ethical) and a managerial (instrumental)
branch (Donaldson & Preston, 1995; Jamali et al., 2008). From an ethical standpoint, SER can be seen as an accountability
1
The code was heavily drawn from the South African version (known as the King Report). In fact, Mervyn King was the consultant employed by the
Mauritian government to advise local decision makers on the development of the code of corporate governance.
160 J.D. Mahadeo et al. / Accounting Forum 35 (2011) 158–175
mechanism in that it reflects an organization’s duty to account for its actions. However, it is the managerial (instrumental)
branch of stakeholder theory that has attracted the most attention in the SER literature. The managerial branch focuses on
the need to control stakeholders who are deemed to have a more direct and critical impact on the company (Mitchell, Agle
& Wood, 1997; Roberts, 1992; Ullman, 1985). These stakeholders can withdraw resources destined for the company and
thereby endanger its existence. Hence, stakeholders need to be managed to ensure their continued support and ultimately
ensure that corporate objectives are met. In this context, SER is seen as part of a mechanism whose role is to placate any
action that may be detrimental to the company. This implies that companies have identified their target audience and are
providing information that will influence (or distract) this group (Gray, Owen, & Adams, 1996).
In support of the above argument, Cormier et al. (2004) reported a degree of concurrence between managers’ attitudes
towards stakeholder groups and their behavior towards stakeholders in terms of expected and actual disclosures. Islam and
Deegan (2008, p. 870) examine the SER practices of a trade association representing garment manufacturers in Bangladesh
and report that the organization’s disclosures were changed to address the expectations of its most powerful stakeholder,
multinational buying corporations. In their experimental study of stakeholder reactions, Elijido-Ten et al. (2010) find support
for the claim that common SER practices can accommodate the diverse requirements of a number of different stakehold-
ers. Overall, this line of research outlines a calculated and focused responsiveness of companies to a defined audience
of stakeholders. However, the majority of the stakeholder groups identified in the empirical studies tend to be the com-
mercially (or financially) motivated ones. For example, Cormier et al. (2004), Islam and Deegan (2008), Elijido-Ten et al.
(2010), and Huang and Kung (2010) focus on suppliers, customers, lenders, competitors and investors but relatively less
on the public, governments, employees and communities (one notable exception being a study of pressure groups by Tilt,
1994).
2.2. Legitimacy theory
Compared to stakeholder theory, legitimacy theory appears to be less tied to the assumption of discrete and identifiable
factions of stakeholders. According to Suchman (1995), legitimacy is a state where an organization’s actions are seen to
be “. . ..desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions” (1995,
p. 574). The strategic variant of legitimacy depicts the organization as one that has the ability to engage in and control
the processes of legitimation to demonstrate its congruence with societal values. Legitimacy, like an intangible asset, is
seen as an operational resource (Suchman, 1995; Tilling & Tilt, 2010) whose value must be maintained to ensure continued
support from society. The latter is expressed, for example, in terms of increased capital inflows, customer and supplier
appreciation, labor participation, government ‘blessing’ and community (and media) acceptance through acting as a good
and environmentally friendly ‘corporate citizen’. However, should there be a perceived mismatch between organizational
activities and societal values, a legitimacy gap will develop (Haniffa & Cooke, 2005) and may threaten the organization’s
status within the broader social system.
From the above, we identify three main implications. First, societal norms, values and beliefs do not remain fixed over
time; legitimacy is hence a dynamic construct (Tilling & Tilt, 2010), with the organization responding to new imperatives
and discarding previously held perceptions (see, for example, De Villiers & Van Staden, 2006). Second, legitimacy is seen to
represent an overall evaluation of social norms, beliefs and expectations and may be influenced not by particular events,
but rather by a history of events (Suchman, 1995). This implication reinforces the view that legitimacy-based studies need
to focus on the broader social, economic and political factors and how these might affect SER practices over a period of time
rather than focusing on only one point in time. Third, communication is a crucial element of the legitimation process because
society needs to be made aware of the legitimacy-seeking actions or activities adopted by the organization (Deegan, Rankin,
& Voght, 2000; Dowling & Pfeffer, 1975; Lindblom, 1994; Newson & Deegan, 2002). In this respect, Suchman (1995) adopts
a similar view and states that when confronted with a choice of either adapting operations to meet societal norms, that
is, abandoning a cost-effective but carbon-intensive activity, or engaging in more communication to convey an impression
of congruence, such as disclosing information on tree-planting projects, managers will favor the latter option, namely the
“. . .flexibility and economy of symbolism. . .” (Suchman, 1995, p. 576).
Various examinations of SER practices (refer to Deegan, Rankin, & Tobin, 2002; Parker, 2005; Stanton & Stanton, 2002)
conclude that legitimacy can explain patterns of disclosure over time or the variability in disclosures between companies
(e.g., size and industry effect). However, there are also contradictory or inconsistent findings (see, for example, Campbell,
Craven, & Shrives, 2003; O’Dwyer, 2002; refer to Owen, 2008). In addition, whilst evidence from emerging economies reveals
support for the legitimacy perspective (see De Villiers & Van Staden, 2006; Haniffa & Cooke, 2005; Islam & Deegan, 2008),
other authors are less categorical (Belal & Owen, 2007) or have not specifically considered how social concerns have led to
changes in SER (Ratanajongkol, Davey, & Low, 2006).
2.3. Legitimacy and stakeholder theories: Suchman’s concepts
The overlap between stakeholder and legitimacy theories is often mentioned in the literature (Cormier et al., 2004; De
Villiers & Van Staden, 2006; Islam & Deegan, 2008; O’Donovan, 2002), but this overlap is rarely considered in greater detail
(a notable exception being Tilling & Tilt, 2010). Relying on Hybels’ (1995) notion of legitimacy, Tilling and Tilt argue that
good models of legitimacy theory must consider the influences of the relevant stakeholders (2010, p. 59). In our case, we are
Organisational Legitimacy
Pragmatic Moral
Exchange Consequential
Influence managerial stakeholder theory Procedural affiliation to social
Dispositional Structural norms, beliefs or values
Fig. 1. Overlap between stakeholder and legitimacy theories.
drawn to Suchman’s (1995) two types2 of legitimacy, which, in our view, address in more detail the nature of the overlap
between the stakeholder and legitimacy perspectives. These are:
(i) pragmatic legitimacy, which rests on the self-interested calculations of an organization’s most immediate audiences,
often involving a critical resource, financial or otherwise, and dependence between the organization and audience, and
(ii) moral legitimacy, which does not rest on judgments about whether a given activity (SER) benefits the evaluator, but
rather on judgments about whether the activity is ‘the right thing to do’ – in turn reflecting beliefs about whether the
activity effectively promotes societal welfare, as defined by the audience’s socially constructed value system (Suchman,
1995, pp. 578–582).
Pragmatic and moral legitimacy are of direct relevance to SER because they assume that managers have significant control
over the legitimation process (Suchman, 1995, p. 585). In our view, the notion of pragmatic legitimacy is closely associ-
ated with stakeholder management because “. . .immediacy involves direct exchanges between organisation and audience” or
because “. . .organizational action. . .visibly affects the audience’s well being” (Suchman, 1995, p. 578). As part of this concept
of pragmatic legitimacy, Suchman (1995) elaborates on three sub-concepts, namely, exchange legitimacy (supporting an
organizational policy based on the policy’s expected value to a set of constituents), influence legitimacy (responding to the
audience’s interests) and dispositional legitimacy (affiliating with the values of its targeted audience). Hence, SER, which
provides information on the nature of exchanges between audience and organization, on the adoption of the audience’s
agenda by the organization and/or on statements claiming acceptance of an audience’s values, could be seen as a means to
pursue pragmatic legitimacy.
In contrast, moral legitimacy is not centered on particular audiences but rather on a managerial judgment that the
organization and its activities (including Corporate Social Responsibility (CSR) and SER) promote societal welfare. In effect,
an organization seeks to communicate a pro-social narrative (e.g., contribute to the people’s well-being) and affirms its
allegiance to a social imperative (e.g., lifting children out of poverty). According to Suchman (1995, pp. 580–581), moral
legitimacy can be evaluated in terms of the organization’s consequences, i.e., judged according to what is accomplished
(e.g., donating resources to an orphanage), procedures (e.g., adopting best practices to help poor children), and/or because
it exhibits structural characteristics that are by default seen as morally acceptable (e.g., a charitable organization). In this
regard, Suchman (1995) refers to the sub-concepts of consequential, procedural and structural legitimacy, respectively.
Hence, the nature of the links between stakeholder management and legitimacy is summarized in Fig. 1.
In conclusion, the literature in emerging economies (see, for example, Amran & Devi, 2008; Belal, 2001; Haniffa & Cooke,
2005; Islam & Deegan, 2008; Ratanajongkol et al., 2006) shows evidence of an increase in SER, but wide variation remains in
the nature and extent of SER. Research in emerging countries has predominantly focused on the Asian region, and there is
thus an interest in considering other contexts, particularly in light of the increased dissemination of corporate governance
codes and social responsibility practices worldwide. The literature also shows a continued interest in the legitimating nature
of SER, but some commentators (Owen, 2008; Parker, 2005; Tilling & Tilt, 2010) advocate a more detailed understanding and
appreciation of the legitimacy phenomenon to inform the empirical data, such as annual report disclosures and interviews.
Consequently, we argue that Suchman’s (1995) work on organizational legitimacy (and its overlap with stakeholder theory)
provides a useful foundation for exploring and analyzing SER practices. However, this requires an understanding of the
social, political and economic context in terms of the potential drivers of SER, which we now consider.
3. Context
The former French and British island colony of Mauritius has a population of approximately 1.25 million. The people of
Mauritius are descendants of Indian and Chinese workers and traders, African slaves forced to work in sugar estates and the
2
Suchman (1995) also refers to a third type of legitimacy known as cognitive legitimacy, which goes beyond evaluation and self-interest and involves
an affirmative backing, or a mere acceptance, of the organisation based on some taken-for-granted cultural account (pp. 582–584). This type of legitimacy
is not deemed to be significantly under the control of management.
first European settlers and land owners. Since its independence, political control has been held by people of Indian descent,
who constitute the majority, whereas most of the economic and private wealth is concentrated amongst the descendants of
European settlers. The contemporary history of Mauritian society is shaped by these differences and inequalities (Eriksen,
1997; Meisenhelder, 1997), and the business sector is presented as still having colonialist attitudes towards the working
class and using exploitative practices (Bunwaree, 2002). Also, particular ethnic groups, most notably descendants of African
slaves, are seen to be excluded from social and economic progress whilst others prosper. This concentration of economic
power and wealth amongst those seen as successors of the British/French colonial masters is perceived to be the most visible
example of income and wealth inequality in Mauritius (see, for example, Brautigam & Diolle, 2009; NCCG, 2004, p. 8).
The issue of wealth distribution along ethnic lines remains an important political issue on the island. This issue can
be illustrated through the main political parties’ successful campaigns in 2005 and 2010 on the need to ‘democratize’ the
economy, whilst the losing party was perceived to have been too accommodating towards requests from the private sector.
Since 2005, the new government’s agenda has ostensibly focused on addressing quasi-monopolistic practices3 in specific
economic sectors by encouraging the settlement of foreign firms. Nonetheless, the public scene remains dominated by
politicians arguing over who would be best qualified to protect the public’s interest against the threats of business interests
