Social Responsibility Journal

Corporate social reporting and legitimacy in banking: a longitudinal study in the developing country
Mohammad Tazul Islam, Katsuhiko Kokubu,
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Mohammad Tazul Islam, Katsuhiko Kokubu, "Corporate social reporting and legitimacy in banking: a longitudinal study in the
developing country", Social Responsibility Journal, https://doi.org/10.1108/SRJ-11-2016-0202
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 Title: Corporate Social Reporting and Legitimacy in Banking: A Longitudinal Study in the
Developing Country

Authors Details

Author 1 Name: Dr. Mohammad Tazul Islam

Department: Dhaka School of Bank Management
University: Bangladesh Institute of Bank Management
Academic degree: PhD
Town/City: Dhaka
Country: Bangladesh
E-mail: tazul@bibm.org.bd

Author 2 Name: Professor Katsuhiko Kokubu

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Department: Graduate School of Business Administration

University: Kobe University
Academic degree: PhD
Town/City: Kobe
Country: Japan
E-mail: kokubu@kobe-u.ac.jp
 Corporate Social Reporting and Legitimacy in Banking: A Longitudinal Study in the Developing
Country

Structured abstract

Purpose: The purpose of this study is to examine the development of corporate social reporting in the
developing country’s banking industry from legitimacy theory perspective – Bangladesh as a case.

Design/methodology/approach: This study uses longitudinal aspects and analyzes content of annual
reports using ISO26000 standard with some country and industry specific adjustments as the method of
data coding. All Dhaka Stock Exchange (DSE) listed banks (30 of 47, 2013) and 282 annual reports
with 46 reporting items are used for data analysis during a 10-year period (2004–2013). A corporate
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social (CS) reporting index has been constructed for this purpose of analysis.

Findings: The key findings are that the main impetus driving the development of CS reporting was the
stakeholder initiatives; the CS reporting index was less than 20 in 2004, and it increased linearly and
reached around 60 in 2013 because of the legitimization of the new banking process through social
perceptions. This study explains that the contemplation of legitimacy theory argument can similarly be
applied to the developing counties as well as banking industry’s context.

Research limitation/implications: The main implication of this study is the extension of the broader
thrust of legitimacy theory argument in the developing country’s banking industry such as Bangladesh.

Originality/value: This study contributes to the documentation of the CS reporting practices of the
developing country’s banking industry where there is a lack of published longitudinal studies from
legitimacy theory perspective.

Keywords: Longitudinal study, Legitimacy theory, Corporate social reporting, Banking industry,
Developing country

1
 Introduction

The role of corporate social (CS) reporting to corporate social responsibility (CSR) has gained
momentum (Owen, 2008) that raises a key issue whether companies disclose CS information to
legitimate corporate actions and behaviors to the society’s expectation that academics try to figure out
till date. While numerous prior studies investigated legitimacy of CS reporting practices in the annual
reports of manufacturing industries such as Mining (Guthrie and Parker, 1989), chemical (Milne and
Patten, 2002), petroleum (Deegan et al., 2002), tobacco (Tilling and Tilt, 2010) and other manufacturing
companies), research focuses on the reporting practices of the banking industry only recently, even the
operational behavior of banks around the globe is almost same because of international operational
standard (e.g. Basel-III: international regulatory framework for banks; www.bis.org). This is because
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financial institutions neither produce any product directly nor exercise processes that may be unsafe to
the society. The recent catalytic role of banks in changing the corporate behavior of other industries in
terms of sustainability management and disclosure led to a change in the research perception (e.g. Day
and Woodward, 2009; Sharif and Rashid, 2013; Ullah and Rahman, 2015). However, hardly any study
examined corporate legitimacy in CS reporting in the banking industry. This study aims to examine
corporate legitimacy in banking in the development of corporate social reporting. This study contributes
to the documentation of the CS reporting practices of the developing country’s banking industry where
there is a lack of published longitudinal studies from the perspective of legitimacy theory.

Furthermore, the analysis of one-year disclosures shows the status of sustainability initiatives, while a
longitudinal study would reflect the development of sustainability initiatives, which shows whether
these initiatives reflect the corporations’ desire to be legitimate or merely following regulatory
mandates. The longitudinal study (e.g. Tsang, 1998; Deegan et al., 2002; Tilling and Tilt, 2010;
Mahadeo et al., 2011) in sustainability reporting has gained dominance due to differences in social,
political, cultural, and economies across the countries. However, studies concentrating in the banking
industry in longitudinal aspect hardly been conducted (e.g. Douglas et al., 2004; Uddin et al., 2016).
Again, no study so far considers sustainability reporting theory contemplation in CS reporting in the
developing country’s banking industry from longitudinal aspect. This study attempts to fill this research
gap by examining whether there is a desire to be legitimate in longitudinal aspects in the developing
country’s banking industry – Bangladesh as a case.

The banking industry in Bangladesh is considered as an area of study for a number of reasons. Scant
literature, movement of CS reporting by the banks fashioned by the central bank, the Ministry of

2
 Finance (MoF), depositors, NGOs, and the media; and the civil society’s demand and expectations of
business responsibility (Rahman and Jabed, 2003) are the key.

Against the above backdrop, this study aimed to promote the role of CS reporting and practices to CSR
in developing countries from the perspective of sustainability reporting theories. Moreover, the specific
objective of this study is to examine the development of CS reporting and practices from legitimacy
theory perspective in the developing country’s banking industry – Bangladesh as a case. This study
analyzes the content of annual reports using the ISO26000 standard with some country and industry
specific adjustments as the method of data coding. All Dhaka Stock Exchange (DSE) listed banks (30 of
47, 2013) and 282 annual reports with 46 items are used for data analysis during a 10-year period
(2004–2013) in the legitimacy theory setting. A CS reporting index has been constructed for this
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purpose of analysis.

