To be accountable to stakeholders and society at large, businesses have increased the issuance of corporate social responsibility reports explaining the impact of their activities on the environment and the use of natural resources (Garcia-Sanchez et al.
2016). Earlier studies have explored the relationship between CSR and subsequent financial performance (Cochran and Wood
1984; Jitaree
2015; Sweeney
2009) or business attributes, such as size (Udayasankar
2008), business risk (Jo and Na
2012), and industry membership (Hull and Rothenberg
2008). In their landmark meta-analysis of CSR studies from 1972 to 2002, Margolis and Walsh (
2003) argued that in only about 15% of studies CSR was taken as a dependent variable. However, according to Luo and Bhattacharya (
2009) the question of the merits of CSR still lingers. Attention needs to be directed to the institutional mechanisms that result in the implementation of CSR (Doh and Guay
2006). Business response to accountability pressures from stakeholders is becoming even more convoluted. These pressures have been identified as being either coercive, normative, or mimetic. In responding to these pressures reporting on environmental, social, community and corporate governance has emerged as an important criterion for investment decision making (Eccles and Krzus
2010). However, disclosing CSR outcomes through various reports remains far from consistent, especially in the developing world.
Despite the vast literature on CSR, meanings, application and interpretation appears to differ from one context to another (Kang and Moon
2011). De Bakker et al. (
2005) identified relations between CSR and the broader literature on comparative capitalism and set the tone for comparative institutional research on CSR (as cited in Jackson and Apostolakou
2010; Matten and Moon
2008). For example, they posed the now famous question asking why CSR is an implicit element of the institutional framework of corporations in Europe, whereas it is an explicit element of corporate policies in the United States of America. Much of the research on CSR has been conducted in the developed world (North America & Europe) but interest is now growing in larger emerging countries (Aguinis and Glavas
2012; Karam and Jamali
2017). In addition, there is a clear scarcity on how CSR is understood, practiced and evaluated across different cultures (Diehl et al.
2016; Fifka
2013; Matten and Moon
2008). Therefore, we lack understanding of different national interests, viewpoints and identities. In other words, there is a paucity of understanding on how the responsibilities of companies and various actors are constructed in different institutional and national settings. In order to address this deficiency this study compares the CSR disclosure practices of a sample of listed companies in New Zealand with a comparable sample in Pakistan.
The regulatory environment in New Zealand does not prescribe social and environmental disclosure (Dobbs and van Staden
2016). Neither the Companies Act, 1993 nor the Financial Reporting Act, 1993 requires companies to include CSR-related information in their annual reports. Furthermore, there is no mention of CSR disclosures in corporate governance principles of either the New Zealand Stock Exchange or Securities Commission New Zealand. Blackmore (
2006) argued that traditionally New Zealand’s approach in reforming corporate governance has been led by the Financial Market Authority (FMA). New Zealand is not the only country that does not prescribe CSR disclosure. For example, in a comparative analysis of corporate governance in New Zealand, Australia and the United States of America Blackmore (
2006) observed that they have contended that these countries have near analogous capital markets and company law. Given that New Zealand and Pakistan also have near identical regulations, their foundations both being from British common law, the aim of this study is to conduct a comparative analysis of regulatory and institutional mechanisms that shape CSR disclosures in each jurisdiction.
Following the developed world, the Securities and Exchange Commission of Pakistan (SECP hereafter) introduced voluntary guidelines for corporate social responsibility practice and disclosure (Securities and Exchange Commission of Pakistan
2013). The CSR guidelines are provided in order to integrate decisions and operations of the business with responsible practices. As recently as November, 2017, the SECP issued the listed companies (Code of Corporate Governance Regulation, 2017) and provided additional policies regarding CSR. The regulation focuses on social, environmental and governance in addition to aligning health and safety aspects in business strategies that promotes sustainability. “This includes but is not limited to corporate social responsibility initiatives and other philanthropic activities, donations contributions to charities and other social causes” (Securities and Exchange Commission of Pakistan
2017, p. 5). The 2017 code requires the CEO of listed companies to publicly identify issues, such as the implementation of environmental, social, health, and safety practices for decisions by the company’s board of directors. However, due to the distortions in the economy market forces in Pakistan do not yet appear to punish unethical practices or reward good governance (Tahir et al.
