LIMITLESS

GROUP MEMBERS

1. Md. Abdullah Al Masum---------------------------------749

2. Ruhul Amin------------------------------------------------

-----759

3. Md. Kabir Hasan--------------------------------------------

-768

4. M.K. Jahid Shuvo-------------------------------------------

SYSTEM ORIENTED THEORIES

The entity is influenced by, and influences, the society in which it

operates

Focuses on the relationship between them

The

Organization

Interest

Groups

Investors

Industry

Bodies

Suppliers

Government

Media

Consumers

Employees

SYSTEM ORIENTED THEORIES

Sys

tem

Ori

en

ted

Th

eo

ry

Legitimacy Theory

Stakeholder Theory

Institutional Theory

Political Economy Theory

POLITICAL ECONOMY THEORY

• Political economy is ‘the social, political and economic framework within which human

life takes place.

Classical

Bourgeois

Political Economy Theory

Related to the works of Karl Marx Considers class interests, structural

conflict and inequity Accounting reports and

disclosures favoured the position of those who control scarce resources

Does not considers the Class interests

Concerned with interactions between groups in an essentially pluralistic world

Legitimacy Theory and Stakeholder Theory derive from this branch

LEGITIMACY THEORY

Operation within the bounds and norms of their respective societies.

Activities are perceived to be ‘legitimate’

Bounds and norms are not fixed so it requires the organisation to be responsive

SOCIAL CONTRACT

Corporations will meet the needs and demands of the society according to the way

society’s expectations.

Important issues to be addressed are-

Human

Environment &

Other social issues

HOW TO DETERMINE SOCIETY’S EXPECTATIONS

• To propose a relationship between corporate disclosure and community expectations

• To rely on the media, with the media being observed to shape community

expectations

LEGITIMACY GAP

• If the organization fails to fulfill the needs and demands of the society it will be difficult

to obtain the necessary support and resources to continue operations.

2 major sources of GAP

1. Societal expectations may change

2. When previously unknown information become known

ACTIONS TO MAINTAIN LEGITIMACY

• Adapt output, goals and methods of operation to conform to definitions of legitimacy

• Conforms with the organisation’s present practices

• Forecasting future changes

• Protecting past accomplishments

COMMUNICATION TO MAINTAIN LEGITIMACY

• Educate and inform the community about changes in performance and activities

• Change perceptions but not behaviour

• Manipulate perception by deflecting attention from the issue to other related issues

• Change external expectations

ROLE OF PUBLIC DISCLOSURE

• To implement each of their suggested strategies

• To provide information to the interested parties

• To draw attention to their strengths

• To appear consistent with social values and expectations

EXAMPLES OF EMPIRICAL STUDIES ON LEGITIMACY THEORY

Deegan and Rankin (1996)

used Legitimacy Theory to explain changes in annual report environmental disclosure

policies around proven environmental prosecutions

prosecuted firms disclosed significantly more environmental information in the year of

prosecution than any other year

prosecuted firms disclosed more information than non-prosecuted firms

STAKEHOLDER THEORY

• The stakeholder theory is a theory of organizational management and business ethics

that addresses morals and values in managing an organization.

Definition of Stakeholder

• Any identifiable group or individual who can affect the achievement of an

organisation’s objectives, or is affected by the achievement of an organisation’s

objectives

2 BRANCHES OF STAKEHOLDER THEORY

Stakeholder Theory

Ethical Branch

Managerial Branch

ETHICAL BRANCH OF STAKEHOLDER THEORY

• All stakeholders have the right to be treated fairly by an organisation

• Issues of stakeholder power are not directly relevant

• Management should manage the organisation for the benefit of all stakeholders

• Firm is a vehicle for coordinating stakeholder interests

• Management have a fiduciary relationship to all stakeholders

• Where interests conflict, business managed to attain optimal balance among them

• Each group merits consideration in its own right

• Management is bound to provide information, even if not used

RIGHT TO INFORMATION—ACCOUNTABILITY

• Accountability involves two responsibilities

– to undertake certain actions

– to provide an account of those actions

Reporting is assumed to be a responsibility rather than demand driven

MANAGERIAL BRANCH OF STAKEHOLDER THEORY

• Attempts to explain when corporate management will be likely to attend to the

expectations of particular (powerful) stakeholders

• More organisation-centred

– stakeholders identified by the organisation

– extent to which organisation believes relationship needs to be managed in interests of the

organisation

• Specifically considers the different stakeholder groups within society, and how they

should best be managed

• Expectations of stakeholders considered to impact on operating and disclosure policies

STAKEHOLDER POWER UNDER MANAGERIAL BRANCH

Stakeholder power is a function of the stakeholder’s degree of control over resources

required by the organisation.

• Organisation will not respond to all stakeholders equally, but to the most powerful

• Major role of management is to assess the importance of meeting stakeholder

demands so as to achieve strategic firm objectives

• Expectations and power relativities of various stakeholders change over time

• Organisation must continually adapt operating and disclosure strategies

ETHICAL VIEW VERSUS MANAGERIAL VIEW

• Management might either be ethically aware, or focused on the survival of the

organisation

• Management will arguably be driven by both ethical and performance considerations

EXAMPLES OF EMPIRICAL STUDIES

• Roberts (1992)

– found measures of stakeholder power and their related information needs can

provide some explanation of levels and types of corporate social disclosures

• Neu, Warsame and Pedwell (1998)

– firms more responsive (in terms of corporate environmental disclosure) to the

concerns of financial stakeholders and government regulators than to

environmentalists

INSTITUTIONAL THEORY

Institutional theory is a theory on the deeper and more resilient aspects of social structure.

• Provides an explanation about why organisations tend to take on similar characteristics

and form

• Particular organisational forms might be adopted in order to bring legitimacy to the

organisation

• Provides a complimentary perspective to both legitimacy theory and stakeholder

theory

• Links organisation practices to societal values

DIMENSIONS OF INSTITUTIONAL THEORY

Isomorphis

m

• Coercive

• Mimetic

• Normative

Decoupling

Institutional Theory

• Isomorphism

– refers to ‘a constraining process that forces one unit in a population to resemble

other units that face the same set of environmental conditions

• Decoupling

– Refers to the situation in which the formal organizational structure or practice is

separate and distinct from actual organizational practice.

PROCESSES OF ISOMORPHISM

Coercive isomorphism

Arises where organisations change their institutional practices because of

pressure from those stakeholders upon which the organisation is dependent

Mimetic isomorphism

Organisations often copy other organisation’s practices for competitive

advantage and to reduce uncertainty

Normative isomorphism

Pressures from ‘group norms’ to adopt particular institutional practices.

SUMMARY

• We can see that there is much overlap between the three theories just discussed

• Sometime a joint consideration of different theoretical perspectives can provide a

more holistic understanding of particular practices

ThanksEveryone…