The rest of the paper proceeds as follows. While section-2 reviews the literature on CS reporting,
section-3 investigates relevant theoretical aspects of CS reporting. Section-4 outlines the research design
followed by an overview of CS reporting in Bangladesh in section-5. Further, an analysis of disclosure
of individual social responsibility from legitimacy theory perspective has explained in section-6
followed by findings and discussion of this study in section-7.

Literature Review

Similar to the developed world, the studies on CS reporting and practices are increasing in the
developing counties. However, the reporting practices of the companies in developing economies are at
the inception stage (Mirfazli, 2008; Kuo et al., 2012; Bowrin, 2013) and mostly are in descriptive nature
(Belal and Momin, 2009). The main reason for non-disclosure of CS reporting in the developing
countries (e.g. Bangladesh) are the lack of resources, the profit imperative, lack of legal requirements,
lack of awareness, poor performance, the fear of bad publicity (Belal and Cooper, 2011) and to attain
internal legitimacy (Beddewela and Herzig, 2013).

Nevertheless, the role of companies in CS reporting has been changed in the developing countries.
KPMG (2015) explained that the emerging economies (such as India, Indonesia, Malaysia and South
Africa) had the highest CS reporting rates in the world and Asia Pacific leads the CS reporting rate by
79 percent in 2015 and this fastest trend was driven by mandatory and voluntary reporting requirements.
In this regard, Sahay (2004) explained that unlike the developed counties companies took hesitant steps

3
 for environmental protections; however, most of them are regulatory compliance. Further, Jamail and
Mirshak (2007) questioned to what extent corporations operating in the developing counties have these
reporting obligations.

Likewise to the manufacturing companies, the significance of CS reporting to CSR in financial

institutions is ever increasing in the developed (Halabi et al., 2006; Day and Woodward, 2009); and
developing countries (Tsang, 1998; Nikolaou, 2007) as banks have lion stake in the capital/share to
most of the environmental sensitive industries and the indirect impact on environmental and social
responsibility may increase if banks grant credit to companies that pollute the environment, produce
unsafe products or violate human rights. Most of the frequently disclosed items were confined to
environment, human resource and community (Hamid, 2004), and education, health, environmental
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marketing, and customer satisfaction (Narwal, 2007). Further, CSR reporting in the developing
country’s banking is voluntarily and impressive (Sharif and Rashid, 2013).

In Bangladesh, earlier studies evidenced that the disclosure were not sufficient to measure the social
responsiveness of the organization (Khan et al., 2009) and sustainability disclosure were unstructured
both in the corporate annual report and website (Sobhani et al., 2012). However, the banking sector
posits the highest CSR reporting score compare to other sectors (Azim et al., 2009). The mostly
addressed issues were social/community information compared to fair operating practices, labor
practices, and environment (Khan, 2010; Sobhani et al., 2009). The recent disclosures are dominated to
sustainability, charity, employee and community issues (Belal et al., 2015).

All of the above studies in the banking industry of Bangladesh so far are for one year excepting Sobhani
et al. (2011) and Uddin et al. (2016) study. Sobhani et al. (2011) did a longitudinal study which was
also confined to two banks that analyzed the trend of corporate social disclosures from 2000 to 2009.
Uddin et al. (2016) analyzed 23 banks from 2009 to 2012 and explained that CSR reports are
inextricably linked to powerful leaders’ personal projects and the ruling party’s agendas.

No studies so far (including Sobhani et al., 2011; Uddin et al., 2016), explained the behavior of CS
reporting and practices from the perspectives of sustainability reporting theories in the banking industry
of developing countries (except Branco and Rodrigues, 2008 in Portuguese banks, and Tsang 1998 in
Singapore). Again, Branco and Rodrigue (2008) study was confined to one year only and Tsang (1998)
considered banking industry with other industries and the findings were generalized to the banking
industry. This study adds value by analyzing all DSE listed banks inclusively in longitudinal aspects

4
 from 2004 to 2013 from legitimacy theory setting in the developing country’s banking industry –
Bangladesh as a case.

Research Perspective

The studies to explain corporate desire to legitimate or responding to stakeholder influences are
increasing to understand managers’ motivation in strategic formulation for business case by CSR. Prior
studies (e.g. Patten, 1992; Deegan et al., 2000, 2002; O’Donovan, 2002, Tilling and Tilt, 2010) were
conducted in the developed countries manufacturing industries. However, studies (e.g. Islam and
Deegan, 2010; Mahadeo et al., 2011; Khan and Muttakin, 2013) which were also limited to developing
countries manufacturing industries, hardly any study explained corporate legitimate behavior in CS
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reporting particularly in the banking industry (except Branco and Rodrigues, 2008).

Social and political theory studies particularly political economy, stakeholder, and legitimacy theories
are mostly used in sustainability reporting practices (Deegan and Unerman, 2011). It is argued that by
considering the political economy a research is better able to consider broader (societal) issues, and
stakeholder and legitimacy theory both derived from it (Deegan, 2002). The application of political
economy theory to a study sometime difficult to find core issues into practical and academic
implications.

Stakeholder theory can be explained from two perspectives – ethical and managerial (Deegan, 2000 in
2002). While the ethical branch provides perceptions in terms of how organizations should threat their
stakeholders, the managerial branch emphasizes the need to ‘manage’ particular stakeholder groups
(Deegan, 2002). Hence, the two wings of stakeholder theory contradict that gives vague assumption.
Conversely, legitimacy theory explains organizations continually seek to ensure that they are perceived
as operating within the bounds and norms which are not fixed and changes over time of their respective
societies (Deegan and Unerman, 2011). The central premise of legitimacy theory is ‘social contract’
between the organization and the society in which society allows the organization to continue operations
to the extent that it meets the society’s expectoration and any kind of disparity will consider as breach of
such contract (Lindblom, 1994; Deegan, 2002). Legitimation strategies might be used to gain, maintain
or repair legitimacy owing to reduce this legitimacy gap (Suchman, 1995; O’Donovan, 2002).

