Post-Food Scandal Disclosures to Ensure the Food
Safety: Symbolic or Action?
Student Name: Dan Yi Student Number: 10827315 Date: 22 June 2015
Word count: 18310
Supervisor: Georgios Georgakopoulos
MSc Accountancy & Control, specialization Control
Faculty of Economics and Business, University of Amsterdam
Statement of Originality
This document is written by Dan Yi who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of Contents
Post-Food Scandal Disclosures to Ensure the Food Safety: Symbolic or Action? ... 0
Abstract ... 1
1. Introduction ... 2
1.1 Fields of study ... 2
1.2 Research Objective ... 4
1.3 Motivation ... 5
1.4 Research Questions ... 6
1.5 The structure of the thesis ... 8
2. Background ... 8
2.1 Food Safety and Food Scandal ... 8
2.2 Corporate Social Responsibility (CSR) in China ... 11
2.3 Governmental influence on the CSR ... 15
3. Literature Review ... 18
3.1 Legitimacy Theory ... 18
3.1.1 Typology of Legitimacy ... 20
3.1.2 Legitimacy Management ... 22
3.2 Stakeholder Theory ... 25
3.2.1 The Managerial Branch of the Stakeholder Theory ... 26
3.3. The Relationship Between Legitimacy Theory and Stakeholder Theory ... 27
4. Method ... 28
4.1 Sample Selection ... 28
4.2 Research Method ... 30
5. Findings and discussions ... 38
5.1. Utilizing CSR Disclosure to Retain Legitimacy From the Government ... 38
5.2. Symbolic or Behavioral ... 43
5.3. Reducing The Negative Effect of Food Scandals ... 49
5.4. Implication ... 54
6. Conclusion ... 57
6.1 Summary ... 57
6.2 Contributions ... 59
6.3 Limitations and Possibilities for Further Research ... 60
Reference ... 62
Appendix ... 73
Appendix 1 CSR topics in Food and Beverage sector in CASS-‐CSR2.0 (2011) ... 73
Appendix 2 CSR topics in Retail Sector in CASS-‐CSR2.0 (2011) ... 74
Appendix 4: Linear-‐analysis for food-‐safety disclosure trend in CSR disclosures of Walmart (China), 2010-‐2013... 78
Appendix 5 Whale Curve ... 79
Appendix 6 Results from Questionnaire ... 80
Abstract
Purpose – Food safety issues in China are among the most urgent concerns facing society and key issues of corporate response as the high frequency of food scandals. The purpose of this dissertation is to assess how Chinese food corporation response to the food scandals through disclosures. Adopting legitimacy perspective, the vital aim is to evaluate strategies in Chinese food companies after exposure to food scandals.
Design/Methodology/Approach – Content analysis of the CSR disclosures in Walmart (China) is utilized to evaluate the strategies to repair legitimacy in post-‐scandal period. The strategies type, action or symbolic, and the use of attention-‐attracting device are reported in the official CSR report and published CSR e-‐books.
Findings – While CSR disclosures analyzed appear to be taking encouraging actions, the strategies design is grounded on the moral legitimacy approach. Further, the legitimacy strategy mainly focus on being supportive by the Chinese government while ignore customers’ requirements.
Implications – Such type of CSR strategies mentioned above misleads food sector in post-‐scandal period, and cannot benefit in the long run. Further, the high responds to the government call have resulted in urgency to consummate the CSR rules and regulations.
Keywords: CSR disclosure, Legitimation, Stakeholders, China, food safety.
1. Introduction
1.1 Fields of study
A wide range of actual and potential accounts of interaction between organizations and society has resulted from the development of social and environmental accounting and reporting (Gray, 2010). Such accounting is ‘an approach to reporting a company’s activities which stresses the need for the identification of socially relevant behavior, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques’ (Crowther, 2000). Bebbington et al. (2008) termed ‘corporate social responsibility (CSR hereafter) reporting’ as the linkage between reporting function and organization operations that are interconnected with CSR domain, and Noronha et al. (2012) clarified social accounting is a vehicle to report on CSR and communicate with stakeholder groups. In this sense, the socially responsible activities of the business become noteworthy.
While there is a hope that disclosures serve as an accountability tool (Gray et al., 1996), there are a number of studies (Guthrie and Parker, 1989; Buchell et al., 1980) that tend to be critical of current accounting and reporting techniques. As Guthrie and Parker (1989, pp.344)) pointed out that ‘corporate social disclosure may be conceived as reacting to the environment where they are employed to legitimize corporate actions’, legitimacy theory stands at the heart of studies in the field of CSR from management disclosure perspectives. Lindblom (1994) and Dowling and Pfeffer (1975) extended the legitimacy theory and identified four kinds of legitimacy strategies1 that can be used through public disclosure to legitimate the existence of corporation. Grey et al., (1995) performed a review of UK corporate social and
1 Legitimacy strategies: (1). Seek to inform the ‘relevant public’ about the actual change; (2). Seek to change
perceptions that ‘relevant public’ have of the organization’s performance and activities – but not change the organization’s actual behavior; (3). Seek to manipulate perception by deflecting attention from the issues of concern onto other related issues; (4). Seek to change external expectation of its performance.
environmental disclosure, demonstrating that the environmental disclosures reviewed accord closely with Lindblom (1994)’s legitimation strategies. Deegan et al (2000) utilized legitimacy theory, identifying that companies did appear to alter the disclosure policies around the time of major company- and industry-related social events. Further, because the assertion that ‘organization is perceived as part of a boarder social system’ is conceptualized by both legitimacy theory and stakeholder theory (Deegan, 2002, pp.295), so that in consideration of many overlapping perspectives2 with legitimacy (Gray, et al., 1995), stakeholder theory should also be included to offer an integrated explanation of management actions (Deegan, 2002). CSR associated to the organizational activities is one of the most prominent trends of the last decades (Kong, 2012). KPMG continually paid attention to the growth rate of CSR report, documenting that ‘the N100 global average reporting rate has increased from 64 percent in 2011 to 71 percent in 2013’ (KPMG Corporate Responsibility Reporting 2013, pp.20).
