CHAPTER ONE
1.0 INTRODUCTION
1.1Background of the Study
The increasing need for every organization to disclose in their annual reports the various activities that affect the society is becoming a very fundamental issue all over the world mostly in developed economies, but this is not the case in developing countries like Nigeria. This is because organizations are particularly more interested in the profit maximization objective to the detriment of the society. According to Iyoha (2010), in developing countries, the concern is about how efficient organizations are in terms of how much profits are made and how much dividends are paid. No serious thoughts are given to social issues in the annual reports of organizations such as environmental protection, energy savings, fair business practice, and community involvements etc.
Asechemie (1996) stress that the absence of financial data relating to actions and arrangements for social concern in Nigeria is not in accord with the trend in the USA, Europe and Canada where companies are required to report on the effect of compliance with laws governing corporate social conduct on capital expenditures, earnings and competitive position. Environmentalists have drawn public attention to the by-products of industrial activities in Nigeria. This made the federal government to establish the Federal Environmental Protection Agency (FEPA) and the National Environmental Standard and Regulatory Enforcement Agency (NESREA) for the purpose of monitoring industrial activities as they affect the environment and prescribe necessary control measures.
Asechemie (1996) notes that it is reasonable for Nigerian governments to go beyond the establishment of these agencies to requiring organizations to report scorecards on environmental and other social issues. When this is done, it will reduce the disruptions in companies’ operations, kidnapping, accusation and counter accusations of ill treatment of host communities. According to Davies and Okorite (2007), where the social activities of organizations are fairly reported in the financial statements, duly audited and attested to and published by the organization for all to see, some of the problems would be minimized, if not eliminated.
Accounting is a science that uses measurements and quantities to provide specific quantifiable information about a company’s financial status; it provides detailed accounting logs to enable managers to make responsible decisions that maximize profit and reduce waste and spending. In this modern age of globalization, major global business entities, worldwide, have dedicated accounting units that submit financial reports and logs relevant to the social performance to various bodies and stakeholders. Stakeholders attempt to evaluate, through these reports and other financial and accounting data, institutional performance during a given time period, and whether this performance is balanced and inclusive of all stakeholders without neglecting any particular group. Social responsibility accounting first emerged in developed countries as a result of pressures exerted by environmental and human rights groups, and has been known by various terms such as; social and environmental accounting, corporate social reporting, corporate social responsibility reporting, non-financial reporting; however, it is more common to refer to it as Social Responsibility Accounting (SRA). It is defined as a branch of accounting that aims to define the results of an institution or organization and its financial position from a social perspective since companies are relevant and affect societies as a whole.
Accountants have an important contribution to make to the debate surrounding Corporate Social Responsibility CSR). The major element of accountants’ contribution that they have the ability to provide a mechanism for holding corporations accountable for what they do – holding entities accountable is, after all, what accountants do as a matter of course. While traditionally it has been financial accountability that is the remit of accountants, for many years now, accounting academics have been at the forefront of research and theory on social and environmental accounting and, more recently, practitioners, professional associations and others have taken an interest in the topic. This body of work attempts to ‘broaden our thinking about the role of accounting’ (Lehman, 2007, p. 35).
The term CSR encompasses a variety of issues revolving around companies’ interactions with society. The sorts of issues covered include ethics, governance, social activities such as philanthropy and community involvement, product safety, equal opportunities, human rights and environmental activities. When considering CSR from the perspective of the accounting profession, such consideration is necessarily and inextricably linked with social (and environmental) reporting or accounting. Social accounting was itself a product, in part, of the early social responsibility movement of the 1960s (see Drucker, 1965), but also appeared around the same time the environmental movement emerged (Gray and Guthrie, 2007). Interestingly, while social issues were the initial research focus of accounting academics, these were to some extent overwhelmed by the emphasis on environmental issues that came later, and this emphasis is reflected in the reviews that follow. This chapter concentrates initially on research about reporting on social and environmental issues (variously called Corporate Social Reporting (CSR – hence it is often confused with Corporate Social Responsibility), Social and Environmental.