Based on the research objective and the country’s political and socio-cultural factors, this study adopts
legitimacy theory argument. Frequent changes in policies (Deegan, 2002), structural changes in the

5
 industry (Honger, 1982), structural changes in politics and governance system (Archel et al., 2009),
stakeholder initiatives (BSEC, 2006; BB, 2008, 2011), changing community expectation shaped by
economic development, and earlier literature in legitimacy theory adoption (O’Donovan, 2002; Tilling
and Tilt, 2010) are the some key seasons to adopt legitimacy theory in the developing country –
Bangladesh as a case. Since 1993, the Banking Companies Act was amended in 7 times i.e. in 1993,
1995, 1997, 2001, 2003, 2007, and 2013. Further, banking industry in Bangladesh has gone through
some structural reforms by nationalization under president’s order No.26 of 1972; denationalization of
some commercial banks and permission of private local banks to compete in the banking sector in 1982;
National Commission on Money, Banking and Credit in 1986; Financial Sector Reform Program
(FSRP) in 1990; and Bank Reform Committee (BRC) in 1996. Again, immediately after the
independence in 1971, military or military backed government went into power by political turmoil
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several times such as 1977-1981; 1982-1990, and 2006-2008, while democratic government were in
1971-1975 and since 1991 excepting 2006-08. Further, Omran and Ramdhony (2015) stated that
legitimacy theory seems to be more suitable for organizations working in developing countries.

Research design

Sampling and data collection: There were 47 scheduled banks under Bangladesh Bank (BB, the central
bank of Bangladesh) in 2013. Out of these 47 banks, 30 banks are listed in Dhaka Stock Exchange
(DSE) until the year 2013. We studied all those listed banks (Appendix-1) to get relevant information.
In late 2013, a total of 9 new banks appeared as the scheduled banks under the Bangladesh Bank. They
are yet to be listed in DSE. Thus, we excluded these banks. Therefore, our sample covers 100% of the
listed banks, which is around 64 percent of the total banks in Bangladesh. Further, this study considers
10 years from 2004 to 2013 and analyzes 282 annual reports. The rational to select 2004 as a base year
is that the Corporate Governance (CG) compliance reporting started as a mandatory regulatory
requirement by the Bangladesh Securities and Exchange Commission since 2006
(SEC/CMRRCD/2006-158/admin/02-08). Before 2006, there was no structured format or practice of
corporate governance reporting while before 2008 there was no structured format or practice of
corporate social reporting in the banking sector of Bangladesh. The structured and required format for
CS reporting by the banks has been started since 2008 (circular number-2, Department of Off-site
Supervision, DOS, BB on 1st June). Moreover, the reason for considering 2013 as last year for data
analysis is the availability of the annual reports of the banks.

6
 Content analysis: This study uses content analysis for data coding. Most of the studies have focused on
the disclosures made in the annual reports (e.g. Deegan and Rankin, 1996; Hackston and Milne, 1996),
either as a proxy for social and environmental responsibility activity, or as an item of more direct
interest (Milne and Adler, 1999). The essential stage of content analysis is to decide which documents
are to be used (Krippendorff, 2004).

Choosing Annual report: This study uses annual report for content analysis. Prior studies emphasized
annual report as an important document in CSR due to high degree of credibility of the information
(Tilt, 1994). Moreover, Deegan’s (2002) review of prior literature has specifically found that corporate
annual report disclosure is a tool for maintaining legitimacy.
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Database and data analysis: This study uses annual reports of the banks for data collection. The data
were hand-collected by the authors from the annual reports using ISO26000 disclosure items. The
annual reports were collected from the banks, DSE library, and company websites. The ISO26000 was
used as disclosure content (Appendix-2) which is finalized by comparing among GRI-G4 guidelines and
Global Compact (GC) with some country and industry specific items. Under the eight broad thematic
items, total forty-six items have been coded for this study.

This study constructs CS reporting index. In this case, an item which is disclosed by the company was
coded “1” and “0” if it is not disclosed. The score of the items then added up to get ultimate score for
the company; hence the equation for disclosure index for the company is as follows:
CCSRI = ∑ / -------------equation (i)
Where, CCSRI is the Company’s Corporate Social Reporting Index. nj is the maximum likely disclosed
item which is equal to 461 and dj is the number of item(s) disclosed by a particular company. For
example, if a company discloses an item (1) out of 46 items, the disclosure index of that company will
be 2.17 (146 × 100). Further, an industry disclosure index based on the following equation has been
calculated.
IjCSRI = ∑ CjCSRI/nj ---------equation (ii)
Where IjCSRI is the Industry’s CS Reporting Index for jth year
∑CjCSRI = Sum of the Companies’ CS Reported Items in jth year

1
Under the eight broad thematic items based on ISO26000 the distribution of 46 items for coding are
organizational governance (6), human right (8), labor practices (5), the environment and environmental risk
management (4), fair operating practices (5), consumer issues (5), community involvement and development (8),
and green and sustainable banking (5) (Appendix-2).

7
 nj = Maximum likely disclosure item of jth year of the industry (here maximum likely score is the
maximum number of items to be disclosed × number of companies analyzed). Suppose, the sum of the
companies’ CS reported items for the year 2013 is 810 and the maximum likely disclosure item for the
same year is 1380 (46 ×30). Thus, the industry’s CS reporting index for the year 2013 is 58.70
(approximately) ( 8101380 × 100).

Again, aggregate CS reporting indices have been calculated for the eight individual thematic items by
first adding the items disclosed by each of the company under the same thematic areas then add the total
items disclosed under the same thematic item by all of the companies followed by dividing the
maximum likely score of each thematic item in a particular year. Thus, the aggregate disclosure indices
for the eight individual thematic items are as follows:
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OGRS2 =∑ / ----------------------equation (iii)

HRRS =∑ / ------------------------equation (iv)
LPRS =∑ / --------------------------equation (v)
EERMRS =∑ / --------------------equation (vi)
FOPRS =∑ / ----------------------equation (vii)
CIRS =∑ / ------------------------equation (viii)
CIDRS =∑ / -----------------------equation (ix)
GSBRS =∑ / -----------------------equation (x)
Here, OGRS, HRRS, LPRS, EERMRS, FOPRS, CIRS, CIDRS and GSBRS are the aggregate
Organizational Governance, Human Right, Labor Practices, The Environment and environmental risk
management, Fair Operating Practices, Consumer Issue, Community Involvement and Development,
and Green and Sustainable Banking reporting index respectively. Suppose, for the year 2013, the
maximum likely reportable score of OGRS is 180 (for equation-iii), which is found by multiplying 6
(number of reportable items) with 30 banks. Similarly the maximum likely reportable score of HRRS,
LPRS, EERMRS, FOPRS, CIRS, CIDRS and GSBRS would be 240 (8×30), 150 (5×30), 120 (4×30),
150 (5×30), 150 (5×30), 240 (8×30), and 150 (5×30).