2012), despite the development of the code and respective CSR guidelines. For example, the promotion of transparency and accountability in business is effectively discouraged due to the relatively large size of the undocumented economy. Previous studies have highlighted that there is weak corporate governance and infraction in Pakistan, however, the actual literature on CSR disclosures in Pakistan is scant. A small number of studies have focussed on CSR disclosures and there is a call for academic inquiry into the matter in developing countries (Ahmed Haji
2013; Belal and Momin
2009; Javaid Lone et al.
2016). This study therefore, contributes to the disclosures literature by explaining the difference of CSR discloses between a developing and a developed country. The study explores the institutional settings under which the regulatory and informal institutional environment have an influence on corporate social responsibility.
Corporate social responsibility disclosures
Margolis and Walsh (
2003) observed that businesses are increasingly considered to resolve societal problems. This is because organisations are facing numerous pressures from stakeholders in the contemporary business environment. Corporate social responsibility is an umbrella term for the relationship between business and society. Baumann-Pauly et al. (
2013) defined CSR as integration of environmental, social and ethical considerations into business conduct, often in line with the interests of stakeholders. The definition suggests that businesses not only operate for efficiency but also include accountability to stakeholders. CSR can then be used as a means of communication to a particular group of stakeholders by the businesses (Jitaree
2015). One of the key tools for communicating information to company stakeholders is through CSR reporting (Ahmed Haji
2013; Fifka
2013; Golob and Bartlett
2007; Xiaowei Rose et al.
2017). Various reasons behind CSR disclosures include, but are not limited to enhancing financial performance (Platonova et al.
2016; Qiu et al.
2016); strengthening company reputation (Birkey et al.,
2016; Unerman
2008); compliance with regulation (Birkey et al.,
2016); and, to gain legitimacy (Bachmann and Ingenhoff
2016; Chauvey et al.
2015).
Businesses use CSR reporting as a tool to inform different stakeholders about environmental, social and other related issues. The “public information model” explains the basic form of CSR reporting (Grunig
1989, p. 22). This model should provide information “to the public on what the organization has done to be responsible and should explain lapses into irresponsibility” (Grunig
1989, p. 48). Businesses then appear to use these reports as a tool through which to legitimise their activities (Hooghiemstra
2000). These reports can be mandatory or discretionary (van der Laan
2009). Those defending mandatory disclosures argue that disclosures should be regulated by the state and to get accurate information and to protect a nation’s citizens (Doane
2002). However, disclosures are only slowly gaining advocacy and largely remain in an underdeveloped form. At the heart of voluntary disclosure is the demand for information by a specific group of stakeholders (van der Laan
2009). Van der Laan (
2009) further argued that voluntary disclosure might involve a separate disclosures section, such as, stand-alone social sustainability or environmental disclosure or involve various management discussions and explanations.
Lenssen et al. (
2011) argued that the response of business to social pressure results in prestige and social acceptance. Accordingly, many countries have issued guidelines regarding CSR disclosures and good governance, for instance, the Combined Code in the United Kingdom; the OECD guidelines; the German Code; the Austrian Code; and, the Second King Report in South Africa. These recommendations and guidelines are attributed to have had a spectacular influence on the socially responsible behavior of businesss (Spitzeck
2009).
The idea that institutional pressures influence CSR disclosures is central to the current study. By focussing on two different institutional settings, the study looks to further unpack the different formal and informal institutional pressures that help to understand the reason behind disclosures. The CSR reporting issue is becoming more prevalent not only at national level but globally (Golob and Bartlett
2007; Tschopp and Huefner
2015). Research on CSR disclosures is dated from the late 1980s. Since then there has been a dramatic increase in research inquiries on the subject (see Hackston and Milne
1996). Most inquiries have focused on environmental disclosures rather than emerging social issues (Parker
2014). Additionally, the majority of the disclosure studies have been based in developed world and developing countries have received little attention (Fifka
2013) to date.
CSR reporting in Pakistan
One of the oldest civilisations in the world is in the Indus Valley (South Asia), dating back 5000 years, and now spread over what is today Pakistan. Pakistan is the 6th most populated country in the world with a population of approximately 200 million (Warriach
2017), with a total land area of 796,095 sq. km. As of 2017, Pakistan remains an economically weak country with a purchasing power parity (PPP) per capita of US$5100.
When it comes to research on CSR, South Asia has been the recipient of less attention than East Asia. Furthermore, CSR studies in South Asia are predominantly focussed on Bangladesh and India. Pakistan has received less attention from CSR studies in general and disclosure studies in particular (Ahmad
2006; Hassan et al.