Besides, food safety issues have become a popular and significant concern over the world. As food safety is a threatening of disease and even death to customers, public concerns with issues related to environmental management and stewardship require food organizations to manage their business to produce the overall positive impact on the society (Ko, 2010). Consistent with the target of ensuring food safety, CSR in the food sectors in particularly important due to its wide range of potential effects (Kong, 2012). Specifically in the area of food safety problems, which are always accompanied with food scandals, the reputation the organizations built is more or less destroyed. In this way, the analysis of food scandal and food safety issues cannot be separated from that of CSR strategies and policies in the food sector (Zhang et al, 2015).
2 Deegan (2002): Both theories conceptualize the organization as part of a boarder social system wherein the organization impacts and is impacted by other groups within society and both theories are deemed to provide a fuller explanation of management’s actions.
1.2 Research Objective
This dissertation seeks to extend prior applications of legitimacy theory and stakeholder theory to the examination of CSR disclosure in food sector by focusing on a single food company.
Food corporations are perceived to respond to the concerns of food safety issues. The responses are not only for the business perspective, but also to gain the legitimation, and meet the stakeholders’ expectations, which in turn benefits the firm in the long run (Zhang et al., 2015). Food safety should be the key reporting topic in food corporations (Noronha et al., 2012). A large number of food companies (i.e.TsingTao Beer；ShineWay Group；Sanquan Foods Co.,Ltd) have disclosed their actions through CSR reporting approach. Furthermore, a large number of academic studies (Wang et al., 2008, Broughton & Walker 2010, Pei et al., 2011) have focused on the field of the relationship between the CSR and food organizations. Moreover, previous studies have examined the role of the government to indicate that government can impose influences on the CSR report through different ways (Fox et al., 2002; Lepoutre et al., 2004; Nidasio, 2004). Besides, empirical studies have implicated that the companies do have the ability to build CSR into their organizational strategies and to achieve their ultimate goal successfully (Galbreath, 2009). However, as pointed by Belal and Owen (2007), and Belal and Momin (2009), most prior studies in terms of CSR are based on the developed nations and there is a lack in articles concentrating on CSR in China. Given the relatively novel nature of Chinese CSR, it encountered the difficulties for research on this topic (Noronha et al., 2012). Therefore, the thesis will investigate the legitimacy strategies in Chinese food companies after exposure to food scandals.
This thesis focuses on the Walmart (China) food scandals, as the scandals pose a significant food risks in China (Business News3, 2014) and which is yet to be empirically examined from the CSR perspective.
1.3 Motivation
The motivation for investigating the legitimacy strategies in terms of CSR approach in Chinese food companies after exposing to food scandals is three fold: (1) personal, (2) practical, (3) theoretical.
Initially, the personal motivation is a desire to add to discussion on the need of company responsibility on food safety in China. The food industries in China are often criticized of using fertilizers and pesticides (Yan, 2012). Chinese society has arguably been influenced most by food-safety scares over the world and the incidents of food contamination and poisoning have been released for succession for two decades (Zou, 2011). Therefore, there is a demand for companies participating in food sector to change their behavior. Food safety issues should be connected to CSR due to the benefits4 CSR possessed (Kong, 2012). Further, CSR disclosure may be a tool of reacting to the environment in which corporations are legitimized (Guthrie and Parker, 1989), and legitimacy repair represents a reactive response to an unforeseen crisis (Suchman, 1995). Thus, I believe legitimacy can be the way to connect the CSR disclosure and food scandals.
The continuous motivation is to shed light upon the understanding of the dilemma between businesses’ economic and ethical responsibility. Both the legitimacy theory and stakeholder theory together aim at promoting firms to act in the light of code of conduct in the society and different powerful stakeholders groups (Gray et al., 1995;
3 Source：http://www.reuters.com/article/2014/01/02/us-‐walmart-‐china-‐idUSBREA0103O20140102 [Jan
2, 2013].
4 Kong (2012, pp. 331): ‘… when facing shock, the firms’ CSR levels significantly mitigate the negative
investors’ responses in the food industry; … investors take food companies’ CSR activities ad important factors in their investment decisions.’
Deegan, 2002). Therefore, the practical motivation to discuss the companies reacting to the wider social expectation is reasonable.
The last motivation stems from Oliver (1991) in which stated the multiplicity of legitimacy dynamics creates opportunities for managers to maneuver strategically within their environment. Suchman (1995, pp.602) required that ‘researchers studying legitimacy should clearly identify which aspects they have in mind – pragmatism, morality, or cognition; acquisition, maintenance, or repair’, and Lindblom (1994) identified ways for corporations to implement the legitimacy process to acquire, maintain and repair the legitimation. Besides, O’Dwyer (2002, pp.418) documents that CSR disclosure employed by firms to manage the perceived threats or repair apparent damages caused by them. As food scandals signal the threats for food corporations, I wish to add to debates on legitimacy and CSR actions relative to food scandals.
1.4 Research Questions
CSR is the key element of business strategy. In the words of the Economist (2008), it is ‘just good business’. Government plays a critical role in making corporations in food sectors behave in a social responsible way (Dellios et al., 2009). Governments are generally considered as the most important and powerful stakeholders of businesses. Chinese governments and the Communist Party are considered to have the highest impact on the operations of foreign companies (Holtbrugge and Berg, 2004), and recently, Chinese government has started to pay more and more attention on food safety issues (Zhang, 2005). Taken the stakeholder theory5 (Friedman and Miles, 2002) into consideration, it is reasonable for Chinese food companies to respond to the Chinese government CSR requirement to pursue their own interest, as Huang et al. (2007) pointed out that if the food companies can get more cognitive and contracts by the government, they will get more competitive advantages in marketing products,
5 Friedman and Miles (2002): the greater the importance to the organization of respective stakeholder’s
resource, the greater the possibility that the respective stakeholder’s expectation will be incorporated within the organization’s operations.
and therefore they will be more interested and cooperative. In this context, the first research question is:
What kind of strategies in terms of CSR after the food scandal in order to retain the government legitimacy.
The increasing social concern about food safety (Zhang, 2005; Zhang et al., 2015) is likely to provoke the disclosure response, so that food companies can signal that they are operating in accordance to social contract. However, disclosure response employed can either create a positive impression of firm’s activities without actually taking material changes or transfer information on the real operations that are close to the social expectation (Kim et al., 2012). Thus, the disclosure can be either symbolic or behavioral (Hrasky, 2012). In this sense, the second research question is:
Whether the disclosed information is reflective of firms taking material activities to increase food safety or firms creating images that indicate improvement on food safety issues. This question is more close to the food safety issue.
