SOCIAL DISCLOSURES IN ANNUAL REPORTS:


COMPARISON OF AUSTRALIAN MINING COMPANIES


 


Introduction


Social responsibility disclosures can include information relating to the organizational relations towards its physical and social environment particularly on the aspect of human resources, community involvement, natural environment, energy and public safety ( 1996).  Accordingly the director’s report (DR) remains to be one of the chief medium (p. 56) firms used to reflect their social responsibility performance.  With this, the two world’s largest mining companies (BHP Billiton Limited and Rio Tinto Limited) will be discussed based on their corporate social responsibility disclosures using their 2005 Annual Reports derived from their respective websites.  


 


BHP Billiton versus Rio Tinto


BHP Billiton placed their social disclosures after initially citing the developments in their main business operations primarily in closing, expanding and building new facilities globally ( 2005).  In this presentation, there are no explicit discussions of social implications that may result or have resulted from such activities.  For example, the closing of Boodarie Iron Plant in Western Australia state the cause generally like settlement of contracts, plant decommissioning, redundancy and other associated costs (2005).  However, its implications like downsizing are not elaborated even in the latter part of the DR.  In the contrary, the DR possessed a citation for the insurance of its directors, secretaries and some employees regarding the pending indemnity they owe to an external auditor as a result of them being in default in disclosing information which led to initial indemnities of such auditor against third parties (2005).  This statement have shown that BHP is willing not only to reflect its employee responsibilities, but more importantly, social awareness with the firm’s commitment to false, misleading and incomplete information.


 


In slight comparison, Rio Tinto’s DR is far shorter than BHP even if the total number of the former annual report is one-hundred pages greater.  The significant portion of business activities are not present in Rio and the director made explicit regarding the omissions of business strategies and prospects for the purpose of proprietary advantage (2005).  The Chairman’s note in the initial pages of the annual report also disclosed general information regarding social responsibility saying that the firm “tends to align their interests with those of the communities and environments” (2005).  This makes social implications of their past year activities difficult to perceive and relate to any suspicions from the outside users.  The firm had used legal provisions to mitigate the pressure for social disclosures.  However, in the other parts of the annual report, the firm cited social and environmental events like the death of two of its employees during work (2005) which redeem the lack of straightforwardness of its DR.        


 


            The mining industry is classifiable as a heavy-capital intensive industry which makes it prone to create vast social impacts.  Shareholders may be mainly concern with profits, dividends and growth, however, the industry is not only heavily regulated by Australian authorities but as well as NGOs and other stakeholders.  The inability of firms to disclose relevant and useful social information arising and had arisen from their activities could lead to boycott of their products, employee strike, hostile public lobbying and authoritative penalties.  This condition is codified in the contractual nature of the existence of corporations with the society also referred to as legitimacy theory ( 1996).  As such, shareholders wealth could impede even dissolve when these situations emerge and interfere in the day-to-day operations and prospects of an organization.  For the public in general, they can use social information to evaluate their satisfaction or annoyance on the practices of existing firms.  This can result to efficient and more rational decision-making which can take the form of efficient allocation of resources for the whole economy.  And even with insufficient and bound for “image building” disclosures, authorities can use them as motivation for more aggressive oversight functions and laws. 


 


            In direct comparison of BHP and Rio’s overall 2005 corporate social responsibility disclosure, the latter is more shareholder-oriented while the former is relatively socially-oriented.  This admonition does not completely impart BHP’s report as a UK and US recipient of awards on social disclosures (2005) because it is also recognizable that its 2005 annual report largely focused on internal management rather external concerns.  Probably due to its separate narration of sustainable development ( 2005), this stance happened which can serve as its loophole vis-à-vis Rio when referring evaluations based on annual report strictly.  Initially, the format of BHP’s report is more interesting and suited for layman’s reading than Rio as there it is shorter, has first-paged summary, two-paragraph style, whiter and colorful background and emphasized graphic presentations especially on performance graphs/ corporate images.


