Social Contract and Legitimacy Theory in Accounting †Free Samples

Question: Discuss about the Social Contract and Legitimacy Theory in Accounting. Answer: Introduction The report comprehensively examines the relationship between the Legitimacy Theory and the Social Contract Theory. In regards, several research findings indicate that Legitimacy theory dictates that businesses have an obligation to stand by the norms of the society it operates in. The social contract theory, on the other hand, stipulates the responsibilities of both parties towards stabilizing the commitments in the contract. Also, relevant information obtained from the research show that a positive correlation relationship exists between CSR disclosure and the performance of the corporations. Conversely, organizations are obliged take into perspective the vast eminence of their management in regards to the process, people and the character of and the extent of their impact on the society in a range of dimensions (Beaulieu, 2006). Simply put, organizations needs to identify its respective roles in the community and put into practice necessary responsible, legal, ethical, and social s tandards. The research was embedded on firms operation and the relationship between the services and the society. The Legitimacy theory is an active channel through which the concept of Social Contract can be examined, and the paper aims at integrating the most central issues about the topic. Legitimacy theory Legitimacy is a supposition designed that indicates the actions of an entity are proper, attractive and suitable within specific communally organized systems of definitions beliefs, values or norms. Consequently, the theory of legitimacy holds that for firms to maintain its relevancy and enhance its existence, they should comply by way of upholding a societys structure of norms and values. Simply put, for an organization to remain relevant, it must act to stay legitimate in the eyes of those it considers can affect legitimacy. One way through which this can be achieved is through voluntarily disclosing social and ecological information in corporate yearly reports. The reports content was centrally embedded on exploring new ideas and establishing new relationships with variables considered significant in the legitimacy theory (Omran Ramdhony, 2015). In relation, the report emphases that legitimacy theory provides useful insights to the topic of study. Another study was found on the subject which shed light on the theory. Subsequently, this was a cross examination of the years 1983-1997 of the corporate social and environmental disclosures of BHP. A test of Legitimacy theory was conducted to examine the social as well as environmental disclosures of a large Australian company. The idea of the study was to evaluate whether the social and the environmental disclosures of the company could be explain through the use of legitimacy theory and social contract (Rossi, 2014). Thus, this study unveiled that there exist a positive correlation between community concern and the companys disclosures in the annual report. A further analysis of the study revealed that negative media attention was dealt by management by releasing positive social and environmental information. Literature Review Organizations need to be transparent and accountable; this can be backed up with several arrays of arguments that have been used by severalaccounting scholars in support of the same. According to Lehman, the primary responsibility of a moral obligation is to provide additional information in publishedaccounting reports, this, however, is not for additional details and guidelines. Also, he suggested that the inclusion of environmental details is paramount and hence should be justified. In relation, if firms disregard the terms of the social contract that aims at enhancing the welfare of the society, they are to be charged with moral condemnation from the community itself. However, this act is not necessarily a threat to manipulate the firm so as to reform their actions. Consequently, the most effective strategy through which the one can certify that the provisions of the social contract are exclusively carried out is through having the conditions enforced (Chiu Wang, 2015). In most c ases, the enforcement is provided by the state. On the one hand, the fairness theory and political obligation point out that an organization is as much a citizen as well as it is in an individual. In this case, cooperations are diverse legal entities and their legal authority suggests that they hold more authority than any other citizen in regards to the activities of the state. Also, although organizations may not necessarily vote, their authority is particularly dominant in the political arena and consequently affects quality of lives and the general well-being of many people. This concept has remained open for endless debate on the topic. Several theories justify the political obligations of citizens. Examples are frequently based on gratitude advocated for by Simmons, utilitarianism by Bentham and the general will of Rousseau (Tilt Lubansky, 1999). The theory of political obligation is linked to the topic of study in that it considers the principles of fairness and it is also a alternative of the social contract theory. Subsequently, in social contract theory, a legal contract is used so as to limit political authority or in which political obligations are analyzed as a contractual requirement. The fairness principle is considered a version of the social contract theory due to the fact that it takes