Deegan et al., (2002) undertook a study to examine the social and environmental issues on the disclosures, and found a positive relationship between media attention for these issues and volume of disclosure for them. Further, another study reveals that ‘social disclosures are a useful device to reduce the effects upon a corporation of events that are perceived to be unfavorable to corporation’s image’ (Deegan et al., 2000, pp.127). As indicated in legitimacy theory, firms can take action to retain the legitimation through disclosure to the public (Lindblom, 1994; Dowling and Pfeffer, 1975). In this context, food scandals of food companies announced by the social media create a negative image among the public, and therefore threaten the ‘licsence to operate’. Thus, the last research question is
How did the food organization do to reduce the negative effect of food scandal and retain the legitimation from the society through CSR approach.
1.5 The structure of the thesis
The next section outlines the background of food safety and food scandals, as well as the CSR state in China. First, it documents the general situation of food safety and the driving force behind the increasing concern about food safety issues. Then various food scandals in China are presented for consideration. Third, it presents the current situation of CSR in China and Chinese government influence on CSR report.
The third section provides the theoretical base applied in the study. It documents the perspective when examining CSR disclosure as well as introduction to the legitimacy theory and stakeholder theory.
The forth section presents the methodology used in this paper. First, it gives the explanation of the sample selected. Second, it presents previous literatures regarding the methodology. Finally, it discusses the research method that is grounded on the methodology.
The following section provides findings of the case study. The CSR disclosures of selected company are analyzed based on the viewpoint of legitimacy theory and stakeholder theory. Besides, further discussions for the purpose of disclosures also depend on the two theories.
The last section is the conclusion of this thesis. It summarizes issues found and discussed previously. In addition, it provides the shortcomings of this paper and possibilities of future studies.
2. Background
2.1 Food Safety and Food Scandal
society, as the illness and even death are reported in the related food scandals in both developed and developing countries (Smith & Riethmuller, 1999). A growth of 30% in the number of people get the foodborne disease in the developed countries each year, reported by The world Health Organization (2007). More importantly, the productivity loss bound with the illness and death, as well as the non-confidence of consumers within the society, has become the barrier of economic growth (Smith and Riethmuller, 2000).
Riethmuller and Morison (1999) have distinguished 3 aspects to explain the sharp increases among the public concern of food scandals and safety problems. First, as the trend of eating outside, people tend to pay growing attention to the quality and hygiene of food. Second, supermarkets and food retailers started to provide ‘ready-to-eat’ and prepared food, which places a greater emphasis on the retailer to adhere to hygienic standards. Last, the non-barrier in the swift growing international trade in the contemporary society has become another explanation of why food safety becomes a more and more important issue. That is to say, the developing countries have accused that the developed nations, in the name of food scandals, actually protect their domestic food companies and industries, which sets barriers to the free international trade.
In China, the food industry developed very fast with the economic and population growth over the past forty years (Zhang et al., 2015). Unsurprisingly, this rapid developing is accompanied with the food safety issues, which initially emerged as a trade issue in the early 21st century and becomes a significant topic right now (Wang et al., 2008). Researchers in China have showed their enthusiasm in food safety problems. Zhang (2005) conducted a research in Tianjin, a large Chinese city, to get insight into how Chinese view the food safety issues, indicating that Chinese people have high concerns about the food safety, especially in vegetable and dairy products. It was highlighted in the same study that educated people are willing to pay premium in genetically modified food after knowing its benefit. Wang et al. (2008) surveyed consumers in Beijing to reveal the willingness to pay extra money for milk products
certificated by Hazard Analysis Critical Control Point (HACCP) management. After understanding the HACCP system is to reduce the food safety risks, nearly all respondents showed their willingness to pay premium to HACCP-insurance products. Another study (Kim, 2012) aimed to find how consumers view the quality of the food risk management and the driven force behind it demonstrates that the perceived expertise of food managers is the most important factor for Chinese consumers, and how the food risks are assessed ranked as the second important element.
The ‘tainted milk’ scandal broke out on September 11, 2008, when Sanlu Corporation, one of China’s largest dairy manufacturers, announced that its product on sale had been contaminated by melamine, a chemical that can lead to bladder cancer. The consequence of this scandal was that six infants dead, more than 290,000 people were poisoned and than 800 infants were hospitalized (Macdonald, 2008; Xiu and Klein, 2010). This incident was the most serious health crisis in China (Kong, 2012), and the impact exceeds that of 1997 strawberry incident in the US (Calvin et al., 2004) and spinachi incident (Calvin, 2007) in the US. The ‘tainted milk’ scandal finally causes a new Food Safety Law coming into effect on June 1, 2009 in China (Kong, 2012). However, this is not the end of the story. In 2009, 13 people were hospitalized in Fuangzhou after eating the snakes with Clenbuterol, a chemical that can accelerate fat burning and muscle growth while cause illness and even death (Olesen, 2011). In 2010, Researchers have showed that up to 10% of rice, the most principle food eaten among Chinese, has been contaminated with cadmium, a heavy metal known to cause cancer (Mahr, 2011). In 2011, forty tons of tainted bean-sprouts has been seized by police. The vegetables had been treated with several chemicals that can make them grow faster and look better but damage the human bodies (AP, 2011). In this sense, although China has launched its new Food Safety Law after the ‘tainted milk’ scandal, it still has the problems on specific sub-areas (Pei et al., 2011). The food safety problems still remained unsolved or solved inappropriately, and the food safety system is not built effectively and successfully, suggesting that the food companies still have a huge space to improve their actions to align themselves to the societal
expectation and must change their behaviors to fulfill their corporate social responsibilities.
2.2 Corporate Social Responsibility (CSR) in China
As strong demand for food safety increases and the fact that there are still deficiencies in such field, food companies ought to not only try hard to ensure that foods provided are safe, but show their determination and process of how they provide safe food. This is the nature behind CSR and the place where CSR play a major role (Kong, 2012).
