Legitimacy Theory in Accounting
The legitimacy theory and the stakeholder theory are the two accounting theories selected for the report. However, the journals selected include Accounting, Accountability, and Performance, Accounting and Business Research Taylor & Francis Online , Accounting and Business Research Taylor & Francis Online and, Auditing and Accountability Journal. The legitimacy theory is typically a theory of accounting which provides information on the key activities and actions of particular organizations and this is usually in relation to social and environmental issues. However, the stakeholder theory takes into the relationship between the particular organization and the stakeholders. It emphasizes the need to identify the key stakeholders of an organization and this includes their interests since they are elements in determining the success or failure of a firm. The two theories of the accounting have been discussed in more details in the paper below.
According to Dube and Maroun (2017 p.30), the actions and activities of various organizations have been associated with legitimacy theory. Some of the activities usually relate to certain aspects such as the social and environmental matters. The legitimacy theory depends on the social contracts. It is expected of the different business enterprises to carry out their activities with the aim of acting in a manner which is accepted by a particular community. An organization which is able to act in an ethical manner will typically survive in the society for a very long time and hence it has to operate depending on the expectations of the social contract.
An organization’s legitimacy is an indication of how there is an existence of a social contract between the organization and the community and this enables the organization to be sustained for a long time. It is the duty of every particular organization to acknowledge that their operations are those which are related to a value system which is consistent with the system of a particular community. All the organizations must, therefore, consider the rights of every particular individual that is the public at large and not just the rights of the shareholders (WOSTMANN, VAN ZIJL, and MAROUN, 2017 p.100).
There are a variety of techniques which various organizations often use to obtain their legitimacy. For example, an organization can get legitimacy through education and availing information to the community on certain fundamental dynamics in their activities and operations. When the perceptions of the society on the activities of an organization are changed, the legitimacy can be obtained and this should not include the change of behavior (Deephouse, Bundy, Tost and Suchman, 2017 .50). Additionally, an organization can obtain legitimacy through the manipulation of the different views of a particular community and this typically involves the diversion of the attention of the individuals in the society to specific issues which could not be relating to their perceptions. For example, it could be an issue on the relationship of the organization with the society on certain objectives such as the removal of information considered to be negative to the public (Asmeri, Alvionita, and Gunardi, 2017 p.20).
Accounting, Auditing and Accountability Journal
The journal defines legitimacy theory as a theory whose primary aim is on voluntary disclosures which is it considers as part of the process of legitimization. Legitimacy theory looks into the different views and process of a variety of competing groups in the society. By looking at such issues, it aids an organization to be able to sustain most of its operational activities. The fundamental goal of the legitimacy theory is to ensure that various organizations perform different activities within the bounds and norms of the particular society. The journal, therefore, defines the legitimacy of an organization as generalized views of a particular community based on the actions and activities of the firm in place. Each and every activity of the organization, however, must be done in regards to the norms, beliefs, and values of the particular community.
The maintenance of legitimacy can be achieved through the use of four different strategies. However such techniques are dependent on the threat of legitimacy. The threat of a legitimacy gap usually occurs when the expectations of the relevant stakeholders in the organization are not met by the actions of the organizations. Further, the different organizations have adopted a variety of techniques in which they use to aid in the improvement of their legitimacy and some of the strategies include, change of the various expectations of society by aligning to their expectations such as those relating to goals and outputs of the particular organization. The other strategy is changing the goals, methods, and outputs of the organization to conform with the expectations of the public and this entails the provision of information to the public regarding such changes made in the organization. The other technique entails the display of the effectiveness of particular goals, methods, and output of the organization through education and providing relevant information. The theory of legitimacy is often used as motivation mechanism to enable different organizations to disclose their results in the financial reports.
According to Schaltegger, Burritt, and Petersen (2017 p.30), the Accounting, Accountability and Performance Journal states that the primary goal of the stakeholder theory is to determine the norms of a particular society by identifying the different stakeholders and aligning their particular needs in the organization. The stakeholders are therefore of significance in the organizations and therefore the management of the particular firms should be able to identify them by their roles.The stakeholders are individuals and groups whose sole purpose is to enable various organizations to succeed or fail (Blanc, Islam, Patten, and Branco, 2017 p.1750). Their interests must, therefore, be considered by the organizations so as to be successful and thereafter gain a competitive advantage over their competitors. During the formulation of various policies in the organizations, the different interest of the stakeholders must be considered that is their rights and needs due to their impact on the success or failure of organizations.
Stakeholder Theory in Accounting
The journal argues that the focus of the legitimacy theory is on the level of evaluation of different organizations based on their performances. The theory also takes into account the key reactions of an organization towards the various disclosures relating to the environmental and social activities of an organization. (Rivera, Muñoz and Moneva, 2017 .490) All the organizations, therefore, should be in a position of disclosing their activities to the public which relates to the social and environmental aspects. Further, the organizations have devised a variety of techniques which they use to aid in the management of their legitimacy. The approaches usually depend on the manner in which information is selected or even the language it uses during the disclosure of information to the public.
Some of the methods which the organizations use to manage legitimacy include, failure to offer a forthright information to the society and this entails non-disclosure of the prevailing situation of the company (Adedeji, Popoola, and San Ong, 2017 p.50). The legitimacy of an organization can also be maintained by alteration of the various expectations based on their performances to the public. Such a technique involves the availing of information on the forecasted profits of the particular organization. Certain firms, however, tend to manage their legitimacy by disclosing the forthright information to the society on their specific activities by revealing the current state of events in the particular organization.