into accountability the extensive contribution of the two parties to the contract. In this case, a party may either be a firm or the state which in as a consequence of the combined enterprise set up by citizens provide definite potential remuneration. One objection to the theory is embedded challenges that are identical to all social contracts theories. Subsequently, this shows that few citizens meet necessary commitment levels. Relatively, other objections center on the challenge of defining the receipt of the potential profit by the people with no commitment whom can be held accountable so as to create obligations. Subsequently, it can be synthesized through the use of the theory of justice and in relation support the principle of fairness. Environmental accounting as well as Social can be justified on substantial basis such as justice or fairness and moral obligations; however, the power distribution in the community consequently allows organizations to ignore their obligations with no impending consequence (Casey Grenier, 2014). Therefore, it is only state regulations that can obtain the intended results. Subsequently, environmental laws are permissible on the foundations of moral duties and fairness. Also, there are arguments based on social accountability that are embedded on duty or the public and the rights of the community rights to basic information used to justify regulations by the state. Similarly, the moral duty which is normally at logger heads with our wish is often one that we appear to be most informed about (Prez, 2015). Through the ideas described in fairness theory, it can be justified that has the right to enforce taxation laws. Consequently, it does not issue the people who are liable to taxation t he right to withhold any form of imbursement. Also, even if one disagrees with the proposed used of the taxation money; he or she ill obliged to contribute to the maintenance of the enterprise. Simply put, the obligation one has remained intact regardless of the disapproval. This section of the paper will comprehensively analyze thought on Legitimacy Theory in precisely what is considered Social and Environmental Accounting. Consequently, Legitimacy theory has continued to be one of the most viral cited theories within the context environmental accounting area and of social dynamics. However, deep skepticism exists amongst several scholars that offer real insight into voluntary disclosures of corporations. Through analyzing recent developments in management and accounting literature on legitimacy important concepts can be deducted (Fernando Lawrence, 2014). It is important to highlight that the theory of the legitimacy does offer an important channel for understanding voluntary environmental and social disclosure organized by organizations. In connection, the knowledge will provide tools used to engage in critical public debate. The problem attached to the theory, however, is that the term has on many occasions used somewhat loosely. The failure to adeq uately specify the theory defines the common state of affairs which states that that many researchers will employ the concept of legitimacy, however, relatively few of them define exactly what it means (Alrazi, de Villiers van Staden, 2015). Additionally, the continuous dialogue around the environmental and social accounting literature helps to define the understanding of the Legitimacy theory. Another important issue to untangle is that there are two streams of legitimacy theory. The two streams are a macro theory of legitimacy which deals with how an organizational structure gains acceptance from the society. In regards to the same, institutionalization and legitimacy are considered virtually synonymous. This is attributed to the fact that both phenomena empower organizations through instilling meaningful and natural concepts. In the current operational environment, including the capitalist structure and the democratic government, it can be utilized as a static context in which t he research is embedded. The theory of Legitimacy suggests that disclosures by the CSR are linked to the procedure of legitimization; on the other hand, a theory referred to as the stakeholder theory offers explanations of accountability to stakeholders. Subsequently, this defines the nature of Legitimacy Theory as one which is suitable for organizations that are based in developed countries. Subsequently, the stakeholder theory is more applicable in organizations working in developing countries. The theory of Social Contract is more applicable in emerged or developed economies; CSR disclosure hence exists as a result of an inherent social contract between the society and business. Consequently, this dictates some indirect obligations of business towards the society it operates around (Cheng, et al., 2014). The research on environmental and social disclosures has continuously flourished in the past several years with reporting on Corporate Social Responsibility (CSR). The information obtained is considered a n asset complementing financial reporting to so as to reduce information asymmetry. It is also noticeable that not all theories that are applicable to voluntary reporting literature can be effectively used to indefinitely examine environmental and social reporting. Different types of information target different audience or users, an example include the strategic and financial information that are set for use by investors (Kuruppu Milne, 2014). In connection, the theory to be used should be embedded in the information disclosed section. Also, environmental