The term CSR has generated a widely concern and becomes a strategic concept for economics and business and a prevalent topics for academia in recent years, as the CSR provides organizations the competitive advantages to generate social recognition and social legitimacy (Porter and Kramer, 2006). Business for Social Responsibility (BSR, 2003b) defined CSR as ‘achieving commercial success in way that honor ethical values and respect people, communities and the natural environment’. In other words, the CSR is in the domain related to the social responsive and reactive processes in order to manage the societal relationship. The concept of CSR implicates that the organization pursue their economic benefits while fulfill their societal and environmental responsibility at the same time, which in turn ensures the holistic health of the social system (Lea, 2002). The CSR is composed of a set of social codes, environmental regulations, and ethical values that the organization implemented voluntarily to comply with the expectations of shareholders and other stakeholders, and therefore meet the social expectation (Commission of the European Communities, 2002). In this context, an increasing number of companies and economic organizations started to be aware of the necessity and emergency of the environmental and social damage, and in turn develop targets and strategy to achieve not only the economic benefit but also the environmental-friendly outcomes (Bouteligier, 2009), which made the CSR more practical and imperative. Besides, the term CSR implicates an interconnection within the field of stakeholders’ interests,
environmental issues and sustainability issues (Hillman & Keim, 2001), and becomes a way to connect the organization with all its stakeholders including customers, employees, unions, investors, competitors and government organizations (Khoury et al., 1999).
China has been experiencing the economic reform since 1978 when the ‘Open Door’ policy has implemented, which lead the Country shifting away from the agricultural nation to an industrial-dominated nation. The result has positioned a new stage in China history. Through the reform, China has started to establish its socialist market economy, where market plays a major role under the macro-regulation of the government. In order to achieve a healthy development pattern, Chinese government has proposed the concept of ‘Harmonious Society” in 16th National Congress of the Communist Party of China and instruct leading officials to built the ‘harmonious society’ at the top of their agenda three years later and the CSR has captured the Chinese government-led concept of the Harmonious society (Wang and Juslin, 2011). The first report possessing CSR information is Corporate Environmental Report. The year 2001 saw the first Health, Safety and Environment (HSE) report in China history published by China National Petroleum Corporation (CNPC); in 2005, Baosteel released its first Environment Report; while in the same year, Haier announced its Environment Report at the first time. With the spread of the concept of sustainability development and the norm of corporate social responsibility, an increasing number of firm in China started to release comprehensive CSR report since 2005. Baosteel began to release its Sustainability Report since the year 2005; China Ore Shipping Corporation (COSCO) started to publish its Sustainability Report since 2006, which is the first report based on the GRI2006 over the world; State Grid began to release its CSR report since 2005; CNPC has announced its CSR report since 2006, China Construction Bank (CCB) started to release the CSR report from the same year. After the 2006, the number of CSR report issued in China displayed an enormous growth (www. cnstock. com). According to the GoldenBee Index on CSR Reporting in China (2009-2014) and official research in China CSR report (2012), until 31th October,
2014, 8848 CSR reports have been collected.
Graph 1
Annual statistics of CSR report (2001-2004)
However, when it comes to the food sector, although the number of the reports grows over the year, the overall quantity still remains at a lower level. According to Song (2014), 104 list food companies during the year 2009 to 2013 have been analyzed. The result gave the information that even though there is an increasing number of list food companies have released their CSR report, there is not enough enthusiasm for list food companies to release their CSR report, as the growth trend was not very significant: the ratio of the number of firms that released their CSR report to all list food companies only increases from 14.08% to 24.49%.
Although there are so many definitions regarding CSR with the development of the CSR literature (Bowen 1953, Walton 1967, Friedman 1970, Johnson 1971, Sethi 1975, Carroll 1979, Carroll 1983, Hopkins 1998, Rahman 2001, Lantos , 2006; Cited in Dahlsrud), almost all of them can be classified into five CSR dimensions (Dahlsrud, 2006). 1 2 3 6 13 32 98 169 661 760 1043 1870 1874 2240 0 500 1000 1500 2000 2500 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 N umb er Year
Annual statistics of China CSR reports（2001-‐2014）
The first dimension is environmental (sustainability) dimension. Environmental sustainability requires ‘meeting the needs of current generation without compromising the ability to meet the needs of the future generation’ (World Commission on environment and Development, 1987; Cited in Dahlsrud, 2006). Put it into business, it requires the business operations and activities to avoid or at least decrease the negative behavior of damaging the natural environment and to ‘contribute to a better environment’. (Andersen, 2003; Strategis, 2003; Commission of the European Communities, 2001; Marsden, 2001).
The second dimension is the social dimension, which is the fundamental idea behind the CSR. To be specific, the social dimension of CSR not simplies that there is a connection between businesses and the society in which they operate – that is self-evident. Rather it is that businesses should accept that they bear some responsibility for the impact they have on society and balance the external ‘societal’ consequences of their actions with the more direct internal consequences, such as profit (Pinney, 2001). That is, organizations have responsibility for the general well-being of society beyond short-term economic self- interest.
The third dimension is the economic dimension. If there exists a Utopia in which the businesses could adopt the more environmental-friendly activities and behaviors without any economic sacrifice, there would be no need of the CSR. The ultimate purpose of business organizations is pursuing the economic outcomes. Investing in CSR is a short-term issue, whereas paybacks from the investment may be flow in in the future. That is to say, the businesses need to seek the balance between the short-term, partial advantages and the long-term, holistic competitiveness (Hopkins, 2003; IBLF, 2003).
The forth dimension is called the stakeholder dimension. A basic essence of CSR is that a broad range of stakeholders should be taken into the consideration. However, the standard is not straightforward, as the different stakeholder groups have the different requirements for the organization, a slope will be linked to the corporation’s operational framework and its ethical value (Woodward-Clyde, 1999; Khoury et al.,
1999; Ethics in Action Awards, 2003; Cited in Dahlrud, 2006).