 


            Eighty out of one-hundred eighty four pages of Rio’s report is dedicated for financial disclosures from business performance while a mere twenty out of ninety two pages of BHP’s report is allocated for the same purpose (2005; 2005).  Aside from this observation, the shareholder-orientation of Rio is also seen when it introduced the “risks factors for shareholders” immediately after the chairman and CEO’s notes (2005).  On the other hand, BHP abruptly proceeded to have an overview of its business activities and environment by stratifying by stakeholders; namely, employees, customers, environment and shareholders (2005).  For its part, Rio stratified its corporate overview with historical accounts and gradual development cross time (2005).  This implies that Rio is more focus on giving name to its business in the eyes of shareholders while BHP on giving name in the eyes of the society as a whole because the latter defines its operations through different stakeholders.


 


            Lastly, the chairman’s report of Rio is relatively less objective, metaphoric and full of adjectival quotes than BHP.  For example, in quoting Rio’s chairman saying, “I believe Rio Tinto has become a leader in the industry (with regards to social responsibility)… we have some way to go” (2005) compared to the BHP’s chairman stating, “This year, we introduced sustainability report that highlights health, safety, community and environmental reports (HSCE) as commitment to socio-economic and ethical issues” (2005), it is discernable that Rio’s report is supported with less objective claims to create social image.  In a confirming fashion, the CEO report of Rio is more on internal relations with shareholders and employees while the opening statement of BHP is about the HSEC targets (2005; 2005). 


 


Conclusion


In concluding this, we will use the Chapter 8 of  “Financial Accounting Theory”.  Neither BHP nor Rio can exist when stakeholders will not support or provide sufficient resources for them to operate.  Legitimacy theory cited that organizations seek to ensure that they operate within the bounds of the society ( 2006).  Since the society is not static due to gradual improvements or alterations, they must be responsive enough to be able to undertake the process of legitimating their existence.  Due to this, social responsibilities reflected in annual reports are necessary to communicate such response in continuous manner.  This strategy is hence a requirement in order to maintain society’s perception that a certain firm is optimally addressing legitimating issues.  If not met, an organization may find it difficult to obtain support and resources for the society through legal restrictions and other extra-judicial punishment.


 


            The task is not simple as it may seem.  Disclosing social responsibility outcomes from the previous operating performance can be argued to be misleading, incorrect or insufficient by different stakeholders.  This is because not only those stakeholders have varying and sometime conflicting expectations but also social contract has its implicit demands (2006).  In view of this, organizations should not only cater to the informational needs of its direct customers and internal structures (who can easily air there expectations) but also to those part of the society like minority tribes, animals and environment (who are oftentimes discriminated and isolated). 


 


Thus, to prevent stakeholder sanctions especially from implicit demands, firms design their annual reports to include (or at least to relate) the effects of its activities to social and environmental systems.  This practice ultimately dissolves the traditional dogma that organizations operate for the purpose of gaining maximum profits (2006).  BHP’s completion of a separate review of its sustainable development report is an excellent example of an emerging concern towards long-term approach to a firm’s existence and growth prospects.


 


            Since the society allows the organization to exist to the extent that the latter meets the former expectations, legitimating activities also call for firms to adapt its internal structure and strategy based on social legitimacy confirmations (2006).  In alternative way, it can attempt to bend social legitimacy replacing by its own objectives.  This can be in the case of firms that tend to maximize their shareholders wealth to the point that social norms are partially bypassed.  For example, an oil firm accidentally spills its merchandize on a sea killing fishes and leading to the lost of income opportunities for fishermen.  It can minimize social punishments through an environmental report that clearly cited the effects of typhoon, human error, technical malfunction and purely accidental nature of the oil spill.  With this, it can create an honest and straightforward position which in the process can mitigate the supposedly applicable social legitimacy sanctions.


 



Credit:ivythesis.typepad.com


0 comments:

Post a Comment

 
Top