Reliability: This study follows Mohabbot et al. (2015) method to ensure data coding reliability. Initially,
a sample of annual reports was coded independently by two authors. Differences were then reconciled
before proceeding with the full blown coding. Sufficient breaks were also taken at regular interval to

2
RS is reporting score which is same for other individual thematic item.

8
 avoid the danger of ‘coder fatigue’ which might affect the high level of attention required in this type of
work. This process is conceived to increase the reliability of the content analysis method (Mohabbot et
al., 2015).

Hypothesis: The banking system of Bangladesh emphasized on the CS disclosure since 2006 as required
by BSEC (2006) on ‘corporate governance’ compliance reporting, BB (2008) on ‘mainstreaming CSR
in Banks and Financial Institutions’ and BB (2011) on ‘green banking’. Earlier study found that CSR
activities by banks in both developed and developing countries have been an increasing trend (Khan,
2010) which is also experienced in Bangladesh context (Sobhani et al., 2009). This is basically due to
realizing the legitimacy or legitimize their existence by reporting (Khan, 2010), and powerful
stakeholder influences or pressure from the external forces (Belal and Momin, 2009; Muttakin et al.,
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2015). Based on the stakeholder’s movement to CS reporting and earlier literature, this study sets the
following alternative hypothesis.

H1: CS reporting of the banking industry in Bangladesh has been increased over time to legitimize
corporate actions and behaviors.

Overview of corporate social reporting in Bangladesh

No banks except Bank Asia (since 2012) and Trust, and Prime Bank limited (since 2013) in
Bangladesh follow either ISO26000 or GRI guidelines. Again, rarely a bank has separate
sustainability report rather CS reporting is incorporated in the annual reports. This study finds
that in 2004, only a bank had separate chapter on CS reporting in the annual report; however,
this number increased over the years and peaked at 25 in 2013. Moreover, this study added that
the number of pages devoted to CS reporting compared to the total number of pages in the
annual reports (in percentage) also increased (albeit negligibly) (only around 3%) over the
years. Precisely, it was only 0.61% of the total number of pages in the annual report in 2004,
which increased to around 4% in 2013. Besides, the total number of pages in annual report for
the disclosure increased 4.31 times in 2013 compared to 2004, and the number of pages (in %)
on CS reporting (compared to the total number of pages in annual reports) increased around
6.51 times in 2013 (Table-1). The increasing rate of the total number of pages on CS reporting
in an annual report and the concentration on incorporating a separate chapter on CS reporting in
the annual reports provide the insightful development of CS reporting in the banking industry of

9
 Bangladesh. The legitimate reasons for this development have been explained in the later
sections of this paper.
Insert Table-1

Figure-1 shows that CS reporting index in Bangladesh’s banking industry increased over the years by
about 40 from 2004 to 2013. In 2004, the industry’s disclosure index was 18.75, which increased
linearly to 24.70 in 2006. The development of CS reporting crossed the linear trend in 2007, peaked in
2011 by 53.19 and marked at 58.70 in 2013. The turnaround in CS reporting was started since 2007-08
so as to respond the legitimate requirement by BSEC (2006) and BB (2008). Moreover, this trend added
to continue to rise for another legitimate call by BB (2011) since 2010. This finding is supportive to the
proposition that CS social reporting has been increasing over the years due to some legitimate
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requirements and supportive to earlier study (e.g. Sobhani et al., 2009). One of the most legitimate
reasons for this increasing trend of the industry’s disclosure is the regulatory initiatives. The regulatory
initiatives includes Bangladesh Securities and Exchange Commission (BSEC) circular (first in 2006) on
corporate governance, and Bangladesh Bank (BB) circular (first by number-2, DOS on 1st June 2008)
on ‘mainstreaming CSR in Banks and Financial Institutions’ and ‘green banking’ (first by number-2,
Banking Regulation & Policy Department, BRPD, on 2 February 2011). Hence, our alternative
hypothesis (H1) is accepted. This study explains that the banking industry’s CS reporting practices
increased in order to comply with the industry requirements that are shaped by the regulatory initiatives,
so as to protect the organization from threats to its legitimacy, which is one of the motivations to report
CSR issues (Deegan, 2002). This finding is supportive to earlier studies (e.g. Islam and Deegan, 2008;
Belal and Owen, 2007) that stakeholder’s influences are important which might another reason of
legitimacy of the companies in Bangladesh.

Insert figure-1

Figure-2 demonstrates the development in CS reporting index of the individual thematic items over 10
years. It reveals that green and sustainable banking is the highest disclosed item, which witnessed a
sharp increase in reporting from 35% to 94% since 2004 followed by organizational governance. The
reporting of the later was slightly lower than that of the green and sustainable banking at 33.33% in
2004; however, it increased remarkably to about 87% in 2013. The environment and environmental risk
management is the third highest disclosed item in 2013 (around 80%), while it was the third lowest item
in 2004 (3.13%).
Insert figure-2

10
 Figure-3 represents the most and least important disclosure items (organizational governance to fair
operating practices) from 2004 to 2013. On average, 65% companies disclose organizational governance
issue which is the highest followed by the green and sustainable banking by 62.81%, while fair
operating practices is the lowest (5.29%) disclosed item by the banking companies in Bangladesh.