The last dimension is the voluntary dimension. Despite that the rules and regulations requires the business activities should conform to the CSR standards, the social responsibility is not merely clauses standing on the legal regulations (Kilcullen and Kooistra, 1999). Therefore the CSR largely stresses the voluntary nature. However, it cannot be seemed that the CSR is only a voluntarily behavior, the CSR can be served as a mixture with voluntary and regulatory condition (Piacentini et al., 2000)
Chinese Government first released the ‘Corporate Social Responsibility Blue Book’ in 2009, which deepen the insight of the norm of CSR. In the same year, government published the ‘the CSR reporting guidelines for Chinese companies’ (CASS-CSR thereafter), which is applied to grade the CSR reports. According to GoldenBee Index on CSR Reporting in China (2014), the cores included in Blue Book and CASS-CSR are economy, society and environment, assessing information related to the shareholders, employees, clients, environment, community and government. Besides, there is no mandatory requirement for companies to release their CSR report. The publication of CSR report resulted in five aspects: Government guidance, industry promotion, enterprise practice, social participation, and international cooperation. Therefore, the current situation of Chinese CSR is consistent with Dahlsrud’s (2006) categories.
2.3 Governmental influence on the CSR
This part is helpful to understand the Chinese government status to the food sector. The government is one of the most powerful stakeholders to the food companies, hence in line with the stakeholder theory, governmental CSR policies do have the influence on the CSR of any organizations, let alone the food companies. The governmental influence on the CSR guides and shapes the attitudes and behavior of organizations through superstructures by means of legislative ways (Yang and Rivers, 2009). However, in recent years, academic researchers (Yamak & Suer, 2005) have
recognized that the governmental influences are not limited in the legal and traditional aspects but to the economics, ethical and philanthropic fields, which is better aligned to the changing business environment in which the multi-faced players play the increasingly important roles due to their growing power (Crane and Matten, 2004). The government role in affecting organizations CSR process can be direct or indirect, with high or low impact. According to Fox et al. (2002), the four types of key roles government play to strengthen CSR are mandating, facilitating, partnering and endorsing. As the governmental influence on CSR is determined by the intensity and salience of its own behavior and actions including regulations (Yang and Casali, 2009), the roles may be differed because of the various intensity and salience of the organization and legislation. Therefore, the two-by-two matrix can be served as the framework to display the interconnection and relationship in relation to government roles and its effect on organizations’ CSR.
Figure 1 Government Influence on Four Types of CSR
The legal CSR is in line with the institutional theory (Meyer and Rowen, 1977; Dimaggio and Powell, 1991) which requires firms to comply themselves with government legislation and regulation with the regard to their behaviors. When
government act as a mandator, its influence on CSR will be illustrated by intervening organizations’ resource allocation and activities that is social responsibility, and inducing punishment to emphasis the importance of obeying the rules as well as force organizations to behave according to the government guidance. This form of governmental influence is very direct for its mandatory nature, and the risk of ignoring it is clearly visible (Yang & Casali, 2009).
Government can also act as a facilitator, which mainly promote the firms to be both economically and socially responsible. The influence of facilitating strategies is not as high as that of mandating, as in most of the time it will be done by providing the guideline on the fiscal and financial machine (i.e. reward corporations that implementing the training systems among employees), or offering the subsidies, that is to say, the government will incentivize firms though allowing them to defray the cost if the firms participate in the government framework related to the CSR (Albareda et al., 2008). Another role the government play is partner (Yang and Casali, 2009). By playing this role, the government stress the philanthropic responsibility, rewarding the good behaviors such as set regulations in tax lows. For example, the Australian Income Tax Assessement Act of 1997 allows the deductions to charities in order to promote the charitable activities. Same approach is taken by come EU countries (Albareda et al., 2008). The last one is the endorser. As shown in the figure, when neither of other three can be used, it means the legal CSR aspect.
On the other hand, social responsibility system and reporting framework in China is still at a very preliminary stage (Noronha et al, 2012) and is characterized by ‘especially low take up’ of CSR (Baskin, 2006, pp.31). As pointed in Grinffin and Mahon (1997), there is an excellent review and identify CSR source into four categories: (1) the Domini Social Index, which is to assess multiple dimensions of CSR. Becchietti et al. (2005) indicates that this Index provides a basic and widely accepted knowledge and criteria, and then finally become an international standard. This standard contains eight possible aspects: community, corporate governance, diversity, employee relations, environment, human rights, product quality and
controversial business issues; (2) The Fortune reputation survey, which is the basis of firm reputation index; (3) the self-reported measure, which is often applied by the government or some special stakeholder groups; (4) Corporated philanthropy. However, there are only two related indexes (Kong, 2012). One is CSR Development Index, published by CSR research Center of Chinese Academy of Social Science since 2009, and another is CSR index only for China’s listed companies.
3. Literature Review
There are multiple reasons why food companies should operate in accordance to, or at least appear to embrace the requirement of the government in terms of CSR. Several researchers (Hillman 2003, Hillman et al. 2004, Quasney 2003) have given different reasons from multiple perspectives to advise the organizations to take the related targets into account, including those who are dedicated to social and environmental disclosure policies and practices. Among those explanations, the legitimacy theory and stakeholder theory have become the most common and popular theoretical perspectives in relation to the accounting literatures (Gray and Bebbington, 2001, Gray et al., 1996). Further，legitimacy provides a useful empirical vehicle for examining organizational behaviors taken with respect to environment in which organization operated (Dowling and Pfeffer, 1975), while stakeholder theory addresses issues focusing on how an organization interact with particular stakeholders (Gray et al., 1996). In this case, it is reasonable to apply legitimacy theory and stakeholder theory.
3.1 Legitimacy Theory
The organizations, including the food corporations, should adopt the strategies that meet, or at least in the organizations perspectives in line with, the social expectations (Deegan & Rankin, 1996). The actions of environmental practices among corporations has resulted significantly pressures from the traditional interest groups
(Brammer and Milligton, 2003) but also from the emergence of the market for virtue, which gives firms commercial incentives to adopt environmental policies (Vogel, 2005). These views are derived from the legitimacy theory, a theory that identifies the legitimation is a process that draw organizations to be judged legitimacy (Lindblom, 1994), asserting that the organizations make efforts to ensure that their behavior and activities follow the requirement of the social expectations, or in other words, their operations should at least be perceived by outside groups as being legitimate.
