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  • July-15-2018

The impact of Corporate Identity on CSR Disclosure

Oceanic Pharmachem: The impact of Corporate Identity on CSR Disclosure

Oceanic Pharmachem Private Limited (OPPL) believes that a combination of voluntary disclosure and legitimacy is necessary to explain the drivers and constraints of CSR disclosure.

The long-term success of any corporation is majorly dependent on its CSR and its corporate identity is an important determinant for CSR disclosure. Value chain and future-oriented goals, which are more pronounced in mature companies, foster CSR disclosure, while introspective corporate identity factors that are strong in medium level companies hinder the release of CSR information. A tradition of social responsibility and values results in a low perceived need for legitimacy and outwards communication.

CSR disclosure is value relevant, increases earnings quality, analyst forecast accuracy and firm-level cost of capital. Firms also use CSR disclosure to differentiate from competitors and as a marketing tool. The integration of CSR in corporate strategy can establish a competitive advantage. Although firms may attempt to implement real CSR concepts, there is a tendency of “green washing”. CSR disclosure is generally not regarded as trustworthy. CSR disclosure credibility increases if aligned with corporate strategy. The “identity-revealing nature of CSR activities” is crucial in building a long-term sustainable corporate image and a successful CSR strategy. Nevertheless, identity-based values and attributes, as well as their communication, are considered key factors for entrepreneurial success. CSR-orientation in corporate identity is an important managerial driver of CSR disclosure. Whereas the corporate identity parameters “strategic integration” and “CSR application” facilitate, “employee integration” and “attitude awareness” inhibit CSR disclosure. Managerial activities can shape internal drivers of CSR disclosure to obtain related financial benefits.

CSR disclosure
CSR accountability can be categorized into three broad fields of interest: (i) value relevance of CSR disclosure; (ii) determinants and constraints regarding the disclosure of CSR information; and (iii) the relationship between CSR performance and CSR disclosure.

As a particular type of voluntary non-financial disclosure, CSR disclosure is believed to reduce information asymmetry between managers and investors. Voluntary disclosure is used by well-performing companies to differentiate from low performers in order to avoid an adverse selection problem. High CSR performers disclose more CSR information as they expect to benefit on financial markets. In contrast, low performers disclose less in order to prevent negative effects due to capital market participants expecting a financial risk.

Nevertheless, CSR disclosure, in particular, is somewhat different from other types of non-financial information. Evidence of a severe mismatch between claims made in CSR disclosure and the implementation of CSR programs do exist. Therefore legitimacy contrastingly forces CSR low performers to disclose more CSR information to legitimate themselves. In this view, public pressure from the social and political environment is regarded as the main determinant of CSR disclosure. Political cost and increasing stakeholder pressure affect CSR disclosure, with a limited focus on ecological disclosure.

The economic system, national culture, stakeholder orientation and company visibility, etc. are regarded as external factors. Companies in state-led market economies are found to report in a more aggregated way about CSR policies and provide more information on business behaviour, labour concerns and environmental issues than companies in the liberal market. In the context of national culture, companies in countries with a pronounced long-term orientation are considered to disclose more CSR information. Stakeholder orientation also positively influences CSR disclosure. Finally, company visibility is found to be an important driver of CSR disclosure. Industry affiliation, firm size, financial performance and capital market orientation are regarded as internal determinants of CSR disclosure. Companies in CSR-sensitive industries like chemicals, mining or energy disclose more CSR information. In addition, CSR disclosure is considered to improve with increasing firm size, financial performance and capital market orientation.

The relevance of corporate identity for CSR disclosure A perceived “CSR fit” is an important internal factor driving the credibility of CSR disclosure. This fit relates to a perceived match between disclosed CSR information and corporate identity. Corporate identity is derived from shared values and beliefs and comprises what is central, enduring and distinctive about the company. Corporate identity attributes can be detected by observing a company’s strategy, behaviour, rules, and structure. Desirable characteristics of corporate identity are a high-quality mentality, supreme products, financial stability, an excellent working environment, as well as a sensitivity for CSR aspects.

An effective corporate identity management can be connected with an improved corporate image in the short term and a better corporate reputation in the long term. The corporate image relates to the perception of expressed corporate identity and can be referred to as “various outbound communications channels deployed by organizations to communicate with customers and other constituencies”. This view allows managerial activities to significantly affect both, corporate identity and image. Corporate image is regarded as a direct consequence of corporate identity that the firm can control comprehensively. Accordingly, CSR disclosure is regarded a as  major determinant of corporate image. Companies defend with CSR disclosure by “providing a new face to the outside world while protecting the inner workings of the organization from external view”. Simultaneously, public scandals uncover unethical corporate activities. Consistently, increased CSR disclosure has a positive impact corporate reputation.

An interdependency between corporate identity and corporate strategy is important for CSR concepts. An “awareness approach” is necessary for the integration of CSR into corporate strategy. Here, CSR is part of the firm’s ethical, political and intrinsic convictions and a lack of credibility may never exist. Choosing CSR initiatives that address the entire organization as well as all dimensions of CSR is crucial. The adoption of CSR practices and values may lead to differentiating characteristics in the market. Following this business case approach, companies align their CSR activities to create a competitive advantage that may increase profits or create additional value for the companies. Alternatively, the resource based view of CSR suggests that companies engage in CSR in order to create positive internal and external benefits that enable a “more efficient use of resources”. Critics, however, argue that these purely economic approaches endanger the moral foundations of CSR and inhibit its proper implementation.

The establishment of a CSR-oriented corporate identity and culture are preconditions to achieve a reliable and trustworthy image and reputation, which, in turn, are highly affected by CSR disclosure. Consequently, the integration of CSR into the corporate identity is crucial for a successful CSR concept. Managers utilize corporate identity to give organizational members “some sense of purpose” that motivates them to achieve common goals. Corporate identity management enables the ability to express individuality, to manifest differentiating attributes, to set and express strategy as well as to communicate effectively. In most cases the alignment of corporate identity towards CSR requires the adoption of new values and beliefs as well as the definition of a new strategy and vision. Furthermore, the adoption of CSR principles requires most companies to revise or establish processes and structures.

Credibility is an important issue for CSR disclosure. Inconsistencies between the current status of CSR implementation and its communication have severe destructive consequences. Hence, if companies face difficulties in creating credibility for their CSR programs, those companies that dispose of high conformance would use it to create credibility through increased CSR disclosure. Accordingly, CSRoriented corporate identity is an important internal determinant of CSR disclosure.

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