2012). To date, the concept of CSR in Pakistan has largely been limited to discussions in the media (Waheed
2005), despite corporate governance reforms for listed companies by the SECP (Javid and Iqbal
2010). While it is commonly argued that Pakistani companies lag behind in CSR initiatives there companies that appear to be taking CSR seriously and actively contributing to society (Shahid
2012). The CSR practices of Pakistani companies are primarily oriented towards philanthropy (Ahmad
2006). Jabeen and Khan (
2008) contended that culture, religion and family traditions are the factors that compel both organisations and society to involve in charitable activity. The bulk of such donations go to the health and education sectors. Additionally, companies have started to engage in broader environmental, community and social issues. However, in an age of growing CSR and global awareness, corporate scandals exist in Pakistan commonly in the shape of exploitation of workers (Ashraf
2018), child labour (Delaney et al.
2016), and other corporate abuses. Multinational companies in Pakistan are now taking the lead in the implementation of CSR and have specialised departments to design and and publish on the role of their businesses in society in annual reports or one off sustainibility reports. Raza and Majid (
2016) argued that SMEs are largely unware of the idea of being socially responsible, however, some improvement has been noted. CSR activities in Pakistan, while prescribed are voluntary with respect to disclosure of corporate, labour, environment, and consumers protection. According to Ahmed and Ahmed (
2011) there is a lack of uniform laws compelling businesses to consider CSR and few industires have developed ethical principles and codes of conduct. There is, however, a general perception among businesses that CSR relates to philanthropy (Sajjad and Eweje
2014), and that CSR is not linked to the creation of shared value. As the majority of the population in Paksitan lives in rural areas (approximately 70%), CSR has the potential of creating diffrences in rural development, health care, community empowerment, education, awareness about rights and duties, perception of laws, entrepreneurship opportunities, ensuring transperancy, development of insfrastructure and enhancing business performance (Ahmed and Ahmed
2011).
Following these global traditions, voluntary guidelines for CSR have been issued by the SECP (SECP
2013). Javaid Lone et al. (
2016) noted that that these guidelines are directed at business in Pakistan with the aim to better motivate them towards socially responsible conduct. Furthermore, the guidelines recommend that businesses have a CSR policy incorporated by their board, reflected in the form of their commitment to reporting CSR-related activities. The SECP is now playing a pivotal role in promoting a culture of socially responsible business (Ahmad et al.
2015) because the presence of independent monitoring organisations and state regulation are likely to stimulate CSR-related activities (Campbell
2007). For example, Ahmed Haji (
2013) argued that the initiation of the Silver Book for Malaysian publicly owned companies resulted in a drastic increase in CSR disclosure in that jurisdiction. Similarly, Javaid Lone et al. (
2016) observed that companies disclosed more CSR related activities in Pakistan following the introduction of CSR guidelines. But the extent of these disclosures appears to vary considerably across industrial sectors.
CSR reporting in new Zealand
New Zealand is a geographically isolated developed country located in the South Pacific Ocean, its closest neighbour of significance being Australia (it is 2161 km from Sydney to Auckland). New Zealand is a small country, similar in size to either Great Britain and Japan, with a small population of 4.5 million. It has a fascinating history reflecting a unique mix of European and Maori culture. New Zealand has an open market that works on free-market principles. It is considered one of the most deregulated economies amongst the OECD (Kelsey
1995; Frame et al.
2003). Major exports include tourism, dairy products, logs and timber, lamb and beef.
Roper (
2004) argued that the political, social and economic history of New Zealand has significant effect on its response to social responsibility and sustainability issues. As recently as the 1990s CSR was not publicly considered (Roper
2004). CSR is still not a dominating phenomenon in New Zealand, however, it is now growing rapidly in the contemporary business environment (Eweje and Bentley
2006). Recently, major CSR practices in New Zealand have been centred around environment and social issues among others. Collins et al. (
2010) argued that businesses in New Zealand are more engaged in social practices than environmental sustainability practices. The most common social issue tackled was found to be provision of employees for time and money for charity, while the most common environmental-oriented practice was recycling by companies (Fernando
2013).
Environmental and social disclosure is not legislated within the current New Zealand reporting system (Dobbs and van Staden
2016). The Companies Act 1993 does not require companies to include information about corporate social responsibility in their annual reports nor does the Financial Reporting Act 1993 require the reporting of environmental and social activities (Hofstede et al.