Insert figure-3

This study also prepares a list of the most and lowest reporting items by the companies. Figure-4
indicates the five most while figure-5 explains the lowest five aggregate reporting score by the
companies over ten years. Among the 46 reported items, this study finds that human development and
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training in the workplace is the most disclosed item followed by internal control system, risk
management, green marketing and online banking, and corporate governance. Companies legitimate
corporate behavior by extending their strength voluntarily as the requirements to ensure quality in
providing banking products and service to the society. Further, companies legitimate corporate
governance, and green marketing and online banking issues in responses to the regulatory requirements
to disclose in the annual reports voluntarily and report to the regulators mandatorily.

Insert figure-4

However, avoidance of complexity is the lowest reported item (0.34%) indicating the absence of
security arrangements respect to human right, training to security personnel, complaints about the
security procedure, and service to human right. Moreover, the other lowest disclosed items are resolving
grievances (1.67%), respect for property right (2.01%), human right risk situation (2.53%), and
responsible political involvement (3.02%) (Figure-5). Having absence of legitimate requirement,
companies put the lowest emphasis on these issues. The absence of legitimate reasons might be the
absence of human right policy, weak structure and absence of resolving employee grievance procedure,
absence of trade unionism practice, and freedom of opinion expression.

Insert figure-5

11
 Disclosure of individual social responsibility: analysis from legitimacy theory perspective

Organizational governance reporting: This study finds that, on average, organizational governance
(OG) is the highest disclosed item by around 65% by the banking industry in Bangladesh (Figure-3).
However, in 2004, it was around 35%, and scored around 87% in 2013 by making it the highest
disclosed item after green and sustainable banking (Figure-2). Among the sub-items of OG, it finds that
corporate governance disclosure was only 25% in 2004; that sharply increased over the years as almost
all the organizations disclosed the item since 2007 (Figure-6).

Insert figure-6
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The Companies Act of 1994 Bangladesh (GoB, 1994) does not mention formal corporate governance
structure, and there is no “official” code of CG, although the Bangladesh Securities and Exchange
Commission (BSEC) issued a brief CG order to the DSE listed companies in 2006. Moreover, the
adoption of BSEC (2006) order is not mandatory; rather, it is applicable on a “comply or explain” basis.
As the annual reports of 2005 were published in 2006, the companies tended to disclose CG stringently
in order to comply with the regulatory initiatives. Before the BSEC initiative, the CG was remarkably
low; following the initiatives, the disclosure trend went straight upward to legitimize banking
governance. This study explains that the organization’s legitimization can be best described by the
disclosure pattern of CSR in the top-level commitments/messages from the Chief Executive Officer
(CEO)/Managing Director (MD) and CSR in the vision and mission statement, which sharply increased
since 2005–2006.

Human rights reporting: Human rights (HR) constitute the lowest disclosed item by the banking
companies in Bangladesh, after fair operating practices. On average, only 6.49% organizations disclose
HR issues (Figure-3). Further, from 2004 to 2007, almost no company disclosed HR issues except issues
related to HR discrimination and vulnerable group issues (Figure-7). The human right3 reporting is not a
requirement for the banking industry, which might one reason for lower reporting and there were no
initiative to disclose human right issues from any part. Hence, the companies do not feel any pressure to
legitimate human right issues by disclosure in the annual report.

3
However, in Bangladesh, the National Human Right Commission (formed in 2009) is generic to all
organizations. The National Human Right Commission does not inquire about the HR reporting of any
organization; rather, it inquires and handles issues if any person or organization requests it to do so.

12
 Insert figure-7

Labor practices reporting: Supportive to earlier study (e.g. Sobhani et al., 2011)4 this study explains
that, the legitimate reason for the most disclosure on human resources development and training
(Figure-8) are to extend internal organizational legitimacy through extending human resources skills and
experiences for selling banking products and services. While, the least preferred item for disclosure is
social dialogue; no organizations disclosed this issue until 2008. In Bangladesh, there is no trade union
or employee association to protect the employees’ interests in the listed commercial banks (unlike
manufacturing companies e.g. Belal, 20015), which might one legitimate reasons for less disclosure on
social dialogue-related issues (Figure-15). However, state-owned banks (which are not listed in DSE
except Rupali Bank Limited) have trade unions and/or employee associations for representation of the
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employees.

Insert figure-8

The environment and environmental risk management reporting: This study finds that the
environmental risk management (ERM) policy and ERM-related issues in financing the project and
preventing pollution/in-house environmental management/sustainable resource use had the highest
disclosure (around 87%) in 2013 (Figure-9). The turnaround change related to the ERM policy was in
2011, when BB issued the Green Banking circular (no.2, BRPD) that incorporates ERM policy as well.
Moreover, the prevention of pollution/in-house environmental management/sustainable resource,
protection and restoration of the natural environment, and climate change mitigation and adaptation
were almost nil until 2009; these witnessed a striking upward turnaround since 2009 due to the BB
initiatives (no. 2 by Department of Off-site Supervision, DOS, 2008) for disclosing these issues
voluntarily.

Further, supportive to earlier study (Deegan, 2002) this study finds that as part of their risk management
policies, banks implement Credit Risk Grading (CRG) for their borrowing clients as per the Credit Risk
Grading Manual (CRGM) which incorporates 10% weight for “Regulatory Environment &
Compliance” as a qualitative factor while assessing the creditworthiness of the projects submitted by the

4
Sobhani et al. (2011) found that the amount of disclosure related to the human resources theme is the highest.
5
Belal (2001) mentioned that, the reason for the highest disclosures in the ‘employee’ category is probably due to
unionized labor forces and the emphasis on workers’ welfare in the current Labor Policy of Bangladesh.

