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19-03-2020 | Original Paper | Issue 1/2021

Journal of Business Ethics 1/2021

Stakeholder Perceptions of Risk in Mandatory Corporate Responsibility Disclosure

Journal:
Journal of Business Ethics > Issue 1/2021
Authors:
Lisa Baudot, Zhongwei Huang, Dana Wallace
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Abstract

The extraction of natural resources is a controversial business practice that has profound ethical and economic risk implications for both firms involved in extractive activities and society at large. In response to these implications, the Dodd–Frank Act of 2010 directed the Securities and Exchange Commission (SEC) to create the first ever rules requiring annual corporate responsibility disclosures. The two proposed rules, requiring disclosure of the source of “conflict minerals” and of payments to foreign governments by extractive firms, conjured intense debate among stakeholders, largely related to the risks of firms providing (or not providing) the information. These risks span from required disclosures increasing compliance costs for firms to non-disclosure threatening human rights. In this study, we seek to understand the way in which stakeholders perceive the risks associated with corporate responsibility disclosures. We analyze comment letters submitted to the SEC related to the two disclosure rules through the lens of Douglas’s (Douglas, Risk acceptability according to the social sciences. London, Routledge and Kegan Paul, 1986) cultural perspectives of risk. We find consistencies across the two proposed disclosures with regard to the presence of three risk perspectives within the comment letter discourse for each proposal. We find inconsistencies, however, in the underlying nature of risk perceived across the two rules, which we argue reveals an aspect of risk that incorporates ethicality and is ultimately linked to reputational considerations. We complement these insights by analyzing the market reaction to the proposed regulations. Overall, our analysis suggests that stakeholders’ perceptions of risk have consequences for how risk is perceived and acted upon in the market.

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