and how to reduce the concentration of economic power in the country.4 In this regard, the stakeholder orientation of the
corporate governance code has particular resonance in that it challenges the status quo of the relationships between the
business sector and the rest of Mauritian society. For instance, the authors of the code5 refer to the changes in corporate
governance thinking occurring internationally:
“Today, therefore, corporate governance is not just a matter of regulating the relationship between shareholders, the board
and managers. It is now a question of recognising the relationship between the corporation and stakeholders and dealing
consistently on a holistic basis to align the different interests of each group.” (NCCG, 2004, p. 5)
In terms of the identities of stakeholders, the code distinguishes between ‘contractual parties’, namely, shareholders and
lenders, and ‘non-contractual parties’, including civil society, local communities, non-governmental organizations, trade
unions, other special interest groups and the State (NCCG, 2004, p. 111). The NCCG argues that an essential role of the board
of directors is to identify all applicable stakeholders and apply an inclusive approach:
“The inclusive approach requires that the purpose of the company be defined, and the values by which the company will carry
on its daily affairs should be identified and communicated to all stakeholders. The stakeholders relevant to the company’s
business should also be identified. These three factors should be combined in developing the strategies to achieve the
company’s goals. The relationship between the company and its stakeholders should be mutually beneficial.” (NCCG, 2004,
p. 5)
However, the code provides no guidance on how to combine and communicate purpose, values and stakeholders. It is
worthwhile to outline and briefly explain specific concerns on ethics, health and safety and local considerations (environment
and social issues). First, the national code of corporate governance places a significant emphasis on the formalization and
development of a code of ethics in companies, whereby:
“. . .. . .The code [of ethics] should make clear what is acceptable and unacceptable practice and should be easy to communi-
cate to all stakeholders, especially the company’s officers and employees who will rely on it to guide them in their dealings.
The code of ethics should refer to the principles, norms and standards that the company wants to promote and integrate
within its corporate culture in the conduct of its activities. . .” (NCCG, 2004, pp. 110–111)
Concerns regarding ethical attitudes and practices in Mauritius are not wholly limited to the instances highlighted in
the code, namely, unfair recruitment practices and perceived restrictions on business ownership and/or opportunities. More
generally, and perhaps more importantly, corruption and bribery practices in the private and public sectors still pose notable
challenges, as highlighted by studies of ethical attitudes (see, for example, Napal, 2005) in Mauritius.6 However, there is
little evidence of how companies have actually responded to calls for more ethical behavior. In addition, the relatively
small size of the country and the government’s attempts at diversifying the economy have, over time, created challenges in
terms of the balance between a densely populated space7 and the demands of the agricultural sector, manufacturing zones,
3
From an economic standpoint, even the World Bank highlighted the inefficiencies of existing business activities and arrangements centered on large
family-owned conglomerates (Fremond & Gorlick, 2002, p. 2).
4
In early 2006, a Commission for the Democratization of the Economy was established by the government to facilitate access to resources for businesses,
review the business regulatory framework and consider land reforms.
5
Although the final document is published by the Ministry of Corporate Affairs, it is important to note that the corporate governance code (and
attached report) is the outcome of a largely private-sector-dominated process (representatives of shareholders, directors, trade organisations and accoun-
tancy/consultancy firms). There were relatively very few representatives from government agencies or civil society organisations.
6
Over the five years from 2004 to 2008, the Corruption Perceptions Index (Transparency International) rated Mauritius from 4.1 to 5.5 (10 being highly
‘clean’ and 0 highly corrupt) and reported notable improvements from 2007 to 2008. In 2008, Mauritius was ranked as the 41st least corrupt country
(5.5/10) out of a total of 180 surveyed countries.
7
The United Nations Population Division (2009) reports that Mauritius’ population density currently stands at 614 per km2 – which places the country
as the 18th most densely populated nation in the world.
hotels and other commercial developments. Nonetheless, competing and contradictory pressures predominate; the tourism
sector lobbies for the protection of the environment (NCCG, 2004, p. 113) whilst seeking to access more land and beaches to
develop resorts. This negatively impacts the availability of scarce land for other purposes and affects community life around
developments. From the following quote, however, one can note that the economic rationale (e.g., use of the terms sustained
development, economic operators, and environmental assets) tends to be privileged. The protection of the environment is not
in itself viewed as a strong social concern and appears to be instead linked to developmental benefits:
“Tourism, one of the country’s main industries, is the example of dependence on the natural environment. Its sustained
development depends on the country’s ability to preserve the environment. This may involve consultation and communi-
cation between economic operators, whose activities may also have adverse impact on the ecosystem. Such consultation
should be done with a view to adopt best practices in order to protect environmental assets.” (NCCG, 2004, p. 113)
Furthermore, although the issue of health and safety is explicitly acknowledged in the code, the discussion is limited to
employee-related concerns rather than encompassing, for example, customer safety. The recent Occupational Health and
Safety Act (2005) effectively created a tougher regulatory framework for companies employing more than 50 persons, but
the legislation does not require companies to publicly report on any aspect of occupational health and safety. From the code’s
perspective, the focus appears to be on first ensuring that the appropriate legislation is complied with, although “. . .best
practice in line with the company’s corporate values and long term objectives” (NCCG, 2004, p. 112) must also be considered.
Finally, social and economic inequality issues are discussed in more detail, and the following extract reflects, in many
ways, the societal concerns we highlighted at the start of this section:
“A common public perception is that employment and promotion within the private and public sectors are linked to the
‘community’ [for example, ethnic or religious grouping] of the employee and that of the company’s shareholders. . .” (NCCG,
2004, p. 113)
“The shareholding of the corporate sector in Mauritius is concentrated in a small percentage of the population. . . .. a wider
ownership is desirable in Mauritius. Such a change would provide the corporate sector with greater support from the
Mauritian society as a whole, and allow more people from all communities to be shareholders in the economy. Pension
funds should be encouraged to invest in the stock market as this is one of the ways to obtain wider ownership.” (NCCG,
2004, p. 113)
Although the code acknowledges that companies should play a role in improving the equality of, for example, employment
or ownership, and social harmony, the statements remain very guarded. For instance, a code of ethics (NCCG, 2004, p. 8)
is meant to resolve the problem of fair access to employment. In addition, the last statement (quoted above) places an
emphasis on pension funds as a way to widen ownership. In our view, the comments demonstrate an awkwardness in that
direct corporate action and policy through affirmative action to address such issues appear to be unpalatable.
Overall, we contend that these different social and political issues represent credible pressures on companies in Mauritius
and are relevant for understanding how they would engage with SER. Furthermore, issues involving diversity and social
harmony are, to the best of our knowledge, relatively new aspects within the SER literature, although issues related to
minority rights, gender equality and equal opportunities have been considered in previous studies (e.g., Adams & Harte,
1998; Gray et al., 1995a; Guthrie & Parker, 1990).
4. Data and methods
4.1. Annual reports
Although there is a worldwide trend to provide SER information using other means or formats, for example, stand-alone
sustainability reports, separate website information, press releases and newsletters (see Guthrie, Cuganesan, & Ward, 2008;
Rowbottom & Lymer, 2009), the annual report remains an important means to communicate social activities (see Campbell,
Moore, & Shrives, 2006; Islam & Deegan, 2008). In the case of Mauritius, the hard-copy annual report, in particular, remains the
main public document encompassing a wide range of voluntary and regulated information, including corporate governance
and SER disclosures. Also, whilst corporate websites have become prominent and sometimes include a soft copy of the
company’s annual report, very little additional information, social, environmental or otherwise, is provided online.8 It is
also important to stress that the corporate governance code does not provide any guidance on how a company needs to
disclose SER “policies and practices” (NCCG, 2004, p. 116). The ‘comply or explain’ principle applicable to the local code is
8
We researched whether each listed company has a website, and if so, briefly surveyed the websites to identify any social and environmental information
and whether annual/sustainability reports are provided online. As of April 2011, 13 out of the 42 companies did not have a website. Of the remaining 29
companies, 17 did not provide any SER information. Seven companies disclosed brief declarative statements related to social responsibility, and only 5
companies provided some information on their CSR activities, including one company that had a sustainability report. Furthermore, 22 companies provided
a copy of their annual reports on their website. Very recent developments in local corporate taxation (in the form of a CSR ‘levy’ effective from 2009) may
explain some SER currently provided online, but this has yet to be researched. For the period of study (2004–2007), we conclude that website or stand-alone
reporting was minimal amongst listed companies in Mauritius.
largely interpreted by companies in Mauritius to mean that they have significant flexibility in complying or not with the
specific requirements of the code (Mahadeo & Soobaroyen, 2009; Soobaroyen & Mahadeo, 2008). The only legal requirement
regarding SER is that companies must disclose the total amount of charitable donations. As a result, the form and content of
SER in Mauritius are to a great extent at the discretion of the reporting entity.
The annual reports (2004–2007) of all companies listed on the Stock Exchange of Mauritius (SEM) were requested for this
study. This time period coincided with the publication of the code of corporate governance (applicable from 2005), allowing
us to examine SER disclosure patterns one year (2004) prior to the expected implementation of the code and over the next
three years (2005–2007). A total of 165 annual reports (40 in 2004, 41 in 2005 and 42 in 2006 and 2007) were collected and
used for analysis. This longitudinal approach enables researchers to examine more closely the potential associations between
context and disclosure behavior (and changes thereof). The 13-year longitudinal study of Gray et al. (1995a) investigating
SER clearly illustrates this, as do other more recent studies (see Deegan & Gordon, 1996; Gao, Heravi, & Xiao, 2005; Islam &
Deegan, 2008; Ratanajongkol et al., 2006; Tilling & Tilt, 2010).
4.2. Content analysis procedures
We adopt content analysis to quantify and classify SER information because this procedure provides researchers with a
systematic approach to analyse large, unstructured datasets (Hackston & Milne, 1996; Islam & Deegan, 2008; Krippendorff,
1980). We rely on previous SER classification rules (e.g., Gray, Kouhy, & Lavers, 1995b; Hackston & Milne, 1996) to guide our
content analysis. Health and safety and the environment are the two existing categories that most closely match the ones
expressed in the local corporate governance code. On the other hand, a comprehensive definition or description of ‘social’
is not provided in the code, so we include in this category all information related to community involvement, charity, and
‘other’ headings (refer to Gray et al., 1995b, pp. 96–98; Hackston & Milne, 1996, pp. 107–108). In view of the implications of
inequality and social harmony in Mauritius, we also seek to identify these two aspects and classify them within the ‘social’
category. Finally, we note that ‘ethics’ is not mentioned as a main heading in these previous classifications although it can
be associated with the notion of fair business practices (Gray et al., 1995b, p. 95). In view of the importance of ethics in the
local corporate governance code, we retain this category as a separate SER theme that would include evidence of:
(a) statements of corporate commitment to ethical practices and/or

