WRITE UP ON

CORPORATE SOCIAL DISCLOSURE

SUBMITTED BY:-

Shweta S Bhandari...….(005)
Neha Singh……….…….(004)
Amit Ponikar…………..(002)
Anuj Sagar……………..(014)

INTRODUCTION
Corporate social disclosure (CSD) gives information to the public regarding a company’s
activities that relate to the community. Examples are information on their commitments to
reducing hazardous impacts on the environment, to improving waste management, to showing
compliance with the Environmental Quality Regulation, to making efforts to protect their
employees and to other social issues affecting the public. A trend towards increasing levels of
disclosure has been observed. However, the levels of disclosures are still low.
CSD reporting companies may gain an edge in capital, labor, supplier and customer markets,
compared to their silent peers. Disclosure may enhance reputation specifically within CSD’s
themes for example an image of environmental responsibility and thus and improved access to
clients and buyers with "green" procurement policies. CSD helps to strengthen stakeholder
relations as reporting promotes corporate transparency and instills greater confidence and trust
among stakeholders. CSD is an additional channel for engaging stakeholders in dialogue, and
enables companies to identify and address key issues of concern to their stakeholders.

OBJECTIVES OF CSD

Managers are likely to disclose information if they think that it may reduce monitoring costs,
bonding costs and residual loss from dysfunctional decisions. Previous studies show that better
and more disclosure may reduce transaction costs such as brokerage fees. Other benefits include
lower cost of capital and increased share liquidity. It is also a general perception that the higher
the level of disclosure, the more transparent the company. This means that managements of
companies will be willing to be more accountable in the running of companies, which would be to
the benefit of the stakeholders

1. Classical view: According to which the only social responsibility of companies is that of
maximizing value for shareholders, and the socioeconomic view according to which CSR is part
of the responsibilities of a companies, as they go beyond the purely economic and legal
dimensions.

2. Legitimacy theory: It asserts that companies need a justification for their existence and
activities and therefore offers a framework for the societal role of business, guiding companies to
form themselves into responsible member of society. According to this perspective, CSD
represents a strategy to respond adequately to the expectations of society.
TYPES OF DISCLOSURES

1) Voluntary Social disclosures

Voluntary Social disclosures give information to the public regarding the company’s activities
that relates to the community. Many corporations voluntarily disclose ‘social’ information.
Voluntary CSD are textually-mediated disclosures and are relied upon by relevant publics as
representations of organisational activities, outputs and goals as generally these are not readily
observable. Largely, the format, content and detail of such disclosures are unregulated. These
disclosures may take the form of management discussion in annual reports, or separate
disclosure, such as a ‘stand-alone’ social, sustainability or environmental report.
2) Solicited Disclosures
Solicited disclosures are somewhat less complex for corporations. Organisations such as
NGOs, socially responsible (SRI) or ethical investment fund researchers, trade union
representatives, information intermediaries and other interested parties request social
information from corporations.
The sole distinguishing feature of solicited disclosures as opposed to traditional voluntary
CSD is the impetus to provide the information. The impetus for the traditional voluntary CSD
is from management, but for solicited disclosures the impetus is provided by a direct request
from the identified stakeholder(s). This makes the range of solicited disclosures very broad.
The primary decision of the corporation in this context is whether or not to comply with the
request.

DETERMINATS OF CSD
1. CSD over time
 Previous studies on developed countries have shown that CSD in annual reports has
increased over time in response to a number of factors. Some of the reasons may be
attributed to increases in legislation, risk, activities of pressure groups, ethical investors,
specific events, awards, economic activities, media interest, societal awareness, and
politics. There has also been greater emphasis on better disclosure and greater
transparency of information
2. Culture
Culture may be represented by perceptions of loyalty to an ethnic group in which the
group is a collection of people who share patterns of normative behaviour and embrace
notions of kinship and common origin, however mythical. It is important to acknowledge
that values may differ between groups even within a nation especially when various
groups choose to maintain their ethnic identity.
3. Corporate governance
Corporate governance may be broadly defined as the manner in which companies are
controlled and in which those responsible for the direction of companies are accountable
to the stakeholders of these companies. Governance takes account of all the interests that
affect the viability, competence and moral character of an enterprise.
Issues of governance include the legitimacy of corporate power, corporate accountability,
to whom and for what the corporation are responsible, and by what standards it is to be
governed and by whom. The CSD process can be seen as a strategy aimed at closing a
perceived legitimacy gap between management and shareholders (especially foreign
shareholders) via non-executive directors
4. Control variables (firm-specific characteristics)
i. Size
Previous studies have indicated a positive relationship between the extent of CSD and
company size. One explanation for the association is that large companies undertake more
activities and have greater impact on society. Larger companies are also subject to greater
scrutiny by various groups in society and therefore would be under greater pressure to
disclose their social activities to legitimize their business.

