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Legitimacy Theory and Environmental Practices: Short Notes …

- - - - Lindblom (1994) - points out that there is one way that companies can maintain or regain their legitimacy in the eyes of society is to disclose information about their social and environmental performance.
      - Deegan and Gordon (1996) - review annual report corporate environmental disclosure made by Australian companies across the years from 1980 to 1990. The authors investigated the objectives of corporate environmental disclosure practices. The results of the study indicated that the increase of the Australian corporate environmental disclosures is over whelmingly self-laudatory.
      - Patten (1992) - utilizes legitimacy theory to evaluate the effect of the Exxon Valdez Oil spill on the report environmental disclosure practices of in the annual report of North American petroleum firms. The author observed a significant increase in disclosures after the disaster. The results of the study support legitimacy theory, in that where a threat to the legitimacy of the company was evident the industry members sought to address this threat by increasing environmental disclosure to retain legitimacy.
      - Buhr (1998) - utilizes both legitimacy theory and political economy theory to explain corporate environmental disclosures by using an in-depth case study and historical overview of Falconbridge Company. The empirical results suggest that legitimacy theory offers a better explanation than political economy theory to explain why companies perform corporate environmental and social disclosures. The study concludes that social responsibility disclosure is provided in response to external social and economic events.
      - Buhr (1998) - utilizes both legitimacy theory and political economy theory to explain corporate environmental disclosures by using an in-depth case study and historical overview of Falconbridge Company. The empirical results suggest that legitimacy theory offers a better explanation than political economy theory to explain why companies perform corporate environmental and social disclosures. The study concludes that social responsibility disclosure is provided in response to external social and economic events.
      - Neu et.al., (1998) - consider the influence of external pressure on environmental disclosures in annual reports, including the amount and types of strategies used in disclosure, the characteristics of environmental disclosure and the association between environmental disclosures and actual performance by utilizing the notion of organizational legitimacy.
- - - - A hypothesis can be tested by comparing it with observed phenomena. If the hypothesis is consistent with the phenomena, the hypothesis is confirmed (Hendriksen, 1982; Watts and Zimmerman, 1986).
        
        The hypotheses can be suggested as follows:
        
        Impact on the public’s perception
        
        A company’s ultimate survival may depend on developing and maintaining a recognisable image and favourable reputation.
        
        Corporate disclosure represents a strategy to alter the public’s perception about companies’ legitimacy
        
        Focusing on strong points (favourable information)
        
        Companies are reluctant to provide any information within their annual reports about any negative environmental implications of their operations.
        
        Corporate image may impact on existing companies and their financial position.
        
        Self-protection
        
        Companies publicise their social and environmental responsibility towards society to legitimize their operations, as a means of self-protection.
        
        This protection helps a company to emphasise survival, to avoid regulatory actions against it, to create a positive image or reputation, and to gain competitive advantages.
        
        A company’s survival
        
        Legitimacy theory hypothesises that a company’s survival depends on obtaining and maintaining social approval.
        
        A company should accept accountability for the social and environmental implications of its operations.
    - - Empirical testing of the hypotheses is beyond of this study, testing hypotheses here is based on comparing previous hypotheses with observed results from existing studies in the paper to recognise whether the hypotheses are confirmed, then it can be concluded principles of legitimacy theory.
    - - The objectives of this theory can be identified as describe the relationships between a company and the community; explain companies’ motivations for social and environmental disclosures; present how companies can use legitimacy strategies; determine the impacts of social and environmental disclosures on the public and society. Legitimacy theory may help in predicting management’s responses to particular events or crisis.
    - - Self-laudatory claims
        
        Tilt (1994) investigated the potential influence of pressure groups on corporate social disclosure. The author found that lobby groups were users of corporate social disclosure and annual reports were the most commonly used medium for corporate social information.
        
        Epstein and Freedman (1994) conducted a survey to determine whether individual investors need social information and the nature of this information. The authors found that 82 % of the investors wanted to see environmental and social disclosure included in the annual report such as, product safety quality and environmental activities.
        
        Corporate social and environmental reports are the most effective way to improve the image or reputation of a company by making self-laudatory claims.
      - The benefit
        
        Deegan (2002) indicates that companies’ motivations for environmental disclosure might include; the desire to comply with legal requirements.
        
        Business opportunities arise from good environmental practice. These include the marketing benefits arising from reputation for environmental protection. Companies bear their social and environmental responsibility towards society to get these benefits arising from a clean public image. Companies use environmental and social reports to communicate favourable information about their activities to the public
    - - This framework aims to explain why companies may engage in particular social and environmental disclosures, and how they do that, as well as, what impact environmental disclosure has on the public and community.