The accountant’s role can traditionally be classified into three areas: the financial accountant, the management accountant and the auditor. In terms of social and environmental accounting, the financial accountant could be said to be primarily interested in social and environmental aspects of assets and liabilities and to report on them in some standard way. The management accountant is concerned with costs and benefits associated with these issues, and the auditor in providing verification or assurance of the social account produced (Medley, 1997; Igalens, 2006). Some see a role for accountants in improving social justice and contributing to social and environmental benefits for society (Reynolds, 2007).
Corporate social responsibility (CSR) and sustainability are key issues in the current business environment (Botescu, et al., 2008; State and Popescu, 2008). Accountants play a crucial role in organizations in areas closely related to CSR such as reporting, transparency, ethics, legal compliance, communication with stakeholders, and resource consumption. They measure, control, and communicate inside and outside organizations. In this line, conducting research on accountants is important in order to understand the modern society, as they have become a major economic and social force (Cooper and Robson, 2006). The present business environment creates opportunities and threats to both accounting and accountants. With the increasing importance attached to environmental issues and social responsibility, risk management and reporting, the accounting profession has to change (Norreklit, et al., 2009; Carnegie and Napier, 2010). Professional bodies align their actions to the trends identified in the local and international economic environment. Moreover, companies adjust their demands regarding the roles and activities of accountants in the light of these evolutions.
Nowadays, there is an increased interest towards researching the accounting profession (Smith and Briggs, 1999; Hoffjan, 2004; Gulkvist, 2009; Norreklit, et al., 2009; Carnegie and Napier, 2010). There has been a limited but increased interest in Nigeria with studying the accounting profession; research has been however conducted on the impact of different economic and social phenomena on accounting education and profession (Ionaşcu, 2006; Olimid and Calu, 2006; Dumitrana, et al., 2009).
Mamman (2004) stated that the scope of social accounting has extended beyond the issues of environment to include business decisions on human resources, customers and the general public. These decisions are based on accounting information. In effect, accounting is supposed to be responsive to the needs of society. This is the reason why it usually responds to emerging issues. One of such issues is to disclose the social activities of organizations in the annual report.
Iyoha (2010) went further to state that society needs social accounting reports in much the same way that capital markets require financial information supplied by financial accounting system. Users of social accounting information need the data that allow them to assess whether the entity is being socially, financially and environmentally responsible. Ramanathan (1976) says the purpose of social accounting is to help evaluate how well a firm is fulfilling its social contract. It would accomplish this purpose by providing visibility to the impact of a firm’s activity upon society. In this context, the aim of this study is to analyze the implications of social responsibility accounting on corporate survival.
1.2 Statement of the Problem
The implementation of social responsibility accounting on conglomerates faces many obstacles that prevent its real and effective implementation. These include but are not limited to the scarcity of technical know-how and expertise along with the absence of a social accounting system, also lack of awareness amongst Auditors, and neglect by higher management, and lastly the absence of legislations and approved methodologies that would support the implementation of social auditing.
There has been a recent escalation in CSR disclosures by corporations worldwide; this signals the significance of CSR for sustainable development. By disclosing information on social and environmental issues, companies can improve their public image, customer patronage and obtain competitive advantage (Azim, Ahmed, & D’Netto, 2011). However, most of the previous studies on CSR disclosure in firms were conducted in the advanced market economies. Only limited studies have so far been conducted in the developing markets, especially in Nigeria. Even the few studies on CSR in Nigeria concentrate majorly on Multinational oil companies operating in the Niger-Delta region. The current state of the effect of social responsibility counting on conglomerates in Nigeria is yet to be investigated. Meanwhile, the manufacturing sector is germane to the realization of the Nigerian vision 20/2020 aspiration. Since investment in CSR can be correlated with a firm’s survival, economic well-being, competitive advantage and customer loyalty (Rahim, Jalaludin, & Tajuddin, 2011); there is need for the manufacturing firms to incorporate CSR into their core business strategy. Thus, the question as to the current state of CSR practices in the Nigerian manufacturing sector remains unresolved and requires further investigation. Therefore, the main objective of this study is to examine conglomerate financial performance and social responsibilities of conglomerates in Nigeria.