One important concept that the legitimacy theory relies on is the ‘social contract’. That is, organization ought to get a social licence to operate. Shocker and Sethi (1974) define the social contract as:
“Any social institution – and business is no exception – operates in society via a social contract, expressed or implied, whereby its survival and growth are based on: 1). the delivery of some socially desirable ends to society in general and 2). the distribution of economic, social, or political benefits to groups from which it derives its power. In dynamic society, neither the sources of institutional power nor the needs for its services are permanents. Therefore, an institution must constantly meet the twin tests of legitimacy and relevance by demonstrating that society requires its services and that the groups benefiting from its rewards have society’s approval.”
The ‘social contract’ is the agreement between the organization and the society in which the organization operated. Societies provide the legal standings and attribute the authorities to the organizations, while the organizations are responsible for the resources they use to output the products and services, and their waste to the environment (Mathews, 1993). However, the public expectation changed with the time and therefore the social contract is not a concept that stands still. The organizations must appear to consider the right of the public at large, not only those shareholders. Hence, the failure in emphasizing social legitimacy, or in embracing the social contract, will be sanctioned by the society (Mathews, 1993；Dowling and Pfeffer, 1975). In this way, whether to gain the social legitimacy is essential for the
survival of a corporation. A successful firm must be the one that acts at the societal level. The organizations will take various actions to ensure their behaviors are perceived to be legitimate due to the potential indirect and invisible cost occurred resulted from ignoring the social contract. That is, they will establish the ‘congruence’ between their activities and the social system in which they are the part (Deegan 2002, Deegan & Rankin 1996). In consideration of the food companies, one of the most primary responsibilities of these companies is not only pursuing economic profit, but also the need to be legally responsible and obey laws, which will help them avoid the negative impact resulted from ongoing operations opposite the term of the social contract. In the CSR reporting of Chinese food companies, most of them will stress the concept of how they achieve the sustainability. For instance, they might emphasize the lower level of waste and the health of the food they provide or produce.
3.1.1 Typology of Legitimacy
When the differences between the perceived expectation and the societal expectation exist, the legitimacy gap appears (Sethi, 1979). For instance, some organization’s behaviors diverge from the societal expectation but still retain the social legitimacy. In this way, companies have the incentive to adapt legitimation strategies (Lindblom 1994). That is to say, companies take actions to gain, maintain, and repair legitimacy in order to meet the social expectation and therefore gain competitiveness (Lindblom 1994, Dowling and Pfeffer 1975).
Suchman (1995) distinguished three types of legitimacy, which can be termed as pragmatic legitimacy, moral legitimacy and cognitive legitimacy. Besides, all the three types of legitimacy can be used as the legitimacy strategies.
Pragmatic legitimacy relies on the self-interested evaluation, including the perceived consequences or the instrumental value, of the organizations’ most closed audiences. In its simplest level, pragmatic legitimacy is seen as a sort of exchange legitimacy
where the support for an organizational policy or a practice is based on the practical value of the policy or the practice to a particular constituent. Another pragmatic legitimacy is termed influence legitimacy that is more socially constructed, where the support for the practice not because of the individual interest, but rather because of responding to the larger interests. Often when organizations align the constituents into the policy-making, the influence legitimacy may exist. A third type of pragmatic legitimacy is called dispositional legitimacy and might be used to persuade the constituents that the practices represent the favorable interests and trustworthy.
Moral legitimacy is based on the evaluation of audiences about whether the activities are the right things to do, and reflects a positive normative evaluation of the organization and the activities. Those evaluations are based on the audiences’ constructed social value system, determining whether the activities are able to effectively promote the social welfare. In this sense, moral legitimacy is a stronger resistance to the self-interested manipulate than the pragmatic legitimacy. In general, the evaluation might be based on the outcomes and consequence, techniques and procedures, categories and structures, and leaders and representatives. When the evaluation is relied on what has been accomplished, it is termed consequential legitimacy. The term procedural legitimacy embraces the evaluation of technique and procedure instead of that of outcomes and consequences, because when the consequences are absent or are not significantly clear, the procedure is deemed to be the signal of achieving ‘valued, albeit invisible ends’. The third form of moral legitimacy is the structural legitimacy that depends on the prescribed structure, while the last form – personal legitimacy – derives from the personal status, reputation and charisma of individual organizational leaders.
Cognitive legitimacy appears when the acceptance for the practices are perceived by the constituents as appropriate, necessary or desirable that are based on the taken-for-granted cultural account. Such taken-for-grantedness is not the evaluation, but rather it is a subconscious. As it runs in a subconscious level, it is difficult to
judge the direct effect to the audiences, and therefore it requires including more immediate constituents into audiences and expanding the board society. Cognitive legitimacy has two variances: legitimacy based on comprehensibility and legitimacy based on taken-for-grantedness. The role of comprehensibility is established on the cultural model that furnishes plausible explanation for organization, while the taken-for-grantedness represents both the most subtle and the most powerful source of legitimacy but rarely attained.
All the three types of legitimacy involve the assumption that organizational activities are desirable, proper, or appropriate within the social constructed system of norm, values, beliefs, and definitions. The three types of legitimacy are co-existed in the world and, despite the distinction in somewhat different behavioral dynamic, tend to merge with one another.
3.1.2 Legitimacy Management
According to the legitimacy theory, the legitimacy management creates a considerable range for managers to manipulate the legitimacy within the culture and society they operated (Olive, 1991). No organization can meet all the expectation of all the related audiences, and therefore no universe belief system can be plausible to every individual inside and outside the organization. However, the management can produce an image of desirable, proper and appropriate within the given environment. Because managers have known what kind of legitimacy they need and what the plan is in advance, they have access to gain, maintain, and repair legitimacy.
In this sense, the awareness of changes always accompanies with the management. What was the legitimacy in one time may not the legitimacy in the other time (Lindblom, 1994). The reason for this is that the organizations behavior and actions determine the perceptions of the outside parties of what is being the legitimacy. Any information disclosure may change their perspectives. In this context, the organizations should not only do what they expect, but also need to inform the society
about what they do and the changes within the organizations. However, due to the organizational activities and behaviors are constructed by the relevant publics, the managers might have the opportunity to perform the legitimacy strategies. The organization might confirm to the environment and select the favorable environment to gain the legitimacy. When it comes to maintain legitimacy, they may perceive changes and protect the accomplishment. Furthermore, the task of repairing legitimacy requires distinguishing challenges and hence updates the previous legitimacy strategies. In general, these strategies, which are based on the information the corporation disclosure, are categorized by Lindblom (1994) consisted with that of Dowling and Pfeffer (1975) The organization can:
1) Seek to educate and inform its relevant public about (actual) changes in the organizations performances and activities which bring the activities and performances more into line with social expectations and values.
