This paper serves as an introduction to this special issue of Accounting, Auditing & Accountability Journal; an issue which embraces themes associated with social and environmental reporting (SAR) and its role in maintaining or creating organisational legitimacy. In an effort to place this research in context the paper begins by making reference to contemporary trends occurring in social and environmental accounting research generally, and this is then followed by an overview of some of the many research questions which are currently being addressed in the area. Understanding motivations for disclosure is shown to be one of the issues attracting considerable research attention, and the desire to legitimise an organisation’s operations is in turn shown to be one of the many possible motivations. The role of legitimacy theory in explaining managers’ decisions is then discussed and it is emphasised that legitimacy theory, as it is currently used, must still be considered to be a relatively under‐developed theory of managerial behaviour. Nevertheless, it is argued that the theory provides useful insights. Finally, the paper indicates how the other papers in this issue of AAAJ contribute to the ongoing development of legitimacy theory in SAR research.

Introduction: The legitimising effect of social and environmental disclosures – a theoretical foundation

The impact of culture and governance on corporate social reporting

This paper analyses the environmental disclosure practices of Australian corporate entities. The paper documents three separate but related investigations. First, in a review of a sample of annual reports for the 1991 financial year, it is apparent that environmental disclosure practices adopted by the sample are self-laudatory, with companies promoting positive aspects of their environmental performance, but failing to disclose negative aspects. Second, in a review of corporate disclosure practices in the period 1980 to 1991, environmental disclosure made by the sample significantly increases across time. This change is linked to an apparent increase in societal concern relating to environmental issues. Finally, using a questionnaire administered to environmental lobby groups, it appears that the extent of corporate environmental disclosure is positively associated with the environmental lobby groups' concern about the environmental performance of companies within particular industries.

A Study of the Environmental Disclosure Practices of Australian Corporations

Much of the extant research into why companies disclose environmental information in the annual report indicates that legitimacy theory is one of the more probable explanations for the increase in environmental disclosures since the early 1980s. Legitimacy theory is based on the idea that in order to continue operating successfully, corporations must act within the bounds of what society identifies as socially acceptable behaviour. The purpose of the practical research undertaken and reported in this paper is to extend the applicability and predictive power of legitimacy theory by investigating to what extent annual report disclosures are interrelated to: attempts to gain, maintain and repair legitimacy; and the choice of specific legitimation tactics. The quasi‐experimental method adopted utilised semi‐structured interviews with senior personnel from three large Australian public companies. The findings indicated support for legitimacy theory as an explanatory factor for environmental disclosures. Moreover, findings about the likelihood of specific micro‐legitimation tactics being used in response to legitimacy threatening environmental issues/events, and dependent on whether the purpose of the response is designed to gain, maintain or repair legitimacy, are reported.

Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory

This study examines the social and environmental disclosures of BHP Ltd (one of the largest Australian companies) from 1983 to 1997 to ascertain the extent and type of annual report social and environmental disclosures over the period, and whether such disclosures can be explained by the concepts of a social contract and legitimacy theory. This research is also motivated by the opportunity to compare and contrast results with those of Guthrie and Parker, in whose study the social and environmental disclosures made by BHP Ltd were also the focus of analysis. In testing the relationship between community concern for particular social and environmental issues (as measured by the extent of media attention), and BHP’s annual report disclosures on the same issues, significant positive correlations were obtained for the general themes of environment and human resources as well as for various sub‐issues within these, and other, themes. Additional testing also supported the view that management release positive social and environmental information in response to unfavourable media attention. Such results lend support to legitimation motives for a company’s social and environmental disclosures. A trend in providing greater social and environmental information in the annual report of BHP in recent years, and its variable pattern, was also evidenced.