1.3 Research Objective
The specific objectives of the study include:
- To determine the relationship between turnover and investment in CSR among Nigerian private sector institutions.
- To determine if any relationship exists between firms’ performance measure (profit after tax) and investment in social responsibility.
- To ascertain the effect of corporate social responsibility on total assets of Nigerian private sector institutions.
- To determine if there is significant relationship between firm’s financial leverage and the level of corporate social responsibility disclosures.
- To ascertain the relationship between social responsibility activities and the impact of the activities on the economic development of host communities.
1.4 Research Questions
- Is there any significant relationship between turnover and investment in CSR among Nigerian private sector institutions?
- What relationship exists between Nigerian private sector institutions’ performance measure (profit after tax) and investment in social responsibility?
- What is the effect of corporate social responsibility on total assets of Nigerian private sector institutions?
- Is there any significant relationship between firm’s financial leverage and the level of corporate social responsibility disclosures?
- What is the relationship between social responsibility activities and the impact of the activities on the economic development of host communities?
- Research Hypotheses
In order to answer the questions posed by this study, five hypotheses were formulated.
- H0: There is no significant relationship between turnover and investment in CSR among Nigerian private sector institutions.
Hi: There is significant relationship between turnover and investment in CSR among Nigerian private sector institutions.
- H0: Corporate social responsibility has no significant influence on profit after tax of Nigerian private sector institutions.
Hi: Corporate social responsibility has significant influence on profit after tax of Nigerian private sector institutions.
- H0: Corporate social responsibility has no significant impact on total assets of Nigerian private sector institutions.
Hi: Corporate social responsibility has significant impact on total assets of Nigerian private sector institutions.
- H0: There is no significant relationship between the firm’s financial leverage and the level of corporate social responsibility disclosures among Nigerian private sector institutions.
Hi: There is significant relationship between the firm’s financial leverage and the level of corporate social responsibility disclosures among Nigerian private sector institutions.
- H0: There is no linear relationship between social responsibility activities and the impact of the activities on the economic development of host communities.
Hi: There is a linear relationship between social responsibility activities and the impact of the activities on the economic development of host communities.
1.6 Significance of the Study
The economic aim of any business organization is to maximize profit, which is the life wire of any such organization upon which its future growth lies. It is in the expectation of making profit that investors plunge huge sum of money into business venture. This also leads to economic growth of the country. Therefore any criticisms or research on the issues of return on investment should be objectively done. This study is important because it will not only examine the attitude of private sector institutions private sector towards the concept of social responsibility accounting but it will also help these organizations in making policy decisions so as to eliminate the negative effects and consequences of their attitudes in the discharge of social responsibility. Organization must not assume tasks, when they lack competence in essences the desirable inter-relationship between the economic goal of business organization and social needs of the society at large should be mutual and cordial. This relationship has to be mutually beneficial relationship between economic and social goals.
Finally and perhaps more importantly, this study will add to the store of knowledge of business organization theory and philosophy. The concept of social responsibility touches the fundamentals of business. The result of this study, the researcher hopes, will add more information to this store. Furthermore, students, the government, corporate organizations, policy makers and future researchers will find the content of this research work very useful.
1.7 Scope and Limitation of the Study
This research work will focus on “Social Responsibility Accounting and Corporate Survival” with particular reference to Nigeria Private sector Institutions. The study has some limitations, in addition to the limitations posed by all likert questionnaire type studies, there was a reluctance by some participants to answer some of the questions or fill out surveys regarding topics and issues previously discussed during the personal interviews, in addition to the high cost of collecting data. Personal constraints such as limited time, limited resources and inadequate finance were also encountered.
1.8 Definition of Terms
Content Analysis: is a research tool or technique used to determine the presence of certain words or concepts within texts or sets of texts. Researchers quantify and analyze the presence, meanings and relationships of such words and concepts, then make inferences about the messages within the texts, the writer(s), the audience, and even the culture and time of which these are a part.
Corporate Environmental Reports: Are only one form of environmental reporting defined as publicly available, stand-alone reports issued voluntarily by companies on their environmental activities.
Corporate Social Responsibility: It is seen as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare.