2010; Ministry of Business Innovation and Employment
1993, p. 105). In addition, the New Zealand Stock Exchange (NZSE) has no requirement for CSR discloses by listed companies (Dobbs and van Staden
2016). Furthermore, neither the corporate governance principles of the Financial Market Authority nor the NZSE specifically covers CSR, although the principles implicitly embrace the concept of CSR. Reporting of CSR is, therefore, entirely voluntary in New Zealand. Many other countries that also make no specific CSR disclosures mandatory (Dobbs and van Staden
2016).
Businesses in New Zealand are observed to provide very few reports regarding specific social and environmental disclosures (Reddy et al.
2010). The KPMG survey of international CSR reporting identified only 27 of the top 100 listed companies in New Zealand disclosing information regarding CSR activity (Dobbs and van Staden
2016). The scarcity of consistent guidelines or regulations regarding the quality and structure of CSR disclosures have led those companies that do report on social and environmental activities to use a wide variety of tools, techniques and disclosures (Reddy et al.
2010). So while reporting is not mandated various tools and measures are being employed and reported upon in a manner anticipated by a free market.
Theoretical framework: Institutional theory
According to Berger and Luckmann (
1966) institutions refer to a certain exemplification where under a certain situation X, an actor Y, is expected to do Z. Alternatively, institutions are considered to be a habitual pattern of behavior which further enables or constrains people. Streeck and Thelen (
2005) contended that a specific way of doing things can be considered as institutionalised within a context to the extent that subsequent deviant behavior will result in loss of legitimacy, and likely result in social sanctions. According to Brammer et al. (
2012), this applies to both the formal and informal instructions in society. New institutional theory encompasses normative regulative and mimetic dimensions explaining why organisations become isomorphic within an organisational field over time (DiMaggio and Powell
1983). Therefore, one of the most important dimensions of institutional theory is isomorphism. The process of isomorphism refers to similarities or homogenisation (DiMaggio and Powell
1983). In line with this, they defined isomorphism as the forces that enable or constrain one organisation in an organisational field to resemble other organisations facing similar prevailing institutional conditions. Isomorphism can further be categorised into two components, institutional isomorphism on the one hand and competitive isomorphism on the other (Moll et al.
2006). Competitive isomorphism refers to “how competitive forces drive organizations towards adopting least-cost, efficient structures, and practices” (Moll et al.
2006, p. 187). Whereas according to DiMaggio and Powell (
1983), institutional isomorphism was further broken down into three sub- categories, coercive isomorphism, normative isomorphism, and mimetic isomorphism. Each of the three sub-categories of institutional isomorphism are now discussed.
Coercive isomorphism relates to external factors, such as government regulations and shareholders’ and employees’ influence. Such pressures arise because of powerful actors, such as government regulation or industry self-regulation to change organisational institutional practices, for example, CSR (Deegan and Unerman
2009). Because of the sector-wide impacts of coercive isomorphic organisational responses have a tendency to converge over time.
The second type of isomorphism is mimetic. Mimetic isomorphism occurs when organisations trying to copy or emulate the practices of other organisations to gain a competitive advantage in the form of legitimacy. DiMaggio and Powell (
1983) discovered that one of the powerful factors that emerge with mimetic isomorphism is uncertainty. Organisations will risk legitimacy if they fail to follow procedures adopted by other organisations or adopt innovative practices within the same institutional field (Unerman and Bennett
2004). Therefore, organisations adopt CSR practices in order to enhance and maintain their legitimacy, especially legitimacy relative to their competitors.
The last type of isomorphism is normative isomorphism which emerges from the common values underpinning specific institutional practices. Deegan and Unerman (
2009) contended that a form of normative isomorphism occurs when there is a professional expectation, such as that to which accountants comply with accounting standards while producing accounting reports. Similarly, a voluntary CSR initiative may also be considered a form of normative isomorphism as it is increasingly adopted over time.
Irrespective of organisational efficiency or actual usefulness of the specific isomorphism, these processes lead organisations to adopt similar management practices and structures within their industry over time (Carpenter and Feroz
2001). In line with this, Carpenter and Feroz (
2001) argued that organisations will respond to pressures from the institutional environment adopting the various forms that are regarded appropriate. Therefore, institutional theory locates corporate social responsibility within a broad area of economic governance comprising various modes, such as state regulation, the market, and beyond (Brammer et al.