(b) details of how this ethical commitment has been put into action (e.g., code of ethics, ethics training).
The amount of disclosure (per theme and per company) is measured using a volumetric word count. Word counts are seen
to be an appropriate reflection of the importance that companies attach to particular SER themes (Campbell et al., 2006;
Gray et al., 1995a; Ratanajongkol et al., 2006; Wilmshurst & Frost, 2000) and have been found to be highly correlated to
other measures, such as sentences or percentage of pages (Islam & Deegan, 2008, p. 859). Furthermore, the disclosures can
be assessed qualitatively, as suggested by Hackston and Milne (1996). First, we examine whether the disclosures per theme
reflect neutrally, positively or negatively on the company using the coding procedures explained in Gray et al. (1995b, p. 99)
and Hackston and Milne (1996, p. 108). Second, the nature of the disclosures can be categorized as declarative, monetary,
quantitative (non-monetary) and/or a combination thereof. In our case (refer to Appendix A), we interpret ‘monetary’ (e.g.,
refer to Gray et al., 1995b, p. 99) as being strictly (and only) factual information on the total amount of charitable donations
(a company law requirement).
In addition, we analyse companies’ SER to identify the number of instances in which non-economic stakeholders are
explicitly identified in the annual reports. We rely on the code’s own classification of non-economic stakeholders and
previous categorizations of SER stakeholders (Gray et al., 1995b), namely, government or its agencies, non-government
organizations including society and community groups and employees.9 Finally, we identify the nature of social or envi-
ronmental activities disclosed in the annual reports10 and classify them in eight areas of intervention, namely, education
and children, local community support, health (including disability), poverty and social exclusion, environment (external
projects such as conservation and aesthetics), religion and culture, sports, and workers’ welfare funds for families.
In line with the reliability procedures recommended in Hackston and Milne (1996), we pre-tested the classifications,
coding and counts. This procedure allowed us to confirm or modify the various decision rules relative to the content analysis.
Overall, a high level of coding reliability was observed between coders, and this was deemed sufficient to implement the
content analysis for the remaining companies. Finally, we collected firm-level data (size, profitability and gearing) because
it is often argued that these variables act as proxies for corporate social visibility (Haniffa & Cooke, 2005; Reverte, 2009).
Within the legitimacy perspective, these proxies of higher social visibility can explain variations in SER.11
9
Multiple references to the same category of stakeholder were only counted once per company per financial year.
10
Each reference to a project or beneficiary (as opposed to general statements of commitment) will be counted separately and classified accordingly.
11
Industry affiliation is also another important facet of social visibility, but empirical findings have not generally been in line with theoretical expectations
(Branco & Rodrigues, 2008; Haniffa & Cooke, 2005; Reverte, 2009). In the case of Mauritius, the number of listed companies per economic sector is limited,
and the small sample can impact the reliability of any statistical analysis. Crucially, however, we argue that the industry effect on SER is relatively less
important compared to the broader stakeholder and socio-political pressures outlined in the context section.
Table 1
Listed Companies reporting per SER category (2004–2007).
2004 (n = 40) 2005 (n = 41) 2006 (n = 42) 2007 (n = 42)
Freq. % Freq. % Freq. % Freq. %
Ethics 12 30 18 44 19 45 21 50
Social 38 95 40 98 38 90 40 95
Environment 3 8 11 27 14 33 14 33
Health and Safety 6 15 16 39 17 40 19 45
5. Findings
5.1. Extent of SER
Tables 1 and 2 provide an initial picture of the practice of SER by listed companies and the changes therein during the
period based on frequency counts and word counts. In Table 2, we rely on the SEMs classification to consider the changes in
SER on an industry basis.
From Tables 1 and 2, we note that nearly all companies (95%) provided information related to their social activities in
2004. Very few companies supplied information in relation to the environment (8%) and health and safety (15%), although
30% of companies disclosed information in relation to their commitment to ethical behavior and, in some cases, to the
adoption of a code of ethics. However, a noticeable increase in non-social SER themes was observed beginning in 2005.
Table 2 indicates an overall increase in word count as more companies in different economic sectors introduced disclo-
sures in their annual reports whilst some companies increased the extent of SER. For instance, commercial companies that
were already involved in SER in 2004 had a higher average word count, but by 2007, all other economic sectors (except
for the investment sector) had at least doubled their average SER word counts. The contents of these disclosures will be
analyzed further, but two observations can be made at this stage. First, SER themes of interest are different from those
highlighted in previous studies in countries such as Bangladesh (Belal, 2001), Hong Kong (Gao et al., 2005) and Thailand
(Ratanajongkol et al., 2006), particularly in terms of the claim that SER in emerging economies tends to be focused on
human resources. Second, industry differences were notable in 2004, with commercial companies providing on average
more disclosures than other sectors. This result may be consistent with legitimacy-based arguments (as conferred by Branco
Table 2
Progression of SER word count on per industry and overall basis.
2004 2005 2006 2007 Percentage change 2004–2007
Banks, insurance, Finance 6 6 6 6