ii. Profitability
 Unlike size, the relationship between profitability and CSD is inconclusive. A possible
explanation for a positive association between CSD and profitability is that management
has the freedom and flexibility to undertake and reveal more extensive social
responsibility programmes to shareholders. Profitable companies disclose social
information to demonstrate their contribution to society’s well being to legitimize their
existence.
iii. Gearing
In a highly geared company, management needs to legitimize its actions to creditors as
well as shareholders. Highly geared companies disclose more information to assure
creditors that shareholders and management are less likely to bypass their covenant claims
as well as to meet some of the needs of lenders.
iv. Listing status
Stakeholders in foreign countries have diverse interests and power and may, therefore,
exert different pressures on companies. For example, in developing countries, there are
few consumer and interest groups that are powerful and articulate enough to put pressure
on companies to be socially responsible
v. Industry type
Companies tend to provide information that is in line with the peculiarities of their
industries. For instance, labor intensive industries such as manufacturing will choose to
disclose more information on employees compared to companies in the extractive and
chemical industries that are likely to disclose more environmental information to reflect
sensitivity to their particular problems. Similarly, consumer-oriented industries can be
expected to exhibit more social disclosure to enhance their corporate image among market
consumers, which in turn influences the amount of sales generated. Thus, the influence of
industry type on CSD practice depends on how critical the effects of their economic
activities impacts on society

THEMES OF CSD
Many studies that have been conducted have tried to investigate the themes that fall under the
definition of CSD. There were a number of particular issues that the companies see as important
and hence disclose them in the annual report. It was found that the environment, employment
opportunities, product safety, educational aid, donations, employee benefits and community
involvement were frequently mentioned areas. Researchers found that the highest disclosures
were by the human resource theme followed by the community involvement and environmental
theme.

A) Environment

The first theme is the environment which can be defined as those disclosures that explain the
company’s activities within the environment or as information about the environmental impact
and efforts in terms of their relationship with the reporting entity.
Example-
 Indications that the company’s operations are non-polluting or expressing compliance with
pollution laws and regulations (Environmental Quality Regulations 1989 etc.)
 Conducting regular monitoring and audit of all possible sources of pollution
 Implementation of environmental friendly techniques.

B) Energy
The second theme is the energy theme it includes disclosures that provide information on how
companies generate their energy source - specifically if their efforts conform to environmentally
friendly measures. This theme may have lower disclosures in its own right as there are many of
these disclosures that can be subsumed within the environment theme. However it does have
specific disclosure implications
Example- Disclosures which captures information such as-
 The efficient and prudent use of energy in the course of operation
 Recycling waste products to generate electricity
 Reporting on energy policies of the company
 Plans of companies relating to such issues as waste management

C) Human Resource
Human resource development plays a vital role in raising productivity and providing the
professional, management and technical skills needed for the growth of the company. The third
theme deals with human resource which includes matters affecting the employee and employee
health & safety, staff training etc.
Example- Disclosures of this theme include
 Providing training and development for human resources i.e. to acquire new skills for both
existing and new employees
 Information on hands-on training, seminars, conferences and courses to employees,
launching of streamlining exercise.

