Workshop 4 Activities (3115AFE)

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3115AFE

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May 9, 2024

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3115AFE Workshop 4 Activities PART 1 GENERAL QUESTIONS Accounting for corporate social responsibilities QUESTION 1: For each of the following theories, outline how we could use the theory to explain managements' motivations concerning their disclosure strategies: (a) Legitimacy theory (b) Stakeholder theory (ethical and managerial branches) Legitimacy theory indicates the relationship between society and a company to of which is linked to a social contract. This social contract provides that a company’s legitimacy is assured as long as the company’s actions are consistent with society’s values. A legitimacy gap can occur if there is a difference between society’s expectations and the corporate behaviour of the company. Management can take multiple steps to legitimise their strategies, which include adapting a company methods and goals to adapt to current definitions of legitimacy. Additionally, management can also attempt to alter the definition of social legitimacy to conform to the company’s current practices, through communication (Dowling and Pfeffer, 1975). Stakeholder theory can be broken down into two subcategories Normative (ethical) branch and Positive (managerial) branch. The Normative theory is largely concerned with the stakeholders of a company that can affect the firm and as well as who are affected by the firm. Whereas Positive theory is mainly concerned with the stakeholders who can affect the organisation. Management can use this theory concerning their disclosure strategies, as Stakeholder theory is used a strategy to manage the interests of stakeholders in order to benefit the company. QUESTION 2: Suppose you were undertaking a research project to investigate whether an adverse human rights event negatively affected the legitimacy of a company. How might you confirm an actual erosion of legitimacy has occurred? An adverse human rights event can significantly impact the legitimacy of a company in many ways. For example, if a news media outlet were to constantly publish only negative stories of about a company’s activities, then this would consequently impact the overall legitimacy of that company. This would show that there would be a significant difference the perceive behaviour of that certain company and what the community expects of that organisation. Therefore, this company would need to make changes or else the legitimacy gap will

continue to increase in respect to the negative conflict, resulting in the public support decreasing. Thus, if the contribution by the stakeholders have declined then this would be aligned with the position of legitimacy of the company has eroded. QUESTION 3: In 2020, many companies used the opportunity brought by COVID to close poor performing business units and retail outlets. One example was jeweller Michael Hill that will deliver higher profits in 2021, despite many store closures and staff lay-offs. At the same time, Solomon Lew's Premier Investments threatened to shut up to 350 of its 1040 Australasian stores and lay off staff if landlords did not agree to new, lower rent deals. Select a theory taught this week and use it to interpret these types of corporate behaviour. Legitimacy theory is a prime example of Michael Hills corporate behaviour with respects to a positive performance in despite to negative media outreaches. A legitimacy gap was apparent between society’s expectations and Michael Hills corporate behaviour. This was evident in several negative perspectives of Michael Hill, over the coverage of many store closures (around 10,000 trading days lost). Michael Hill implemented change in order to change these perspectives of society, with the reassurance that the company will deliver higher profits the following year. Evidently, Michael Hill increased digital sales by 23% and total sales by 7.1% in that year (Kelly, 2022). With Solomon Lew’s Premier Investments corporate behaviour, in threatening to close up to 1040 Australian stores if landlords did not accept the new rent deals throughout the Covid period, is an example of implementation of positive branch under the stakeholder theory. This is evident as Solomon Lew’s Premier Investments is a powerful stakeholder with ownership of many Australian companies such, Peter Alexander, Smiggle and Portmans. As this firm holds great power, they are able to manage and influence company decisions for the benefit of their organisation. QUESTION 4: Access the most recent ESG reporting for mining company, BHP. Do an internet search for ‘BHP sustainability reporting’ or follow the link here. Note the link may change if BHP change their website, but you should find their ESG and sustainability reporting in the front half of their annual report. 1. On their sustainability web page, BHP say that respecting human rights is core to their efforts to generate social value. However, BHP (and many mining companies) have very poor human rights records. Click on the ‘read more’ button and read the human rights sections of the sustainability report (in the annual report). Summarise (bullet

points is fine) how BHP will ensure they respect human rights. Do they provide concrete facts or measures, or is it just words? 2. Go to the start of the annual report and start scrolling. On what page of the annual report does BHP begin focussing on ESG? Do you think there is a lot on ESG in the first pages of the annual report or not very much? Do they provide concrete facts or measures, or is it just pictures and words? 3. What theory from this module do you think best explains BHP’s approach to ESG? Under BHP’s human rights policy, it states that the company follows the UN Guiding Principles on Business and Human Rights (UNGPs) and the 10 UN Global Compact Principles. BHP also states that they provide additional issue specific frameworks around human rights for their people, business partners, and other parties. However, a common theme with these mining companies is that there is a lack of explanation of the steps the company takes in order reach these goals and are usually expressed as broad statements. Notably this is reflected in the company’s low ESG score given and analysed by government agencies as seen on Bloomberg and Refinitiv workspace. From the annual report of BHP, the company starts to mention about their sustainability approach from page 31. However, on page 1 there was a brief sentence mentioning sustainability and putting health and safety first. Throughout the four pages on BHP sustainability, it is unclear in understanding the appropriate measures the company and board are taking in order to resolve certain issues, notably around climate change and environmental goals. The use of legitimacy theory best explains BHP’s approach in relation to their ESG principles, as the company states they are constantly thinking of their partnerships within the communities and their contribution to society and the environment.

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