Number of companies providing SER 6 6 6 6
+156
Total words disclosed 362 771 682 928
Average disclosure per company 60 129 114 155
Commerce 7 7 6 6
+23
Industry & transport 8 8 8 8
+204
Investments 10 11 13 13
+667
Leisure and hotels 4 4 4 4
+112
Sugar 5 5 5 5
+115
Total SER word count 2281 3459 2950 5172 +127
Total ethics word count 339 621 507 855 +152
Total social word count 1663 1638 1588 2845 +71
Total environment word count 79 376 471 478 +505
Total health and safety word count 200 824 749 994 +397
Total companies disclosing SER 39 40 39 40
Average SER word count 58.5 86.5 75.6 129.3 +121
Table 3
Classification of news in SER information (no. of disclosing companies).
2004 2005 2006 2007
Ethics
Neutral 6 6 6 8
Good 6 12 13 13
Bad 0 0 0 0
Social
Neutral 30 18 16 12
Good 8 22 22 28
Bad 0 0 0 0
Environmental
Neutral 1 4 5 6
Good 2 7 8 7
Bad 0 0 1 1
Health and safety
Neutral 4 11 14 15
Good 2 4 3 4
Bad 0 1 0 0
& Rodrigues, 2008) that companies that are closer to the individual consumer provide more SER. However, differences
in average word counts are less noticeable over time, suggesting that all companies are responding to a broader set of
pressures.
5.2. Qualitative assessment of SER
We first report on whether the companies report news that could be deemed as neutral, good or bad for the company
from an outsider’s perspective. We then assess the ethical, environmental, social and health and safety disclosures of each
company.12
Table 3 shows a growing trend to report good news, particularly in the category of social disclosures, as companies move
away from factual information and increasingly seek to highlight the positive contributions of their social activities. The
other instance where companies promote themselves relates to their commitment to ethical behavior and how this will
encourage better behavior both within and outside the company. These results are consistent with previous findings in
developed (Hackston & Milne, 1996) and emerging economies (Ratanajongkol et al., 2006) in that companies tend to avoid
or minimize information that negatively impacts their corporate image.
Second, we classify the disclosures as declarative, monetary or non-monetary (quantitative) for each SER theme. For
ethical disclosures, the content was entirely declarative. In all cases, they consisted of statements of commitment to ethical
values and/or examples of actions taken by the enterprise; principally the adoption of a code of ethics. For example, these
two aspects are present in the following quote:
“The company promotes a high level of ethics, integrity and professionalism in the conduct of its business. The company has
adopted a Code of Ethics and Business Conduct which set out the way business is conducted with customers, suppliers and
employees.” (Commercial bank, Anonymous, 2007)
In 2004, we identified 6 companies that released similar statements incorporating both of these aspects, and this number
gradually increased to 15 in 2007. A minority of companies only provided a statement of commitment (1 in 2004 and 4 in
2007). Most ethical disclosures were rather short on detail and rarely mentioned whether employees were made aware of
or were trained in ethical matters. There was limited information on the contents of these various codes of ethics and on
their enforcement. Although there are clear concerns about corruption and unethical business practices in Mauritius, there
was surprisingly no explicit acknowledgement of the issue.13
In terms of environmental disclosures, the SER content was seen to be totally declarative from 2004 to 2007. The nature
of the declarative content could be further classified into: (i) a general statement or policy in support of protecting the
environment; (ii) information on a specific activity aimed at improving the environment (e.g., aesthetics; refer to Hackston
& Milne, 1996, p. 105); and/or (iii) information on a specific activity aimed at reducing the environmental impact of the
company’s economic activities. The following quote illustrates such declarative statements:
12
In cases where the disclosure included several items of information and each item could be differently construed as good, bad or neutral news, the
relative importance of each item of information (e.g., its significance in financial or quantitative terms, if available) was contrasted against the other items
of disclosure. An overall classification (good, bad or neutral) was then adopted. In all of these cases, the items were initially classified as either good or
neutral news.
13
Only one company stated that its ethical policy prohibited the payment of bribes or financial inducements. Because this company operates a franchise
operation (representing a brand of a large multinational entity), this disclosure is more plausibly influenced by international practices.
“The commitment of the company towards operating in ways that have a sustainable impact on the environment has
continued. Investments were made to improve the environment for children and young adolescents living in difficult areas.
Water treatment plants were also set up.” (Hotel company, Anonymous, 2005)
We found that most of the declarative statements are limited to category (i). For instance, 2 (out of 4) statements in
2004 merely expressed a commitment to protecting the environment. In 2007, this increased to 11 (out of 17) declarative
statements. In 2007, only 3 (out of 6) statements referred to environmental activities such as recycling, waste processing and
control of emissions within the company. Such disclosures did not provide any quantitative assessment of environmental
performance. Although the volume of environmental disclosures increased, the disclosures were predominantly broader
and more vague statements in support of the environment. In part, this may reflect what businesses generally mean by
‘environment’: an interest in aesthetics and conservation rather than in the impact of their economic activities.
With regard to health and safety disclosures, we again note a high reliance on declarative statements14 (about 97% of
the overall health and safety word count) to confirm a company’s adherence to health and safety legislation and to describe
practices and processes pertaining to the involvement of employees in health and safety matters. Virtually all companies
(15, 16 and 18 companies in 2005, 2006 and 2007, respectively) referred to the need to comply with the legislation. The
following quote is typical of the information provided in the annual reports.
“The company is fully committed to bring about a Health and Safety culture within the organisation, and has anticipated
the forthcoming Occupational Safety and Health Act 2005 by implementing its Health and Safety Policy. It carries out
risks assessment in order to identify hazards, introduces control measures where necessary and monitors its preventive and
protective measures, providing and maintaining a safe system of work, establish procedures to be followed, joint consultation
with employees on health and safety matters and promote positive health and safety culture” (Manufacturing company,
Anonymous, 2006)
As illustrated above, the information appears to be directed at the employees and at demonstrating the steps adopted to
protect their health and safety. Yet the disclosures remain largely non-specific in terms of health and safety performance,
disclosing only the number of injuries or inspections. Although the legislation (Occupational Health and Safety Act, 2005)
does not require companies to disclose information in their annual report, reference to this legislation in the corporate
governance code may have influenced companies to communicate the procedures and mechanisms associated with the
legislation to their most relevant audience, their employees. Indeed, many of the disclosures refer to the fact that employees
are involved or have been trained in health and safety matters.
The total word count for social disclosures represented nearly 72% of total SER in 2004, but this proportion declined to 55%
in 2007 (from Table 2). Social disclosures still represent the main type of disclosure amongst listed companies in Mauritius.
Table 4 summarizes the frequencies and word counts for each identifiable category of declarative information, declarative
supported by quantitative and/or monetary information and monetary information.
In 2004, we observe that 20 companies (52%) disclosed monetary-only information, which is consistent with the legal
requirement to report only the monetary value of donations. In the same year, a total of 18 companies (48%) provided
information deemed to be voluntary over and above this legal threshold. Thereafter, we note a steady decline in the number
of companies providing only the legally required information (10 companies in 2007), with the corresponding word count
representing only 5% of the total. At the same time, the extent of voluntary social information (declarative and monetary,
declarative, monetary and quantitative) can be seen to increase across a large number of listed companies. It can therefore
be concluded that, by 2007, 75% of companies (30) had engaged in more elaborate forms of SER insofar as their social
interventions are concerned. These changes can be explained and illustrated as follows.
Most companies’ traditional understandings of social disclosures (in 2004) focused on providing examples and related
monetary values of philanthropic activities based on the legal requirement to disclose donations. The following is a typical
illustration:
“During the financial year, donations were made to charitable and community institutions of an amount of Rs [. . ..].”
(Commercial company, Anonymous, 2004)
However, in 2005, some companies started to revise the content of their social disclosures by providing a general state-
ment on the company’s policy and commitment to the social dimension akin to a mission statement or statement of values
and a statement detailing the actions, activities and sums of money allocated or spent on particular projects or areas of
intervention; for example:
“Social Responsibility is an integral part of the day to day life of the company and is a basic component of traditional values.
[There is]..active participation in the ZEP [i.e., low achievement] schools to increase academic achievements. Sports are also
14
From 2005 to 2007, three company disclosures were classified as declarative and quantitative because they specified the number of injuries or casualties
that occurred during the year. In 2006, another item of company disclosure was classified as declarative and quantitative because it related to information
on the number of employees trained in health and safety procedures. The word count associated with these declarative and non-monetary disclosures is
considered to be minimal.
168
J.D. Mahadeo et al. / Accounting Forum 35 (2011) 158–175
Table 4
Classification of social disclosures (2004–2007).
2004 2005 2006 2007
No. of companies (%) No. of words (%) No. of companies (%) No. of words (%) No. of companies (%) No. of words (%) No. of companies (%) No. of words (%)
Declarative and 14 (37%) 1036 (62%) 16 (40%) 842 (51%) 14 (37%) 751 (47%) 22 (55%) 1713 (60%)
monetary
Declarative, monetary 4 (11%) 388 (23%) 7 (18%) 550 (34%) 8 (21%) 614 (39%) 8 (20%) 994 (35%)
and quantitative
Solely monetary (e.g. 20 (52%) 239 (15%) 17 (42%) 246 (15% 16 (42%) 223 (14%) 10 (25%) 138 (5%)
factual information)
Total 38 (100%) 1663 (100%) 40 (100%) 1638 (100%) 38 (100%) 1588 (100%) 40 (100%) 2845 (100%)
Note: Refer to Appendix A for further explanation of coding procedures.