and social information is by far arguably considered non-financial in nature. Social responsibilities in this context imply the responsibility of a businessman to pursue set policies, make decisions or to follow lines of actions considered desirable in regards to the objectives and the values of the society. Conversely, social responsibility also incorporates the economic, ethical, legal and expectations that the society expects from the organizations at a certain time (Ortas, Gallego?Alvarez lvarez , 2015). CSR deals with the techniques through which firms manage their business operations so as to provide results that are beneficial to the society. The interests of an organization must, therefore, be embedded on the interests of the customer, stakeholders, employees, community and the environmental considerations in several aspects of its operations. There are six chief initiatives through which CSR activities generate positive impacts on the firm: Corporations provide finances through corporate resources used to build awareness for social cause and volunteer recruitment for a cause Organizations donate a proportion of revenue to a specific cause that is embedded on the products sales Organizations advocate for the expansion or execution of a behavior change drive that aims at improving health, safety, and the environment as well as the community well-being Corporations add the quality of charity which is enacted in the form of cash donations and services Firms support retail partners or franchise members that volunteer time to support the local community organizations and the causes Finally, organizations also take part in the adoption and conduct business practices that support social causes that aim at improving the communitys well-being through protecting the environment Many researchers assert that Legitimacy Theory is embedded on the ideology that there exists a social contract between two parties, that is, an organization and the society in which it operates (Cheng, et al., 2014). As a result, organizations will try to legally legitimize its operations through the use of CSR reporting so as to get secure approval from the society, commonly examined under the societal approach, hence stabilizing the continuous existence. Most scholars define the social contract is a representation of myriad of expectations which dictate the societys expectations on how an organization should conduct itself (van, 2014). Consequently, legitimacy theory upholds the ideology that for corporations to maintain operating effectively, it should confine itself within the norms of socially responsible behavior. The authenticity of an organization will exclusively depend on the maintenance of the mutual relationships with its relevant stakeholders (Tilling, 2004). Accordingly , this is credited to the fact that the firm has obligations which include moral obligations to a wide range of stakeholders. In regards, CSR reporting has remained a central administration tool in the mounting complication of the concept of multinational business management. CSR also helps in integrating CSR activities into respective firms strategic risks management so that the impact can be minimized. One of the factors that impact employees decisions on where to work is the perception concerning how the company manages its tasks. As a result, publication of sustainability information is central in placing of a firm as a potential employer. In regards, the status enhances loyalty, reduce staff turnover and increases the potentiality of the organization to not only attract but also retain effective employees (Bonsn Bednrov, 2015). CSR activities and its disclosure, advance corporate performance and such there exists a positive relationship between financial performance and also t he CSR performance. One way through which this is attained is that CSR disclosure increases the admission to capital and shareholder values through fulfilling the expectations of the stakeholders. A new trend is also on the rise; now, investors choose to personally invest in firms that demonstrate high levels of CSR. Conclusion In summary, disclosures by CSR are central machinery that can be used to develop the potential effects of CSR on the repute of a corporation and also in signaling an improved social and environmental conduct. Research has proved that there exist a positive relationship between CSR disclosures and the reputation of a corporate which is embedded on a stakeholder approach (Panwar, Hansen Kozak, 2014). Relatively, Social Contract theory thinking based its historical precedence enacted in Rousseau, Locke and Hobbes. The theory also examines the company and society relationship from a theoretical contemplation. Consequently, an implicit social contract exists between the society and business and that the contract is categorically recognized as a form of indirect responsibility of the business towards the community. The societal approach is presented as a response to the varying conditions and the new corporate problems previously not witnessed such as the CSR. The concepts of social variables, social equity, and net social contributions include some of the most important concepts to be defined. Social components differ in terms of the social groups to which the company is supposed to be bound by the social contract. On the other hand, the net social contribution of an organization is the exclusive aggregation of the non-market contribution towards the general welfare of the society (Tilt Lubansky, 1999). 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