2) Seek to change the perceptions that the relevant public have of the organization’s performance and activities – but not change the organizations actual behavior (while using disclosures in corporate reports to falsely indicates that the performance and activities gave changed).
3) Seek to manipulate perceptions by deflecting attention from the issue of concerns onto other related issues through an appeal to, for example, emotive symbols, thus seeking to demonstrate how the organization has fulfill social expectation in other area of its activities.
4) Seek to change external expectations of its performance, possibly by demonstrating that specific societal expectations are unreasonable.
According to Lindblom (1994), Dowling and Pfeffer (1975), any organization can adopt any of the above four legitimacy strategies to gain, maintain, and reform the perceived legitimation through disclosure to the publics. For example, the organization can inform the public about their relevant changed according to the interest of the society,
or disclose the information to counter the negative news among the public. The organization can also draw attention on what they do good to the environment while ignoring to react the negative information spreading in the society. The legitimacy strategies can also be implemented in the food companies especially when the food scandal occurred. Consistent with the legitimacy theory, the food companies may undertaken the particular activities to offset the negative news, or take actions in related to other aspects from which the companies can regain the legitimacy. The following table shows the legitimation strategies adopted in general (Suchman, 1995).
Table 1 Typology of Legitimacy and Legitimacy Strategies (Source: Suchman, 1995, pp.600)
3.2 Stakeholder Theory
Despite the issues that the organizations will be likely to attend to the expectations of the society to gain the societal legitimacy, another view included in the literature assists that the organization should react to their stakeholders whose function is
controlling over the resources required by the corporation (Ulmann, 1985). Nevertheless, it is impossible to have uniform expectations for all the stakeholders because different stakeholder groups have the different interests and therefore there are various social contracts to be negotiated with those stakeholder groups. In general, there are two kinds of stakeholders, the powerful stakeholders and the secondary stakeholders (Ullman, 1985, Wallace 1995, Nasi et al 1997). Powerful stakeholders’ existence determines the survival of the organization. That is to say, without those powerful stakeholders, the organizations cannot implement its day-to-day operation, while the secondary stakeholders only influence or affect, or are influenced by, the corporation and hence do not essential to the corporation. Based on the two types of the stakeholders, there are two branch of stakeholder theory: the ethical branch of stakeholder theory and the managerial branch of stakeholder theory (Hasnas, 1998). The ethical branch of stakeholder theory insists a fair treatment to all the stakeholders without consideration of power issues. However, the managerial branch asserts that organizations will respond to the expectations of particular stakeholders groups (the powerful stakeholders) in priority and realize their interests at first. The more critical the stakeholders’ resources to the organizations success, the greater the stakeholder groups’ interest will be realized (Nasi et al. 1997, Wallace, 1995).
3.2.1 The Managerial Branch of the Stakeholder Theory
The managerial branch of stakeholder theory refers to the aspects of stakeholders’ power and their ability to impose the influence on the firms’ operation. In this sense, it dedicates to address the different needs of stakeholder groups and therefore give the instructions on how they can manage in the best way in the long-term. A successful organization is able to deal with different interests of various stakeholder groups. As Ullman (1985) states:
‘Our position is that organizations survive to the extent that they are effective. Their effective derives from the management of demands, particularly the demands of interest groups upon which the organization depends.’
As indicated above, the greater the stakeholders’ power, the more urgent to meet the stakeholders demands. That is, the greater the importance of the stakeholder groups to the organization, the greater the possibility their expectation will be incorporate into the organization’s strategy (Wallace, 1995, Nasi et al. 1997). As the Chinese government is no doubt one of the most powerful stakeholders to the food companies, the requirement of the governmental expectation ought to be taken into consideration largely.
Within the perspective of the managerial branch of stakeholder theory, information disclosure is the ‘major elements that can be employed by the corporation to manage the stakeholder in order to gain their support and approval, or to distract their opposition and disapproval’ (Gray et al., 1996, p.46). Organizations do have the incentives to disclose information about their programs in order to indicate the respective stakeholder groups and particularly the powerful stakeholders that they do act at their interests and they are conforming their expectations, and hence to gain their supports. For example, if the Chinese government is concerned about whether the food organization fulfill a particular social responsibility, then the food organization might disclosure relative information about what they do that are benefit to the society so as to alleviate or distract some of the other concerns held by the government.
3.3. The Relationship Between Legitimacy Theory and Stakeholder Theory
The legitimacy theory discusses the expectation of the holistic society and considers the interaction with the society as a whole, while the stakeholder theory provides a more refined solution by referring to particular groups within the society and focuses on the interaction with such particular groups. In spite of the mentioned differences,
there is much overlap between the two theories, and the co-effect of both theories is regarded as the explanation for the actions and activities of organizational management (Gray et al., 1995). As Deegan (2002) indicated, both theories conceptualize the organization to be a part of a wider social system wherein the organization impact, and is impacted by, other groups within the society. In this way, treating legitimacy theory and stakeholder theory as completely discrete theories cannot be accept. Hence, this paper treats legitimacy theory and stakeholder theory as largely overlapping theories that provide consistent but slightly different insights into the factors that motivate managerial behaviors (Gray et al., 1995, O’Donovan, 2002). In this sense, legitimacy theory and stakeholder theory enrich the corporate social disclosure practices (Gray et al., 1995).
4. Method
4.1 Sample Selection
“In the June of 2012, Walmart(China) has been punished for selling as high as 405 kilos of the diseased pork. To the public surprise, Walmart (China) has been punished due to the food safety issues more than 20 times only in the Chongqing district. For instance, selling the duck excessing the expiration date, selling beef without the expiration date and so on. As one of the world’s top 500 retailers, it is surprise that Walmart (China) exposes to the food scandals in such a high frequency.” 6
The company selected is Walmart (China). The company Walmart is one of the most famous and well-known food companies in the word, entering in China in 1996 and until today it has been operated for 19 years and more than 100,000 associated across over 165 cities in 19 provinces. Although it sells other products, food selling ranks the first of all the sales quantity and is comprised an important part of its total revenue.