Table 5
Explicit mention of ‘non-economic stakeholders’ in SER disclosures (no. of instances a reference was made).
Year No specific mention NGOs Employees Government body
2004 27 10 12 5
2005 17 17 15 7
2006 13 21 18 8
2007 10 28 17 8
promoted in the country. The company made a political contribution of Rs [. . .] and charitable donations of [. . ..] to [. . .]
beneficiaries.” (Manufacturing company, Anonymous, 2005)
In subsequent years, particularly for 2007, the above format of social disclosure proliferated amongst the listed compa-
nies. In addition, some of the companies sought to demonstrate their social commitment by disclosing the proportion of
profits they intended to allocate to social activities and by communicating a more structured approach to CSR activities. The
following are extracts from a 2007 annual report:
“The company has been active in supporting NGOs as well as partnering Government at the national level in initiatives
such as the awareness campaign for the eradication of Chikungunya. It has maintained its traditional commitment to the
provision of education and relief of the disabled by supporting institutions like [. . .]. A CSR Manager has been recruited
and will be responsible for initiating programs, co-ordinating activities and gathering information regarding social and
environmental issues and needs. The Board has decided that, as of next year, 2% of profit after tax will be allocated to
corporate social responsibility initiatives. . ..” (Commercial company, Anonymous, 2007)
This increased level of sophistication is also reflected in the heightened use of more refined social statements and ter-
minologies (e.g., responsible corporate citizen, supporting communities) in SER statements. Furthermore, as illustrated above,
CSR activities in 2007 became less ad hoc and more structured in nature, with 18 companies disclosing a policy and/or a
defined decision-making structure to manage their social involvement. We also examined the extent to which the SER dis-
closures are targeted at specific stakeholders. Table 5 summarizes the number of companies that made specific references
to non-governmental organizations (NGOs), government bodies or employee organizations (e.g., welfare funds, unions) in
their SER disclosures.
From the above, we observe that more companies identified at least one non-economic stakeholder in their SER over
time, with NGOs and employees becoming the most frequently mentioned non-economic audiences. There is relatively less
explicit reference to government as a stakeholder, and 25% of disclosing companies did not identify specific stakeholders
in 2007. Most of the references to employees fall under the health and safety theme. Finally, we also identified the areas of
intervention disclosed in annual reports because these could highlight the companies’ response to external concerns.
Table 6 first shows that companies provide more information on their areas of social intervention, with education and
children, specifically donations to schools and projects for young people, being the most mentioned areas in company
annual reports. This is followed by health (e.g., donations of equipment and funding of medical projects), the environment
(mainly conservation of wildlife) and religion and culture (e.g., donations to artists and theatres, sponsoring of art events
and religious festivals). References to poverty and exclusion projects and local support also increased by 2007. Many of the
companies (19 in 2007) specify priority areas for their CSR actions, and education, health and helping children are regularly
mentioned. These disclosures show the companies’ interest in demonstrating a contribution to social endeavors, but they do
not directly address the inequality issues outlined in the corporate governance code, namely, social harmony, employment
and ownership policies. In this regard, we note that there has been no acknowledgement of the issues linked to religious
and ethnic differences and of how companies might intervene to resolve the historical inequalities referred to in Section 3.
5.3. Firm-level factors and SER
Lastly, we considered the relevance of firm determinants of SER behavior (size, profitability and gearing) in light of their
observed influence in other developing economies (see Amran & Devi, 2008; Branco & Rodrigues, 2008; Haniffa & Cooke,
2005). Exploratory correlations were carried out to examine the potential associations between size (based on turnover),
profitability (net profit margin) and gearing (long-term debt divided by shareholders’ equity) and the SER word counts for
each year under review.
Table 6
Identification of social activities in SER disclosures.
Year Education and Local Health Poverty and Environment Religion and Sports Workers’
children support exclusion culture welfare
2004 11 7 8 9 6 7 6 10
2005 14 2 7 9 14 9 7 10
2006 17 5 7 4 14 9 8 4
2007 23 11 17 13 14 14 9 7
Table 7
Correlation matrix (SER word counts and size/gearing).
Turnover Gearing
Ethics 2004 0.451** ns

