A Normative Model of the Steps Required to Discharge S&EAA

As stated in Chapter 2, in order for S&EAA to be discharged, three conditions should be met. The first is a recognition within the organisation of a responsibility to provide an account of social and environmental interactions and activities, and where possible, the consequences of

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those interactions and activities. The second is the active engagement in the process of accounting for those interactions and activities, and the third is the provision of that account externally to those who have a right to know. Accordingly, it is necessary for the organisation to first engage in S&EA, which requires the active engagement in the systematic, ongoing identification, measurement and internal communication of information regarding their social and environmental performance, and to then make any relevant information gathered in the S&EA process publicly available to those to whom the organisation is held responsible. A normative model of this process is provided in Figure 3.1. This model has been adapted from Park and Brorson (2005), who outline four steps that are generally taken by reporting organisations. Park and Brorson’s (2005) original model is provided in Appendix A.

Unlike the original descriptive model, which was consistent with alternatives (1) (S&EA) and (2) (S&ER) described in Chapter 2, the adapted normative model provided here prescribes the steps that should be taken by organisations in order to comply with the conditions set out in alternative (3) to discharge S&EAA. As noted in Chapter 2, organisations may engage in either S&EA or S&ER, neither of which in isolation discharges S&EAA. An organisation may also engage in both S&EA & S&ER without discharging S&EAA. Such engagement will only discharge S&EAA if it is due to the recognition of a responsibility to a broader group of stakeholders than simply those with an economic interest in the organisation. This in turn requires the identification of what it is that the organisation is to be held responsible for, which requires active engagement with those to whom the organisation is responsible.

In order to discharge S&EAA, the externally reported information regarding organisational social and environmental performance should be relevant to those stakeholders to whom the organisation is responsible, and provided in response to their concerns, rather than restricted to what the organisation itself has deemed it to be responsible for (Dando & Swift, 2003). Accordingly, the adapted normative model differs from the original descriptive model by suggesting that all steps should be taken consecutively and including the additional step of active engagement with stakeholders in the reporting process, together with feedback loops indicating that the outcomes of stakeholder engagement should influence each stage of the process. It should be noted that while each step requires additional organisational resources, they should create a corresponding increase in stakeholder value (Park & Brorson, 2005).

32 No S&EA S&EA Undertaken External Report Third-party assured external report Active engagement of stakeholders in the assurance process. Step Four Step Three Step Two Step One Active engagement of stakeholders in the reporting process Step Five Stakeholder Feedback Stakeholder Feedback

Figure 3.1. A normative model of the steps required to discharge S&EAA (adapted from Park & Brorson, 2005)

The first step requires the organisation to engage in S&EA to enable the identification, measurement, and internal communication of social and environmental information, which is

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essential to ensure that their social and environmental issues are managed effectively (Park & Brorson, 2005), and to discharge S&EAA. Step Two involves the compilation of information gathered in the S&EA process into an external public report (Park & Brorson, 2005), in order to provide relevant information to those to whom the organisation is held responsible.

In order to determine what it is that the organisation is to be held responsible for, constructive dialogue with those to whom it is responsible is essential, and many authors have emphasised the importance of stakeholder dialogue in the reporting process (e.g. Adams & Harte, 2000; Williams, van Hooydonk, Dingle & Annandale, 2000; Wheeler & Elkington, 2001; Adams, 2002; Delmas & Toffel, 2004; Perrini & Tencati, 2006; Campbell, 2007). Therefore Step Three requires active engagement with stakeholders in the reporting process. However, the recognition of a responsibility to a broader group of stakeholders than simply those with an economic interest in the organisation raises several issues. It is logistically impossible for an organisation to engage in constructive dialogue with every individual who may be affected (directly or indirectly) by their activities, and many stakeholders are unable to effectively represent their own interests due to limitations such as geographical location, socio-economic status or insufficient knowledge regarding the complexities of organisational activities (Everett & Neu, 2000; Dando & Swift, 2003). Furthermore, the power asymmetry present in organisation-stakeholder relationships restricts the ability of stakeholders to gain information (Hopwood, 2009), yet in order to exercise power stakeholders must have access to information (Gray, 1992). External assurance plays an essential role in endeavouring to ensure that the interests of those stakeholders unable to engage in dialogue are also represented (Dando & Swift, 2003). Therefore, the fourth step in the normative model requires the provision of third-party assurance for the publicly reported information.3

The assurance provider should provide an opinion on the completeness, accuracy and relevance of the reported information (Dando & Swift, 2003), and in order to discharge S&EAA the information should be relevant to those whom the organisation is held responsible. In order to provide an opinion on ‘completeness’, assurance providers must first determine what information

3

Circumstances exist where assurance may not be necessary for the discharge of S&EAA, for example where power asymmetry is less pronounced or where the organisation possesses cognitive legitimacy. However, the Australian socio-political and economic environment makes it unlikely that such circumstances would be present in corporate Australia, and as such they are considered to be beyond the scope of this study.

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is relevant to stakeholders, before determining whether all relevant information has been disclosed. This requires the assurance providers to also engage in dialogue with stakeholders. Therefore, Step Five of the normative model requires the active engagement with stakeholders in the assurance process.

Finally, the stakeholder engagement processes may reveal that there is information that is relevant to stakeholders yet is unaccounted for by the organisation, or is accounted for yet not externally reported. Therefore, information obtained from stakeholders in the engagement processes should guide future accounting, reporting and assurance endeavours, as indicated by the feedback loops between Steps Three and One, and Steps Five and Four.

In summary, the discharge of S&EAA requires the organisation to first engage in S&EA, before providing an external report of relevant information to those it is held responsible. In order to determine for what the organisation is to be held responsible, the organisation must actively engage in dialogue with stakeholders. However, if an organisation is to recognise a responsibility to a broader group of stakeholders than simply those with an economic interest in the organisation, it must also be recognised that the organisation is not capable of engaging with, and determining the disparate needs of those many stakeholders. Therefore, the organisation must also provide external third-party assurance for the information reported to help ensure that those stakeholders unable to represent their own needs are also represented, and that all relevant information is reported.

In order to determine what is relevant, and thus provide an opinion on the completeness of the report, assurance providers must also engage with stakeholders. Finally, in order to be responsive to the needs of stakeholders and ensure that relevant information is accounted for and reported in the future, information gathered in the engagement processes must influence both S&EA and S&ER. Each of these steps will now be considered in detail, together with a review of the prior literature examining whether these steps are undertaken in practice, and the organisational choices made when they are undertaken.

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