Environmental Audit: An inspection system that assesses the environmental effects of a company’s activities, products and suppliers. It covers specific audit of health, safety, waste prevention and other matter and focuses on environmental issues of key concern. It also takes into account the environmental performance of suppliers of raw materials, goods and services.
Environmental Impact: Any change to the environment, whether adverse or beneficial, wholly or partially resulting from an organisations activities, products or services. A systematic and documented verification process of objectively obtaining and evaluating evidence to determine whether an organisations environmental management system conforms to the environmental management system audit criteria set by the organisation, and for communication of the results of this process to management.
Environmental Costs: Comprise the costs of steps taken, or required to be taken, to manage the environmental impacts of an enterprise’s activity in an environmentally responsible manner, as well as other costs driven by the environmental objectives and requirements of the enterprise. They are expenses incurred as a result of some violation of ecological integrity either by an enterprise that implements a program to rectify the situation or by society or the ecosystem as a whole when no person or enterprise is held liable.
Environmental Policy: Statement by the organisation of its intentions and principles in relation to its overall environmental performance which provides a framework for action and for the setting of its environmental objectives and targets.
Environmental Management System Audit: A systematic and documented verification process of objectively obtaining and evaluating evidence to determine whether an organisations environmental management system conforms to the environmental management system audit criteria set by the organisation, and for communication of the results of this process to management.
Environmental Liabilities: Are obligations relating to environmental costs that are incurred by an enterprise and that meet the criteria for recognition as a liability.
Environmental Performance Evaluation: EPE is described as a process to facilitate management decisions regarding an organization’s environmental performance by selecting indicators, collecting and analyzing data, assessing information against environmental performance criteria, reporting and communicating, and periodic review and improvement of this
Environmental Performance Report: It is a report designed for public reporting that discloses an entity’s environmental performance in the broadest sense. It contains both descriptive information and quantitative performance data. Performance data can be provided in financial terms, but also in physical quantities. An EPR may be published in a section of the annual report, or as a stand-alone report.
Environmental Strategy: A plan of action intended to accomplish a specific environmental objective
Environmental Reporting: Public disclosure by a firm of its environmental performance information, similar to the publication of its financial performance information. The process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within society and to society at large\
Future Site Restoration Costs: These are costs that relate to damages incurred in prior periods which are necessary to prepare an asset or activity for operation. They are recognized as environmental liability at the time the related damage is incurred (identified). They should be capitalised (and amortised to the income statement over the life of the related operations).
Global Warming: An increase of the earth’s temperature by a few degrees resulting in an increase in the volume of water which contributes to sea-level rise. Increase in the average temperature of the earth’s surface or a rise in the temperature of the Earth’s atmosphere due to the increase in certain gases in the atmosphere.
Greenhouse Gas: Gases added to the atmosphere by human actions that trap heat and cause global warming. This is a collective term for gases such as carbon dioxide, methane and nitrous oxides (among others) that trap heat in the atmosphere and contribute to climate change.
Involuntary Disclosure: The disclosure of information about a company’s environmental activities without its permission and against its will.
Mandatory Disclosure: The disclosure of information about a company’s environmental activities that is required by law
Performance Indicators: Are finite set of quantities chosen to reflect certain aspects in an organisation. They are number, absolute or relative terms that facilitates managements communication and follow-up of an organisation’s performance
Social Audit: The process of reviewing and verifying the social accounts at the end of each social audit cycle. The term social audit is also used generically for the concept and for the whole process.
Social Responsibility Accounting (SRA): It is defined as a branch of accounting that aims to define the results of an institution or organization and its financial position from a social perspective since companies are relevant and affect societies as a whole.
Socially Responsible Investors: Also known as sustainable, socially-conscious, or ethical investor are those investors which basically seeks to maximize both financial returns and social good. In general, social responsible investors tend to favor corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity.
Stakeholders: A person, group, organization, or system who affects or can be affected by an organization’s actions.
Sustainable Development: Development that ensures that the use of resources and the environment today does not restrict their use by future generations.
Voluntary Disclosure: The disclosure of information on a voluntary basis.