13
 borrowers which is also one legitimate reason to disclose the environment and environmental risk
management.
Insert figure-9

Fair operating practices reporting: Fair operating practices (FOP) constitute the lowest disclosed item
in the annual reports of the banking industry in Bangladesh. This study reveals that almost no company
disclosed issues on responsible political involvement, fair competition, promoting social responsibility
in the sphere of influence, and respect for property rights from 2004 to 2010 (Figure-10). From the
ground of legitimacy theory, it can be explained that changes in policy (Honger, 1982) is one of the
reasons to legitimate companies reporting behavior. The disclosure of anti-corruption was found to
increase over the period because of some acts such as the Money Loan Court Act, 2003; the Money
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Laundering Prevention Act, 2012; the Anti-terrorism Act, 2009; and the Whistle blowing Law, 2013
(www.bb.org.bd) that were implemented. Further, the sudden increase of fair competition disclosure
from 2010 was also due to the influences from Bangladesh Association of Banks (BAB), an association
of the owners of the banks in Bangladesh.

Insert figure-10

Consumer issues reporting: It reveals that the highest disclosed item is fair marketing (of products and
services), information and contractual practices, which scored around 93% in 2012 (Figure-11). In this
aspect, BB took initiatives to protect customer privacy by issuing guidelines on Information &
Communication Technology (not as a disclosure agenda) on October 2005 (www.bb.org.bd) which
might be a legitimate factor.

Insert figure-11

Community involvement and development reporting: Community involvement and development (CID)
is the highest disclosed item after organizational governance and green and sustainable banking
reporting (Figure-3). Again, it reveals that community investment is the highest disclosed item over the
period under the broad thematic item CID since 2004 (Figure-12). The banking industry in Bangladesh
provides philanthropic donation to schools/colleges/universities/madrasas, hospitals, and charitable
organizations as well as health support to the poor and ill, and disaster-affected people during floods and
cyclones. More than 85% of the organizations disclosed support to disadvantaged people (e.g. flood-
affected people, cold-stricken people, autistic babies, senior citizens) since 2007. This study shows that

14
 legitimizing the new banking process through social perceptions—supported implicitly and explicitly
through ideological alignment with the regulators—requires the stringent disclosure of community
involvement and development over the period, supportive to earlier study (see Archel et al., 2009).

Insert figure-12

Green and sustainable banking reporting: In addition to the ISO26000 disclosure content, a broad
thematic item green and sustainable banking (GSB) is added as country and industry specific issue.
Green banking refers to banking business conducted in a selected area and in a manner that helps the
overall reduction of external carbon emissions and internal carbon footprint (Bahl, 2012).
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Insert figure-13

This study reveals that GSB is the highest disclosed item after organizational governance. On average,
around 63% companies disclose GSB (Figure-3); in 2004, the score was around 35%, and it peaked at
around 94% in 2013 (Figure-2). The sharp turnaround of green banking governance and green financing
disclosure occurred in 2009 (Figure-13) following attempts to legitimize the industry’s code of conduct
with new banking products and processes which is another aspect of the legitimacy theory. The green
financing concept was not popular until 2010. It was miserly 4.17% in 2004 and increased negligibly up
to 2009 to around 23%. The legitimation initiatives by BB (no 2, by BRPD, 2011) for financing in
environmental infrastructure are mentionable.

Findings and discussions

This paper examines the development of CS reporting in the developing country’s banking industry
from legitimacy theory perspective – Bangladesh as a case. This study analyzes 46 corporate social
reporting items in the annual report in line with ISO26000 with some country and industry specific
adjustments of all listed banks (30 of 47; 2013) for 10 years (2004-2013) in Bangladesh and constructs
CS reporting index. The key findings is that the CS reporting index was less than 20 in 2004 which it
increased linearly and reached around 60 in 2013, and this driving development of CS reporting is
shaped by the stakeholders initiatives. Our hypothesis (H1) is accepted that CS reporting of the banking
industry in Bangladesh has been increasing over time to legitimize corporate actions and behaviors.
Further, this study explained that the banking industry discloses organizational governance issues
(around 65%) the most while fair operating issues (around 5%) the least over the years among all other

15
 thematic items – human rights, labor practices, the environment and environmental risk management,
consumer issues, community investment and involvement, and green and sustainable banking. The main
implication of this study is the extension of the broader thrust of legitimacy theory argument in the
developing country’s banking industry, as the stakeholders are becoming increasingly concerned about
sustainable banking through financing the sustainable projects. This study contributes to the
documentation of CS reporting practices of the developing country’s banking industry where there is a
lack of published longitudinal studies from the perspective of sustainability reporting theories.

In support to legitimacy theory, this study explains that the banking industry voluntarily responds to the
legitimate requirements of society’s expectations with initiatives related to consumer issues and
society’s involvement and development from the very beginning (since 2004) in order to legitimize the
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banking products and processes. Further, the regulatory initiatives (such as mandates of the Bangladesh
Securities and Exchange Commission for corporate governance in 2006; Bangladesh Bank’s mandate on
mainstreaming CSR in 2008, and the green banking guidelines in 2011) to report voluntarily that
established organization’s legitimacy in the banking industry as the industry’s code of conduct.

Again, the sub-thematic items under the individual thematic item such as in-house environmental
management, climate change mitigation and adaptation, protection and restoration of natural
environment, and environmental risk management (ERM) policy in financing the project (Figure-9); and
green banking governance and green financing (Figure-13) have been increased sharply to legitimate the
structural changes in corporate policy and legal sanctions in CS reporting practices supportive to earlier
studies (Honger, 1982; Mobus, 2005). Further, the increasing trend in the voice of the top management
commitment on CSR in vision and mission statement (Figure-6) is another legitimate signal to the
society that companies has already been congruent or going to be congruent to the society’s expectation.

The practical implications of this study are multifold. These findings, first, facilitate regulators to look
for monitoring and supervision of CS reporting and financing to sustainable projects in the banking
industry. The findings can help regulators to adopt an appropriate balance of legislation, reform and
their enforcement to make improvements in the CS reporting practices and enhancement of
organizational legitimacy. Policy makers need to be cautious about importing and mandating CSR
policies and practices to promote instead of encouraging motivated behavior. Again, this study directs
banking industry to foresee their sustainability reporting practices, trends, and lending preferences to
green and sustainable banking. Second, for ensuring international standard, the commercial banks
already started practicing CS reporting based on international guidelines (e.g. ISO26000; GRI-G4).