Ethics 2005 ns ns
Ethics 2006 ns ns
Ethics 2007 ns ns
Social 2004 0.797** ns
Social 2005 0.678** ns
Social 2006 0.546** ns
Social 2007 0.501** 0.491**
Environment 2004 ns ns
Environment 2005 0.421** ns
Health & safety 2004 ns ns
Health & safety 2005 0.358** 0.445**
Health & safety 2006 ns ns
Health & safety 2007 0.469** ns
Total CSR word count 2004 0.755** ns
Total CSR word count 2005 0.558** 0.347*
Total CSR word count 2006 0.477** ns
Total CSR word count 2007 0.525** 0.369*
N = 39; ns: not significant.

*
5% significance.
**
1% significance.
Table 7 provides the coefficients of the significant correlations. Size appears to explain overall SER disclosures and is
heavily influenced by the high proportion of social disclosures in the company’s annual reports. Furthermore, the correla-
tions between social disclosures and turnover indicate a declining level of association that suggests that size is becoming
less of a defining factor for corporate involvement in CSR (and SER) over time. Upon statistical inspection (Fisher’s r to z
transformation; refer to Preacher, 2002), a significant difference (at the 5% level) between the reported coefficients for social
disclosures of 2004 and 2007 is observed, but this declining effect does not extend to other reported correlation coefficients.
Furthermore, no significant correlations were observed between the profitability ratios and the SER word counts. Lastly,
gearing is periodically correlated with SER, and the overall word count correlations for 2005 and 2007 appear to be influ-
enced by the increase in health and safety disclosures in 2005 and the increase in social disclosures in 2007, respectively
(refer to Table 2).
6. Analysis
The data reveal an increase in the number of companies providing SER – particularly in relation to the ethics, environment
and health and safety themes – after the first year of the adoption of the corporate governance code (2005). As initially noted
by Ratanajongkol et al. (2006), corporate governance pronouncements have an impact on companies’ decision to provide
more SER. Over time, there has been increased attention to a wider set of social responsibility concerns, although the average
word count does appear low (129 words in 2007) in relation to previous studies. For example, Hackston and Milne (1996)
report an average word count of 300 in the case of New Zealand, whilst Ratanajongkol et al. (2006) find an average of 842
words for a sample of Thai companies. However, it is not low in comparison to Haniffa and Cooke’s (2005, p. 410) results in
Malaysia, where the average word count ranged between 19 and 90 words. The ethics, environmental and health and safety
disclosures are overwhelmingly declarative statements with no supporting quantitative or monetary data, and they tend to
convey a good impression of the disclosing company. Over the period of analysis, we also observe a significant qualitative
and quantitative shift in the nature of social disclosures in terms of (i) the use of a combination of declarative, monetary and
quantitative ‘good news’ information rather than purely monetary information and (ii) increased mentions of social projects
and beneficiaries supported by the company.
From Table 4, we observe that NGOs are increasingly highlighted as key beneficiaries of corporate funds. To a lesser extent,
government and employees are also mentioned as recipients of funds. For instance, companies contribute to State initiatives
such as schemes to assist poorly performing schools or welfare funds set up to help employees and their families. From a
stakeholder and a pragmatic legitimacy perspective, one would expect SER information to be targeted at particular audiences
in light of the emphasis on the identification of and communication to non-economic stakeholders in the local corporate
governance code. Hence, such direct relationships could reflect an attempt at pursuing exchange legitimacy because they
involve direct (financial) exchanges between organization and audience, i.e., where organizational action visibly affects the
audiences’ well-being (Suchman, 1995, p. 578). The stakeholder perspective vis-à-vis the employee is also present in the
case of health and safety disclosures. The declarative disclosures outline the actions taken by the company to inform, protect,
train and involve employees in health and safety matters. By detailing these health and safety actions in the annual reports,
we contend that companies seek a form of influence legitimacy because some of the disclosures convey the message that
companies are responding to the employees’ broader interests (i.e., working in a safe environment). In this respect, Suchman
(1995, p. 578) mentions that the pursuit of influence legitimacy can occur when the organization incorporates or co-opts
constituents into its policy-making structures. Evidence of such involvement can be seen in the health and safety disclosures.
The above description indicates that companies manage specific non-economic stakeholder expectations, and we are
inclined to conclude that the corporate governance code has wielded some influence in raising awareness of the concerns of
non-economic stakeholders, thereby resulting in changes in social reporting. However, we argue that a substantial part of the
disclosure patterns is linked to a moral legitimacy motivation, namely that companies use SER to demonstrate their affiliation
to social norms, beliefs and values. In this case, the focus is less on the benefits of a resource-dependent relationship with a
target audience and more on the legitimating value of being, or appearing to be, involved in the promotion of societal welfare.
This focus on projecting an appearance can be seen as a symbolic behavior that is consistent with legitimacy arguments (e.g.,
Neu et al., 1998) whereby companies manage their SER to maintain or enhance their legitimacy vis-à-vis their various publics
(Stanton & Stanton, 2002). In our view, the ethical, environmental and social disclosures, to varying extents, display features
that are consistent with the two sub-concepts of moral legitimacy, namely, consequential and procedural legitimacy. These
are elaborated below.
First, ethical disclosures are found to be primarily declarative, providing either good or neutral news. In light of the
criticism that Mauritian companies operate in an opaque fashion, thereby encouraging corruption, unfair recruitment and
unethical business practices, the increased use of ethical disclosures is viewed as a way to demonstrate that the companies
are operating honestly (Suchman, 1995, p. 579). Many companies thus proclaim an affiliation to the moral values of honesty
and integrity, which stakeholders or society perceive to be reflected in the conduct of their business. Suchman (1995) stated
that consequential legitimacy is related to how organizations are evaluated on the basis of their outputs, even if these
outputs are socially defined, ambiguous and not necessarily amenable to quantification. In such cases, consequential claims
of running a business honestly and with integrity may signal an organization’s disposition to follow such socially accepted
values. Furthermore, many companies disclose that a code of ethics has been adopted, but there is little information on the
contents and operation of the code. The mere fact that a company has a code of ethics can convey a form of procedural
legitimacy through following proper procedures. Particularly, in the absence of clear outcome measures, Suchman contends
that the adoption of best practices can show that the company is making “a good faith effort to achieve valued, albeit invisible,
ends” (1995, p. 580).
Second, social disclosures encompassing information on a wide array of community and charitable interventions (refer
to Table 5) are the primary form of SER in Mauritius. There was also a distinct shift in the quality of the disclosures over the
period of analysis (refer to Tables 2–4). We contend that these changes in SER are primarily a reactive process to contest a
dominant narrative that companies are not sufficiently contributing to societal development. Historically, the private sector
has been portrayed as seeking to exploit the available public resources (e.g., locations, labor, protectionist policies) for profit
and as not attending sufficiently to social issues. Over the past few years, governmental action brought about by a change
in political leadership has materialized as part of an agenda to ‘democratize the economy’. As a result, more concrete and
visible measures have been adopted, such as encouraging competition in sectors monopolized by one or two local players,
reviewing land ownership laws and considering compensation claims by descendants of slaves. In recognition of these
changing circumstances, we argue that these new forms of social disclosures seek to reflect a pro-social narrative by assigning
greater meaning and gravitas to companies’ philanthropic activities. For instance, more visibility is given to the type of
social intervention (e.g., education, health, infrastructure), the identity of the beneficiaries (e.g., children, poor communities,
women) and to the organizations involved (e.g., sports clubs and prominent NGOs). This corporate behavior is consistent
with Dowling and Pfeffer’s (1975) and Lindblom’s (1994) arguments that social disclosures are used to demonstrate more
convincingly that current organizational activities are congruent with societal concerns.
In addition, Suchman’s (1995) notion of moral legitimacy emphasizes the need to show a commitment to the promotion
of societal welfare. Companies can meet this need by expressing an affiliation with socially positive, and often emotive,