An examination of the corporate social and environmental disclosures of BHP from 1983‐1997: A test of legitimacy theory

Many social accounting researchers refer to environmental pressure
groups as being a major influence on companies′ decisions to disclose
social information. Such a claim is, however, to date unsubstantiated.
Virtually no empirical evidence has been produced which confirms or
refutes this proposition. Similarly there is no literature on pressure
groups′ interest in, or reaction to, corporate social disclosure (CSD).
Provides the first, albeit exploratory, investigation of such pressure
groups and their potential influence on the production of CSD. Results
show that pressure groups are users of CSD and do attempt to influence
companies′ disclosure practices. The environmental movement considers
current CSD to be insufficient and low in credibility. The preferred
corporate social report (for pressure groups) would include narratives
and quantified terms, would be in the annual report and would be
prepared by, certified by, and/or held by a body external to the
company.

The Influence of External Pressure Groups on Corporate SocialDisclosure: Some Empirical Evidence

This paper aims to critically review the existing literature on the relationship between corporate governance, in particular board diversity, and both corporate social responsibility (CSR) and corporate social responsibility reporting (CSRR) and to suggest some important avenues for future research in this field. Assuming that both CSR and CSRR are outcomes of boards’ decisions, this paper proposes that examining boards’ decision making processes with regard to CSR would provide more insight into the link between board diversity and CSR. Particularly, the paper stresses the importance of studies linking gender diversity and CSR decision making processes, which is quite rare in the existing literature. It also highlights the importance of more qualitative methods and longitudinal studies for the development of understanding of the diversity–CSR relationship.

Board Composition and Corporate Social Responsibility: The Role of Diversity, Gender, Strategy and Decision Making

Purpose – The purpose of this paper is to investigate the relationship between environmental reporting and corporate governance attributes of companies in Australia.Design/methodology/approach – The paper adopts a quantitative analysis approach. It examines the 2008 annual reports of the largest 100 Australian firms listed on the Australian Stock Exchange (ASX) to determine the amount of environmental reporting – these data are compared with various corporate governance measures.Findings – Analysis found a significant positive relationship between the extent of environmental reporting and the proportions of independent and female directors on a board. The analysis did not, however, support a negative relationship between the extent of environmental reporting and institutional investors and board size as has been previously predicted, rather, it showed a positive relationship.Originality/value – This paper offers insights to both regulators and company strategists. Regulators such as the Australian Stock E...

Corporate governance and environmental reporting: an Australian study

Purpose – The purpose of this paper is to examine the voluntary social and environmental disclosures made in the annual reports of Rothmans Ltd between the years of 1955 and 1999. The first part of the paper focuses on defining legitimacy theory as it has been used in accounting research, extending the current model of legitimacy that predominates, and discussing the potential of a resource‐based approach to testing the theory.Design/methodology/approach – A qualitative and quantitative approach to analysing annual report disclosures is presented, and this is one of the few studies to operationalise the variables under study as measures of resource flows.Findings – The paper considers legitimacy theory in light of disclosures made by Rothmans. An initial analysis provides qualitative examples of expected attempts to legitimatise the corporation given the threat posed by the smoking and health debate. Further analysis conducted using a quantitative measure of resource flows controlled by one stakeholder gr...

The edge of legitimacy: voluntary social and environmental reporting in Rothmans' 1956 - 1999 annual reports

Studies of environmental disclosure levels in companies’ annual reports have shown an increasing interest in the environment. A major part of this interest has become the development of a corporate environmental policy (CEP). This study considers the relationship between CEPs of Australian public companies and subsequent reporting and disclosure related to that policy found in their annual reports. The results show that Australian companies are surprisingly behind other countries in environmental reporting trends, and there are some major differences between the content of their environmental policies and their disclosures. Of particular importance is the finding that while companies appear to be reporting on the environment internally, they place a low priority on providing environmental performance data to external parties.

Carol A. Tilt

Papers

The Influence of External Pressure Groups on Corporate SocialDisclosure: Some Empirical Evidence

Board Composition and Corporate Social Responsibility: The Role of Diversity, Gender, Strategy and Decision Making

Corporate governance and environmental reporting: an Australian study

The edge of legitimacy: voluntary social and environmental reporting in Rothmans' 1956 - 1999 annual reports

The content and disclosure of Australian corporate environmental policies