16
 However, it is in very inception stage and most of the banks have no structure in CS reporting. Hence,
international standard can be incorporated for harmonizing sustainability reporting in the banking
industry. Further, the international standards (e.g. ISO26000; GRI-G4) are very western style and ignore
the Islamic philosophy of banking system and its reporting. Islamic Shariah (rules/guidelines) in CS
reporting can be incorporated in the international standards.

This study has some limitations. First is the construction of the CS reporting index, which is based on
ISO26000 comparing GRI-G4 and GC reporting guidelines with some country and industry
adjustments. Researchers may obtain different results if the GRI-G4 and GC reporting guidelines are
used. However, at the present state of Bangladesh, there is no standard CS reporting index. Second, we
considered annual report as a credible means of CS reporting, as the CS reporting is incorporated in the
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annual report. It would be interesting to compare our results in future studies when the banks provide a
stand-alone sustainability report. Further research may consider disclosures in other media such as
newspaper clipping and the internet including non-bank financial institutions such as insurance and
leasing companies. Moreover, a comparative study can be conducted with other developing countries
from longitudinal aspects to test the applicability of legitimacy theory in the banking industry.

17
 Appendices

Appendix-1: List of Banks (30 of 47; 2013)

AB Bank Ltd.; Al-Arafah Islami Bank Ltd.; Bank Asia Ltd.; BRAC Bank Ltd.; City Bank Ltd.; Dhaka Bank Ltd.;
Dutch-Bangla Bank Ltd.; Eastern Bank Ltd.; Export Import Bank of Bangladesh Ltd.; First Security Islami Bank Ltd.;
ICB Islamic Bank Ltd.; IFIC Bank Ltd.; Islami Bank Bangladesh Ltd.; Jamuna Bank Ltd.; Mercantile Bank Ltd.; Mutual
Trust Bank Ltd.; National Bank Ltd.; National Credit and Commerce Bank Ltd.; One Bank Ltd.; The Premier Bank
Ltd. ; Prime Bank Ltd.; Pubali Bank Ltd.; Rupali Bank Ltd.; ShahjalalIslami Bank Ltd.; Social Islami Bank Ltd.;
Southeast Bank Ltd.; Standard Bank Ltd.; Trust Bank Ltd.; United Commercial Bank Ltd. ; Uttara Bank Ltd.
Source: Schedule Bank Statistics, Bangladesh Bank; January-March, 2013

Appendix-2: List of disclosure items for the study by ISO26000 with the country and industry context
Core subject: Organizational governance
Issue-1: CS reporting in vision and mission statement; 2) Top level commitment/Message from CEO/MD; 3)
Corporate Governance; 4) Lending Risk management; 5) Internal control and compliance/Shariah committee; 6)
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Stakeholder engagement
Core subject: Human rights
Issue 7: Due diligence; 8) Human rights risk situations; 9) Avoidance of complicity; 10) Resolving grievances; 11)
Discrimination and vulnerable groups; 12) Civil and political rights; 13) Economic, social and cultural rights; 14)
Fundamental rights at work
Core subject: Labor Practices
Issue 15: Employment and employment relationships; 16) Conditions of work and social protection; 17) Social
dialogue; 18) Health and safety at work; 19) Human development and training in the workplace
Core subject: The environment and environmental risk management
Issue 20: Prevention of pollution/ Sustainable resource use /In-house environmental management; 21) Climate
change mitigation and adaptation; 22) Protection and restoration of the natural environment; 23) Environmental
risk management (ERM) policy for financing the project ( Country and industry specific Item)
Core subject: Fair operating practices
Issue 24: Anti–corruption; 25) Responsible political involvement; 26) Fair competition; 27) Promoting social
responsibility in the sphere of influence; 28) Respect for property rights
Core subject: Consumer issues
Issue 29: Fair marketing, information and contractual practices; 30) Consumer service, support, and dispute
resolution; 31) Consumer data protection and privacy; 32) Access to essential services; 33) Education and
awareness
Core subject: Community involvement and development
Issue 34: Community involvement; 35) Education and culture; 36) Employment creation and skills development;
37) Technology development; 38) Wealth and income creation; 39) Health; 40) Social investment; 41) Support to
disadvantaged people (Country and industry specific Item)
Core subject: Green and Sustainable Banking ( Country and industry specific Item)
Issue 42: Green banking governance; 43) Green-financing 44) Green marketing and online banking; 45)Financing
to SME/Micro/Retail/Agriculture; 46) Access to Finance and Financial Inclusion
Source: ISO26000

18
 Compliance with ethical standards

Funding: This study has not been funded by any organization.

Conflict of interest: We have no potential conflict of interest.

Ethical approval: This article does not contain any studies with human participants or animals
performed by any of the authors.

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23
 70.00%

58.70
60.00%
54.64
53.19

50.00%
45.14

40.00% 35.87
34.41
30.00
30.00%
24.70
21.01
18.75
20.00%

10.00%
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0.00%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure-1: Trend of industry disclosure index in CS reporting from 2004 to 2013

Source: Annual Reports

100.00%
93.95
90.00%
86.67 Organizational governance
80.00% 79.17
81.03
75.83 Human right
70.00%
66.67 Labor practices
62.67
60.00%
58.67 The evnironment and
environmental risk management
50.00% 49.33 Green and sustainable banking
42.67
40.00% 40.67
35.00 Fair operating practices
36.50
30.81
30.00% Consumer issue
25.00
20.00% Community involvement and
18.33
17.50 development
16.67
10.00% 9.17
3.13
0.00%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure-2: Trends of CS reporting index of the individual thematic item from 2004 to 2013
Source: Annual Reports
 Community involvement and development 56.67
Consumer issue 29.44
Fair operating practices 5.29
Green and sustainable banking 62.81
The Evnironment and environmental risk management 29.15
Labor practices 48.25
Human right 6.49
Organizational governance 65.10

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%

Figure-3: The most and least important disclosure item (Organizational Governance to Fair Operating
Practices) from 2004 to 2013
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Source: Source: Annual Reports

Aggregate reporting score of the top five items

Green marketing and online banking 86.74

Human development and training in the workplace 94.74

Internal control system 93.27

Risk management 89

Corporate governance 86.46

75.00% 80.00% 85.00% 90.00% 95.00% 100.00%

Figure-4: Aggregate reporting score of the top five items in 10 years.