activities such as education, health, religion and culture and an explicit association with organizations that exhibit high levels
of structural legitimacy. Indeed, based on Table 6, schools, hospitals and women’s and poverty alleviation NGOs are seen as
“valuable and worthy of support because their structural characteristics locate them within a morally favored taxonomic category”
(Suchman, 1995, p. 581). In addition, companies’ decisions to disclose a variety of social interventions and beneficiaries can
be seen as attempts to pursue consequential legitimacy because the companies can demonstrate that social activities are
part of their outputs. These attempts can dispel, albeit symbolically, the notion that companies only produce economic
outcomes such as profit, sales and dividends. We also consider the finding that many companies have now disclosed a
social responsibility policy and/or have a decision-making structure (e.g., CSR manager, CSR department) to manage their
philanthropic activities. This could again be suggestive of a strategy to gain procedural legitimacy because the use of such
means and procedures can reflect a positive moral value (Suchman, 1995, p. 580).
The lack of disclosure specifically addressing the issue of social harmony and the problems of ethnic and religious prej-
udices within businesses is initially surprising. Guthrie and Parker (1990) found that some US companies disclosed matters
related to minority protection and equal employment, but these appeared to be the result of specific anti-discrimination
legislation. Whilst these issues are doubtless key concerns permeating Mauritian society, they could, at the same time,
be open to controversy and possibly contradict the preferred public image of Mauritius as a successful, stable and united
multi-ethnic nation (e.g., refer to Brautigam & Diolle, 2009; Meisenhelder, 1997; NCCG, 2004, p. 113). From a legitimacy
perspective, authors such as Solomon and Lewis (2002) and De Villiers and Van Staden (2006, p. 767) contend that the
disclosure of sensitive matters may in itself reflect badly on a company and threaten its own legitimacy. Therefore, a moral
legitimacy motivation that involves ‘doing the right thing’ could be equally translated as a decision not to disclosure contro-
versial issues. However, we acknowledge that it is problematic to make such inferences from an absence of disclosure, and
direct enquiries with companies using interview methods, as in O’Dwyer (2002) and Islam and Deegan (2008), would have
been more helpful to ascertain the motivations for this lack of disclosure.
Third, environmental disclosures are the least disclosed SER theme, are declarative in nature and are not principally
concerned with the ecological impact of business activities. Although the overall word count devoted to environmental
issues increased from the 2005 level, the disclosures are mostly vague statements of commitment and concerns about the
external environment (e.g., wildlife conservation and aesthetics). This lack of engagement with environmental issues is not
uncommon in emerging economies and has been reported in previous studies, for example, in Singapore (Tsang, 1998),
Malaysia (Haniffa & Cooke, 2005), Thailand (Ratanajongkol et al., 2006) and Bangladesh (Islam & Deegan, 2008). In the case
of South Africa, De Villiers and Van Staden (2006) find a decline in specific information in environmental disclosures. The
authors contend that companies reacted to changing societal attitudes vis-à-vis the environment and altered disclosure
patterns to maintain their legitimacy. Of interest to us is the point that the general environmental information described
in De Villiers and Van Staden’s (2006) study displays some features that are similar to the declarative (and good or neutral
news) statements identified in our study. They are deemed to be symbolic and less threatening in nature (2006, p. 779) and
can contribute to diverting public attention away from substantive issues (Tilling & Tilt, 2010). On the other hand, specific
environmental disclosures attract unwanted attention and threaten legitimacy (O’Dwyer, 2002). In the case of Mauritius,
we argue that the environmental agenda appears to be subservient to the imperatives of economic development. Therefore,
although one could argue that current environmental disclosures reflect symbolic statements of commitment consistent
with the notion of moral legitimacy, a more adequate interpretation of the data and context is that core environmental
matters appear to be at the periphery of both social and corporate concerns. Thus, companies make few detailed disclosures
of the ecological impact of their business activities.
Finally, the use of accounting variables (turnover, profitability and gearing) to proxy for public visibility has generated
limited results and can only, often tenuously, confirm the broad tenets of the legitimacy perspective. The effect of size is
not surprising in light of previous findings (see Amran & Devi, 2008; Branco & Rodrigues, 2008; Gao et al., 2005; Haniffa &
Cooke, 2005), although the significant correlations can be attributed mainly to the change in social disclosures. Most country
studies focus on listed companies, which, by their very definition, are the most prominent and visible organizations in their
respective countries. It is therefore possible that, over time, SER disclosures became more driven by the company’s social
visibility as a prominent and well-known listed company than strictly by size. This possibility is supported by the significant
decline in the correlations for social disclosures from 2004 to 2007. In the case of profitability, the absence of a relationship
confirms that the economic rationale is not seen as a central determinant of SER, and this lends support to the social and
political perspective (Branco & Rodrigues, 2008, p. 689).
The existence of a positive link between a measure of risk and SER word counts is notable given the absence of significant
results in previous empirical studies (see Branco & Rodrigues, 2008; Haniffa & Cooke, 2005; Reverte, 2009). Generally,
higher gearing levels reflect financial risk, and this tends to attract the attention of markets and lenders. However, concerns
from non-economic stakeholders can also materialize due to the potential social consequences of cost reductions, such as
unemployment, reduced health and safety spending, and reduced financial support (for NGOs and government) to meet
lending obligations. On this basis, it could be argued that highly geared companies use more SER to provide reassurances to
their non-economic stakeholders. This argument would support the view that SER serves to maintain a pragmatic (exchange
and influence) form of legitimacy. However, given the absence of previous evidence on the effects of financial risk on SER and
the lack of stronger statistically significant results, further research needs to be carried out to examine the relevance of risk as
a measure of public visibility. Hence, we can only report on a limited influence of ‘mainstream’ arguments (size, profitability
and gearing) on the extent of SER. Conceptually, we would agree that such measures can at best provide a crude indication
of the relevance of the legitimacy and/or stakeholder perspectives. In contrast, a content analysis using quantitative and
qualitative dimensions has allowed us to consider more directly the likely motivations underlying SER disclosures.
7. Conclusions and recommendations for further research in emerging economies
We have documented recent changes in SER in an emerging economy. We have sought to interpret the changes in
disclosure practices in light of the implementation of a stakeholder-oriented corporate governance code set within a broader
socio-political context that has become increasingly critical of the business community’s lack of sufficient engagement with
societal imperatives. In terms of theoretical perspective, on one hand, we argued that the notion of pragmatic legitimacy
is akin to that of stakeholder management because it relies on evidence of exchanges, influences and dispositions between
the organization and specific audiences, such as stakeholders. On the other hand, the notion of moral legitimacy is more
closely connected to the need to demonstrate an affiliation to social norms, values and beliefs. The latter reflects the macro-
perspective and the associated concept of a social contract, which are often mentioned in the SER literature (refer to Deegan,
2002; Gray et al., 1995a; Haniffa & Cooke, 2005; Ratanajongkol et al., 2006).
We first conclude that changes in SER in Mauritius are, to a certain extent, the result of companies being concerned
with managing specific stakeholders. Evidence from the social and health and safety disclosures indicates attempts at stake-
holder management (NGOs, employees and government) that are consistent with the concepts of exchange and influence
legitimacy. To a degree, therefore, the local corporate governance code has led to increased corporate recognition of non-
economic stakeholders in Mauritius. This finding has implications for consultants and policy-makers who have an interest
in ensuring that the implementation of stakeholder-oriented corporate governance codes can lead to broader, substantive
social benefits rather than purely economic ones. This finding also indicates that civil society organizations can, to some
extent, access more detailed information from the annual company reports. Second, and more conclusively, the changes
in SER patterns related to ethical and social disclosures reveal companies’ reactive strategy to portray themselves more