2012). Institutional theory provides an important and powerful oversight from which to understand the attitudes and practices in a specific context (DiMaggio and Powell
1991). Kang and Moon (
2011) argued that the institutional context of an individual country determines what business conducts means to those organisations operating in that context. From this position Matten and Moon (
2008) in their landmark contribution on implicit and explicit CSR illustrated the difference between the United States of America and Europe, where CSR was found to be an implicit element of the institutional framework of corporations in the Europe but an explicit element of corporate policies in America.
Brammer et al. (
2012) argued that research adopting the lens of institutional theory to explain business responsibilities has been focused on the diversity of CSR and the dynamics of CSR. Their observation concurs with the two conspicuous schools of thought in institutional theory:
“New institutionalists tend to emphasize the global diffusion of practices and the adoption of these by organizations, but pay little attention to how such practices are interpreted or ‘translated’ as they travel around the world […]. The business systems approach highlights how business continues to be influenced by the national institutional frameworks in which it is embedded, but tends to play down the effects of transnational developments on national patterns of economic organization”. (Tempel and Walgenbach
2007, p. 2)
The diversity perspective in institutional theory has been employed in CSR research to explain cross-national differences in CSR practices (Gjølberg
2009; Jackson and Apostolakou
2010). A comparative view on CSR helps understand the country specific meanings of CSR as a management function. CSR as a US concept (Carroll
2008), can hardly be understood without understanding the institutional environment under which the idea was considered. In line with this, Doh and Guay (
2006) argued that the institutional framework of businesses in a particular country determines what it means to be socially responsible. This institutional environment is not only limited to the formal institutions, such as laws, trade unions and civil society among others but also involves the informal institutions, such as religious norms, culture, tribal traditions or customary norms (Brammer et al.
2012). However, these analyses have rarely transcended to the comparison of responsibility practices in developing countries with that of developed countries.
In addition to diversity, the dynamics of the concept and its applications have changed and research in the area has recently gained momentum. Dynamics refers to the ways in which CSR has diffused from Western systems of capitalism to other countries through imitation and adaptation (Brammer et al.
2012). The formidable lens of institutional theory appears to help understanding how and why CSR has different forms in different contexts. In addition, to the country-specific understanding of CSR, institutional theory also helps explain why the concept is now an integral to businesses in almost every country in the world (Visser and Tolhurst
2010).
Corporate regulation
The corporate regulation landscape comprises various a range of regulatory systems. The prominent systems amongst these are statutory regulation, co-regulation, and self-regulation. Statutory regulation refers to necessary rules, monitoring compliance and enforcement of these actions by imposing sanctions (Rahim
2013). Palzer and Scheuer (
2003, p. 27) noted that the implementation of these rules is the responsibility of government. By contrast, Black (
1996, p. 27) defined self-regulation as “the situation of a group of persons or bodies, acting together, performing a regulatory function in respect of themselves and others who accept their authority”. With self-regulation, private parties, such as the industries, the business itself, providers, and producers among others take responsibility for implementation. In the case of self-regulation governments do not normally interfere and private parties monitor compliance (Rahim
2013). In line with this, Palzer and Scheuer (
2003) highlighted that self-regulation may take the form of qualitative or technical standards potentially associated with a code of conduct describing what is good and bad practice. These codes may involve rules on the structure of the relevant complaints bodies and on out-of-court mediation. Finally, co-regulation has been defined as an intermediate interaction between government and businesses (Palzer and Scheuer
2003). A co-regulatory system combines the elements of both self-regulation and statutory regulation (Nakpodia et al.
2016). Depending on the actual combination of statutory regulation and self-regulation elements, co-regulation can take different forms of regulatory strategy (Rahim
2013). Government lays down the legal basis to start the functioning of the system, businesses then formulate rules which depict its functioning (Rahim
2013). All these types of regulations have different effects on the CSR practices, especially listed companies that are required to maintain regular disclosures of performance.
Issues understanding the relationship between state regulation and self-regulation have emerged. According to Baldwin (
2004), the rise of the modern regulatory state occurred in the second half of the twentieth Century in the United Kingdom following a noted increase in punitive regulation and the subsequent decline in traditional forms of self-regulation. However, this trend has not been the only way for regulatory change to emerge. Hutter (
2001) argued that in some areas there has been a move towards self-regulation in areas, such as health and safety. By contrast, in areas, such as a wide range of industrial, economic, financial, legal, health, culture, education and sports state regulation is increasingly evident (Bartle and Vass
2007). Therefore, there is now an on-going debate as to whether self-regulation or state regulation is the best governance mechanism for CSR practices.