Source: Annual Reports
Aggregate reporting score of the lowest five items

Respect for property rights 2.01

Responsible political involvement 3.02

Resolving grievances 1.67

Avoidance of complicity 0.34

Human rights risk situations 2.53

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

Figure-5: Aggregate reporting score of the lowest five items in 10 years

Source: Annual Reports

 100.00% 100.00
96.55
96.67 96.67 CSR in vision and
90.00% mission statement

80.00% 75.00 80.00

Top level
70.00% commitment/Message
66.67 from CEO/MD
62.50
60.00% Corporate governance
56.67
50.00%

40.00% 41.38 Risk management

37.50 36.67
30.00%
25.00 Internal control system
20.00%
16.00 16.67
10.00%
4.17 6.90 Stakeholder engagement
0.00%
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Figure-6: Issues under the individual thematic item – Organizational Governance

Source: Annual Reports

100.00%
Due diligence
90.00%

80.00% Human rights risk

situations
70.00%
Avoidance of
complicity
60.00%
56.67
Resolving grievances
50.00%

40.00% 40.00 Discrimination and

vulnerable groups
30.00% Civil and political
27.5926.67
rights
20.00% 20.00
13.79 13.33 Economic, social and
13.33%
10.34 13.33 cultural rights
10.00% 8.33 6.67 10.00
3.45
Fundamental rights at
0.00% work

Figure-7: Issues under the individual thematic item – Human Rights

Source: Annual Reports
 100.00% 95.83 96.55
96.67
90.00% 93.33
83.33
80.00% 80.00 Employment and
70.00% 73.33 employment relationships
62.50 65.52
63.33 Conditions of work and
60.00%
56.67 social protection
50.00%
46.67 Social dialogue
40.00%
30.00% Health and safety at work
25.00 23.33
20.00%
16.67 Human development and
16.67 13.33
10.00% training in the workplace
13.33
0.00%

Figure-8: Issues under the individual thematic item – Labor Practices

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Source: Annual Reports

100.00% Prevention of pollution/

In-house environmental
90.00% management/Sustainable
86.21 86.67 resource use
83.33
80.00% 79.31 Climate change mitigation
and adaptation
70.00% 70.00
72.41
60.00%
Protection and restoration
50.00% of the natural environment

40.00%
Environmental risk
30.00% management (ERM)
policy for financing the
20.00% 17.24 project (country specific
12.50 16.67 issue)
10.00%
3.45
0.00%

Figure-9: Issues under the individual thematic item – the Environment and Environmental Risk
Management
Source: Annual Reports
 100.00%

90.00%
Anti–corruption
80.00%

70.00%
Responsible political
60.00% involvement

50.00% Fair competition

40.00%
34.48
30.00% 30.00 Promoting social
26.67 responsibility in the
20.00% 16.67 20.00 sphere of influence
16.67
13.33 Respect for property
10.00%
4.17 3.33 rights
3.33
0.00%
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Figure-10: Issues under the individual thematic item – Fair Operating Practices
Source: Annual Reports

100.00%
93.33
Fair marketing,
90.00% information and
86.67
contractual practices
80.00% 76.67
Consumer service,
70.00% 67.86 support, and dispute
63.33 resolution
60.00%
58.62 Consumer data
50.00% 50.00
protection and privacy
45.83 40.00
40.00%
34.48
Access to essential
30.00% 33.33 26.67 services
28.00
20.00%
12.00 6.67 Education and
10.00% awareness
6.67
3.45
0.00%

Figure-11: Issues under the individual thematic item – Consumer Issues

Source: Annual Reports
 100.00
100.00% 100.00 Community involvement

93.33
90.00%
86.21 86.67 Education and culture

80.00%
Employment creation and
70.00% 73.33 skills development

Technology development
60.00% 65.52
52.00

50.00% Wealth and income creation

40.00% 36.67
33.33 Health

30.00%
Social investment
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20.00% 20.00

16.67 13.33 Support to Disadvantage

10.00% people (Country specific issue)
8.33
6.90
0.00%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure-12: Issues under the individual thematic item – Community Investment and Involvement
Source: Annual Reports

100.00% 100.00 100.00

96.67
90.00% 93.10
83.33 Green banking
80.00% 80.00 governance
79.31
76.67
70.00%
66.67 Green-financing
62.50
60.00% 63.33
58.33
50.00% 50.00 56.00 Green marketing and
online banking
40.00%
Financing to
30.00% SME/Micro/Retail/Agr
iculture
20.00% 13.79 16.67 Access to Finance &
10.00% Financial inclusion
4.17
0.00%

Figure-13: Issues under the individual thematic item – Green and Sustainable Banking
Source: Annual Reports
 Table-1: CS reporting in terms of percentage of pages as compared to total number of pages of the
annual reports
Total no. of Separate chapter No. of pages on CS
pages in on CS/green Total no. of pages reporting compared to total
annual reporting (by on CS reporting in no. of pages of annual
Year reports banks) annual reports report (in %)
2004 1794 1 11 0.61
2005 2113 2 21 0.99
2006 2388 4 38 1.59
2007 3153 7 53 1.68
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2008 3638 10 72 1.98

2009 4203 13 115 2.74
2010 5417 17 129 2.38
2011 6588 22 228 3.46
2012 7247 24 303 4.18
2013 7731 25 307 3.97
Total 44272 125 1277
Minimum 1794 1 11
Maximum 7731 25 307
Mean 4427.2 12.5 127.7
Source: Annual Reports