explicitly as organizations that are mindful of societal interests. Faced with societal pressures, companies’ SER practices
have evolved to include features that are consistent with a strategy of seeking consequential and procedural legitimacy.
In particular, ethical disclosures emphasize procedures, such as establishing a code of ethics, that companies appear to
have adopted to address societal concerns regarding corruption and unfair business practices. This finding also highlights
the fact that research has paid very little attention to ethical reporting and its possible links to the level of corruption and
other unethical business practices in the country of study. As an illustration of the impact of unfair business practices on
SER, concerns about questionable labor practices in Bangladesh have led to increased human resources disclosures in this
country, primarily to satisfy powerful audiences (Belal & Owen, 2007; Islam & Deegan, 2008). Otherwise, there is scant
research on disclosures related to such ethical practices. Furthermore, social disclosures depict philanthropic actions with
a view to emphasizing the companies’ affiliations with socially accepted goals and organizations. At the same time, crit-
ical and controversial issues of ethnic and religious prejudice and social harmony are altogether shunned, possibly due
to their potentially negative influence on corporate legitimacy. In previous empirical studies, social disclosures are often
seen to be an important SER theme (see Haniffa & Cooke, 2005; Islam & Deegan, 2008; Ratanajongkol et al., 2006; Tsang,
1998). Even so, these studies have not considered in detail the links between context, social disclosures and the pursuit of
moral legitimacy as outlined in this paper. Consequently, this paper contributes to the literature in the following ways: (i)
it provides recent evidence of changes in SER in an emerging economy that can be attributed to local contextual factors
and a corporate governance code; and (ii) it demonstrates that Suchman’s (1995) work on the pragmatic and moral types
of legitimacy could be useful in developing a deeper understanding of stakeholder and legitimacy as motivations for SER.
Suchman (1995) has developed a typology of various strategies that organizations could adopt to gain, maintain and repair
their legitimacy, the validity of which has yet to be empirically investigated. These concepts could form the basis for further
studies of managerial and/or organizational motivations for CSR and SER practices, possibly by using qualitative and/or case
study methods.
The main limitations of our study are as follows. First, we rely on published annual reports and on the assumption that
SER disclosures contained within the annual report reflect the main corporate narrative. Companies have at their disposal
a wider array of media to convey their message. However, as mentioned previously, the practice of providing stand-alone
CSR reports or dedicated CSR sections on corporate websites was not widespread in Mauritius during the period of study.
Second, a content analysis of annual reports reveals the outcomes of decisions on the type of SER. For a better understanding
of SER motivations, primary data (e.g., interviews of directors and/or stakeholders) could provide corroborating evidence
to support our claims. Nonetheless, SER disclosures will continue to provide a useful gauge of an organization’s attempts at
communicating with society. Third, the number of companies surveyed in this study is limited to those listed on the local
stock exchange and does not consider the SER practices of other non-listed entities. The possibility that incentives for stock
exchange listing may be less attractive in some emerging countries has to be taken into consideration (e.g., less reliance
on equity finance; less open ownership of companies). As such, a greater appreciation of CSR and SER practices in those
economies may require a broader study encompassing non-listed entities.
Building on the above, we conclude with a reflection on the need for broader cross-country SER research within the
context of emerging economies. Researchers largely agree that emerging economies exhibit a number of economic, political
and social characteristics that are different from developed countries. However, it is important to carry out more system-
atic studies on the influences of these characteristics on the existence and extent of SER practices. Characteristics such as
ownership concentration, concerns about levels of corruption and other measures of unfair business practices, degree of
civil society activism, extent of corporate governance implementation, influence of government institutions in the business
sphere (through ownership or otherwise), foreign influence and quality of accounting information are the main ones we
can draw from the literature (Amran & Devi, 2008; Belal & Owen, 2007; De Villiers & Van Staden, 2006; Elijido-Ten et al.,
2010; Gao et al., 2005; Haniffa & Cooke, 2005; Huang & Kung, 2010; Islam & Deegan, 2008; Tsang, 1998) and our own find-
ings. However, these characteristics have mostly been analyzed on a piecemeal basis and for only a handful of emerging
economies. Although country studies such as ours have provided, and will undoubtedly continue to provide, useful and
detailed insights into SER patterns in specific socio-political contexts, we contend that larger cross-country studies of SER in
emerging economies may at this juncture be of interest. These would help researchers to understand and validate some or
all of these characteristics using appropriate proxies informed by relevant theoretical perspectives, such as stakeholder and
legitimacy theory. In addition, there are indications that a significant number of companies in emerging economies have
been adopting the guidelines set out by the Global Reporting Initiative (GRI).15 In this regard, future comparative studies
could rely on the GRI framework to provide a more stable and up-to-date classification and coding of social and environ-
15
As of March 2011, approximately 35% of the 1825 sustainability reports filed with the GRI were provided by companies located in emerging economies
(refer to www.globalreporting.org/ReportServices/GRIReportsList).
mental information, whether it is provided in annual reports, sustainability reports or other stand-alone formats (such as
organizational websites).
Acknowledgements
We thank the guest editors and anonymous reviewers for their guidance and insightful comments. We also wish to
acknowledge the suggestions made on an earlier version of the paper by participants at the 3rd BAA Accounting in Emerging
Economies (AEE) SIG Workshop held at the University of Birmingham (January 2010). Finally, we would like to express our
appreciation to Brian Guest for his help with the proofreading of the paper.
Appendix A. Coding for declarative, monetary, and quantitative classification of disclosures
(a) Solely declarative: a statement by the company on its role or commitment to a SER theme with no monetary or quantitative
information (i.e. no evidence of the scale of its actions). Note: no such example identified in the annual reports.
(b) Declarative and monetary: a statement by the company supported by monetary information on how, where and/to whom
the money was given.
(c) Declarative and quantitative: a statement by the company on its role or commitment to society with some information
on the scale of its activities (e.g. number of organisations supported, no. of beneficiaries, no. of ethics training, number of
environmental projects) but no information on the financial scale of the contribution. Note: no such example identified
from the annual reports.
(d) Declarative, quantitative and monetary: a statement by the company which combines (a)–(c).
(e) Solely quantitative: a statement by the company with factual-only quantitative SER information (e.g. the company has
helped 3 schools) with no further background statement or financial information. Note: no such example identified
from the annual reports.
(f) Solely monetary: a statement by the company with factual-only SER information (the company has donated £X or has
made charitable donations of £X) with no further information. This is consistent with the company law requirement that
companies must disclose the total monetary amount of donations.
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Mahadevo-2011-Legitimacy & Stakeholder Theory

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Accounting Forum 35 (2011) 158–175

Contents lists available at ScienceDirect

Changes in social and environmental reporting practices in an

2.1. Stakeholder theory

2.2. Legitimacy theory

2.3. Legitimacy and stakeholder theories: Suchman’s concepts

Fig. 1. Overlap between stakeholder and legitimacy theories.

4. Data and methods

4.1. Annual reports

4.2. Content analysis procedures

(a) statements of corporate commitment to ethical practices and/or

2004 (n = 40) 2005 (n = 41) 2006 (n = 42) 2007 (n = 42)

Freq. % Freq. % Freq. % Freq. %

5.1. Extent of SER

2004 2005 2006 2007 Percentage change 2004–2007

Banks, insurance, Finance 6 6 6 6

2004 2005 2006 2007

5.2. Qualitative assessment of SER

2004 2005 2006 2007

Note: Refer to Appendix A for further explanation of coding procedures.

Year No speciﬁc mention NGOs Employees Government body

5.3. Firm-level factors and SER

Ethics 2004 0.451** ns

N = 39; ns: not signiﬁcant.

7. Conclusions and recommendations for further research in emerging economies

Appendix A. Coding for declarative, monetary, and quantitative classiﬁcation of disclosures

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