However, since 2010, Walmart (China) has been reported several scandals7 related to the food safety issues, which shocked people across China Walmart has been accused for selling sesame oil and squid with dangerous amounts of cancer-causing chemicals in 2011. Besides, in that year (2011), Walmart (China) has been accused of selling normal pork in the name of ‘Green Pork’, which used to be the ‘worst food scandals’ and has led to two of the managers arrested and the reorganization of its management team8. At the same year Walmart has released its formal CSR report of 2011-2012 on the official website9. However, this is not the end of the story. After that, it has been reported to sell pork ribs from diseased pigs in 201210, to use overdue eggs into cake production in 201311, and has recalled donkey meat sold at some outlets in China last year after tests showed that the products contained the DNA of fox12.
Walmart (China) has entered in Chinese market around 20 years and has been criticized due to food scandals for several times. However, it still ranks the first among retailers (China PoweRanking, 2013；China PoweRanking13, 2014). Kong (2012) implemented event-study methodology to investigate the relation between the firm’s level of CSR in food industry and the reaction of the financial market before and after the ‘tainted milk’ events, and detected significant effects of CSR on investors’ trading behaviors in the post-event window, or in other words, the prominent effects of CSR on the reaction of the financial market after the food scandals. Hence, the publication year (2012) of its only formal CSR report is also worthy of consideration: in 2011, Walmart (China) had experienced a scandal of selling unqualified food, leading a fine of 3,35 million RMB and 12 of its retail stores stopped doing business for internal rectification14. Besides，Walmart （China）have
7 Source from: http://finance.takungpao.com/gscy/q/2013/1225/2131578.html [Dec. 25, 2013] 8 Source from: http://m.ftchinese.com/story/001045045 [Jun. 14, 2012]
9 Source from: http://wal-‐martchina.com/community/doc/wm_reports.pdf [Jan.1 2012] 10 Source from: http://finance.sina.com.cn/focus/wemcsbdhpg/ [Jun.12, 2012]
11 Source from: http://news.xinhuanet.com/fortune/2012-‐07/09/c_112386335.htm [Jul. 09, 2012] 12 Source from: http://www.cs.com.cn/xwzx/ms/201401/t20140103_4270255.html [Jun. 03, 2014] 13 Source：
http://cn-‐en.kantar.com/business/retail/2015/walmart,-‐pg-‐continue-‐to-‐lead-‐poweranking-‐study [Jan.4, 2015]
published its e-books (Impression of Walmart15) relative to CSR from 2010 to 2013. In this sense, Walmart (China) is a good case to examine its legitimation strategy through its CSR approach.
4.2 Research Method
Since 1980s, Guthrie and Mathews (1985), Cowen et al. (1987), Guthrie and Parker (1989, 1990) have developed the understanding of the practice of CSR reporting and disclosure of companies，and the data collection for CSR database was achieved by means of content analysis (Gray et al., 1995). While content analysis is not commonly utilized in conventional accounting research (Gray et al., 1995), it is widely to employ content analysis in CSR areas (i.e. Maxwell and Mason, 1976; Ernst and Ernst, 1976). Content analysis is defined as ‘a technique for gathering data that consists of codifying qualitative information in anecdotal and literary form into categories in order to derive quantitative scales of varying levels of complexity’ (Abbott and Monsen, 1979, pp. 504). In this way, the main research method employed in this thesis is content analysis, as indicated above, CSR research often utilizes this method, and this study aims to add insights to CSR disclosure in the food sector.
As indicated in the introduction part, the main research questions in this thesis are: (1) What kind of strategies in terms of CSR after the food scandal in order to retain the government legitimacy; (2) whether the disclosed information, after exposing to food scandals, is reflective of firms taking material activities to increase food safety or firms creating images that indicate improvement on food safety issues. This question is more close to the food safety issue; (3) how did the food organization do to reduce the negative effect of food scandal and retain the legitimation from the society through CSR approach.
Krippendorf (1980) proposed the principle characteristic of content analysis, which requires the data collected should be objective, systematic and reliable. The objective
15 Source from: http://wal-‐martchina.com/news/special_channel/impression/impression.htm [Jan.1,
requests independent judgment of what was and what was not CSR; systematic criteria needs sets of rules to determine the CSR categories and sub-categories (Krippendorf, 1980). Zegal and Ahmed (1990) presented that annual report, advertising, house magazines, press notices and all the other disclosures can be seen as part of CSR disclosures. Therefore it is reasonable to analyze the e-books of Walmart (China) as well as its formal CSR report.
In order to answer the first two research questions, the essential stage is to decide which document should be analyzed (Krippendorff, 1980). This paper applies content analysis of the only Walmart (China)’s formal CSR report16 and the 15 e-books17 published in the official website of Walmart (China), as mentioned previously (pp. 30), Walmart (China) is a good sample to study. For capturing the data, the amount of disclosure is adapted, as this approach provide richer data set and will encompass automatically the first (Cowen et al., 1987; Guthrie and Mathews, 1985). Besides, the ‘unit of analysis’ in this paper is sentence, because compared to words and pages, ‘sentences are to be preferred if one is seeking to infer meaning’ (Gray et al., 1995, pp.84). In order to measure the amount of disclosure, the method used by Bowman and Haire (1976) is employed. Each document will be read to ascertain the total amount of CSR disclosure. Then, every sentence relative to the CSR will be classified into a specific category. On the sentence basis, the percentage of all issues can be identified.
In view of the definition18 of content analysis mentioned previously (pp.30), a set of coding will be needed. Given the nature of the first research question, government regulation needed to be considered. In order to improve the quality of Chinese CSR disclosure (CASS-CSR2.0, 2011, pp.9), Chinese government issued Guidelines for CSR report. The guidelines serve as the grading system of Chinese CSR report19
16 Source: http://wal-‐martchina.com/community/doc/wm_reports.pdf [Jan.1, 2012]
17 Source: http://wal-‐martchina.com/news/special_channel/impression/impression.htm [Jan.1, 2010] 18 Abbott and Monsen (1979, pp. 504): ‘a technique for gathering data that consists of codifying qualitative
information in anecdotal and literary form into categories in order to derive quantitative scales of varying levels of complexity.’