D) Product
This theme deals with product information statements. The efforts towards this result in the
expansion of product development and of education in derivatives.
Example-
 These includes statements such as whether products meet safety standards
 Achievement and commitment to ISO 9001/9002 award
 Environmental friendly use of products

E) Community Involvement
This theme involves disclosure relating to the community. The primary reason may sometimes be
to portray a good public image.
Example-
 These Disclosures deal with the community involvement which includes disclosures such as
cash donations, community outreach programs, building homes for the children and the
elderly etc.
NATURE OF DISCLOSURE

A) TYPE OF DISCLOSURE
The type of disclosure that is captured is classified into whether the disclosure is positive or
negative. Disclosures are made to protect the interest of the company without considering the
accuracy if the disclosure. Further previous studies also show that more disclosures were positive
in nature than negative.

• Positive disclosures -Positive disclosures generally present the company as operating in

harmony with the environment.
Example- A disclosures stating that the company is conducting training for their staff or that
new waste management policy are being undertaken.
• Negative disclosures- Negative disclosures present the company as operating to the detriment
of the natural environment.
Example- A Company stating in its disclosure an inability to control or reduce pollution or a
failure to solve a social problem.

B) LOCATION
The locations of the disclosures are also recorded. Information on location is significant in
conveying the relative importance of the disclosure. The location of the disclosure does show the
importance placed by the company on its choice of disclosure. The locations that were examined
were:
(a) The chairman’s report,
(b) The financial statements and notes to accounts,
(c) The directors’ report and
(d) The review of operations. The location of the disclosure indicates the importance placed by
the company on disclosures

From the viewpoint of the authors of the annual report and of many readers of the report, it seems
that CSD contained in the Chairman’s statement is likely to carry more weight than that contained
in the detailed notes to accounts.
C) QUANTITATIVE AND QUALITATIVE
Previous studies show that disclosures were mainly quantitative (monetary) or qualitative
(narrative). However, companies tended to make disclosures that were qualitative.
The quantitative disclosures were mainly disclosed under the human resource theme that was
related to retirement benefits and training for employees.

CSD IN INDIA- CASE OF WEST BENGAL

For the study, descriptive data has been collected from individual company’s annual report 2007-
08. At first, top 100 companies has been chosen from SEBI website, whose head office is in West
Bengal and sales volume is more than 200crores of rupees in the year 2007-08. Then, detailed
information regarding corporate social disclosure has been collected from companies’ annual
reports
In West Bengal, around 47% companies do not disclose social performance in their annual report.
Banking and Financial sector institutes, Hotels, Diversified companies, Automobile, Polymer,
Petroleum are the sectors where disclosure of corporate social performance is more or less zero.
Whereas, iron and steel industries, cement, FMCG, paper industries etc has been found better in
case of disclosure of corporate social disclosure.

Areas of corporate social performance in INDIA can be categorized in three groups [Chart 1].
1) Group A-where most of the companies concentrate. Environment, community welfare,
education and health care are under this group. 26% of the sample companies were found to
be worked in environmental issues. Similarly, 18% of the companies’ area of social work was
community welfare. In educational activities and health care activities, 15% of the companies
were involved (in each activity).
2) Group B- where moderate interest of corporate has been found. Rural development, Disaster
relief, Women’s empowerment, Water purification & supply and social development of girl
child are the areas under this group. 3% to 7% of the companies in the study have been found
to be involved in these types of activities.
3) Group C is most neglected area. Adult literacy, Sports, energy conservation and donation to
social activities are under this group. Only 1% of companies have been found to be involved
in each of the activities.

The following charts show the companies involved in community welfare activities and their
percentage contribution to some of the themes involved in CSD (according to their CSD
disclosures).
Findings
From the empirical analysis, the main findings were:
a) 47% of corps did not disclose their social performance.
b) In annual report, companies disclose only the performance area and activities, but they don’t
disclose their actual expenses.
c) Environment, community welfare, education and health care are the prominent areas of
corporate social performance and disclosure
d) Sports, energy conservation, adult literacy etc are the neglected sector.
e) Though the companies do not state actual expenses for social activities, but analyzing their
activities and areas, it can be taken for granted they spend less than .5% for corporate social
activities.

Conclusion
In present globalized economy, corporate social performance and its disclosure is a must. All the
global firms have started to spend a part of their profit for social welfare. But, in West Bengal, the
situation is not so good. Even more than 47% of the companies having head offices in West
Bengal don’t contribute towards social activities or disclose their activities in their annual report..