One of the fundamental accounting theories is the stakeholder theory which focuses on the relationships between an organization and the stakeholders. It emphasizes the need to treat a variety of stakeholders with dignity and respect and this has to be done ethically (Miles, 2017 p.450). The stakeholders are certain individuals and groups in the community who influence attainment of varying objectives of organizations and they are affected by decisions and actions of those particular organizations. The stakeholder theory has often been applied to various organizations such as the voluntary associations and profit-oriented organizations (Jensen, 2017 p.80).
According to Andriof, Waddock, Husted, and Rahman (2017 p.30), the members of such organizations are allowed to exit freely whenever they want. Additionally, there are a variety of functions which the accounting information plays according to the stakeholder theory. Such roles entail the provision of relevant information on the activities and performance of particular organizations to the various stakeholders. The other ole of accounting information is that it allows the different stakeholder to assess the type of information which has been offered to them to determine their relevance (Fassin, De Colle and Freeman, 2017 p.100).
Accounting, Accountability and Performance Journal
A successful internal marketing strategy is done through an effective two way communication. The loyalty of the customers typically results in profit and growth which is to the proper satisfaction of the customers. The service culture I the organization can be established through the internal marketing. It is usually not enough to just look into the interest of the particular customers only, but instead, it is of importance that the interests of the employees of different organizations are also looked into (Cooper, 2017 p.40). The employees generally tend to take care of all the concerns raised by the customers and thus it is important especially for an organization which aims at enhancing its performance to respect the rights of various workers.
Stakeholders are considered as those individuals who have a fiduciary relationship with an organization and therefore the stakeholder theory insists on change which involves the change in focus on the satisfaction of the customers to stakeholder satisfaction. The success of an internal marketing communication in the organization depends on effective communication among the stakeholders and this is according to the stakeholder theory (Epstein, 2018 p.50). All the stakeholders such as the suppliers, customers, community, media, shareholders, government regulators, and the employees must all be involved in internal marketing by developing a communication-based model of internal marketing to ensure the success of the marketing strategy. The stakeholder theory also argues that the stakeholders are important elements during the implementation of different policies in a particular organization and this is especially when the policies are intended to correct the deficiencies in the performance of the particular firm at hand.
The journal argues that the primary aim of the stakeholder theory is to determine the norms of a particular society by identification of various stakeholders on the community and this also includes the recognition of their needs and requirements. The managers must be aware of the stakeholders in order to survive as an organization and this is because they tend to influence most of the activities of the particular organization (Platonova, Asutay, Dixon and Mohammad, 2018 p.460).
The stakeholders are critical individual and groups who enables particular organizations to survive and even achieve some of the set goals. Just like in the previous journal, the rights and needs of the stakeholders must be taken into account during the process of formulating a variety of policies and this is particularly due to their influence on the success or failure of an organization (Dias, Rodrigues and Craig, 2017 p.2). Further, the recognition of the stakeholders’ interests and needs allows for the flow of information in the organization resulting in better performance. The stakeholder theory also aims at addressing certain relationship powers of stakeholders which must be taken into account since they have a great impact on the legitimacy of the particular organization.
Conclusion
In summary, the two theories act as a motivation towards the social disclosure. They typically explore the significance of corporate social disclosure which is an essential element in an organization since it generally contributes towards its success. The legitimacy theory is an accounting theory whose main concern is the informational disclosure regarding different organizations with the intent of maintaining a good reputation. The stakeholder theory, however, seems to focus on the identification and respect for all the stakeholders in the organization and this due to their associated influence on the particular organization.
References
Adedeji, B.S., Popoola, O.M.J. and San Ong, T., 2017. National Culture and Sustainability Disclosure Practices: A Literature Review. Indian-Pacific Journal of Accounting and Finance, 1(1), pp.26-50.
Andriof, J., Waddock, S., Husted, B. and Rahman, S.S., 2017. Unfolding stakeholder engagement. In Unfolding stakeholder thinking (pp. 19-42). Routledge.
Asmeri, R., Alvionita, T. and Gunardi, A., 2017. CSR disclosures in the mining industry: Empirical evidence from listed mining firms in Indonesia. Indonesian Journal of Sustainability Accounting and Management, 1(1), pp.16-22.
Blanc, R., Islam, M.A., Patten, D.M. and Branco, M.C., 2017. Corporate anti-corruption disclosure: An examination of the impact of media exposure and country-level press freedom.Accounting, Auditing & Accountability Journal, 30(8), pp.1746-1770.
Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.
Deephouse, D.L., Bundy, J., Tost, L.P. and Suchman, M.C., 2017. Organizational legitimacy: Six key questions. The SAGE handbook of organizational institutionalism, pp.27-54.
Dias, A., Rodrigues, L.L. and Craig, R., 2017. Corporate governance effects on social responsibility disclosures.Australasian Accounting Business and Finance Journal,11(2).
Dube, S. and Maroun, W., 2017. Corporate social responsibility reporting by South African mining companies: Evidence of legitimacy theory. South African Journal of Business Management, 48(1), pp.23-34.
Epstein, M.J., 2018. Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Routledge.
Fassin, Y., De Colle, S. and Freeman, R.E., 2017. Intra?stakeholder alliances in plant?closing decisions: A stakeholder theory approach. Business Ethics: A European Review, 26(2), pp.97-111.
Jensen, M.C., 2017. Value maximisation, stakeholder theory and the corporate objective function. In Unfolding stakeholder thinking (pp. 65-84). Routledge.
Miles, S., 2017. Stakeholder theory classification: A theoretical and empirical evaluation of definitions. Journal of Business Ethics, 142(3), pp.437-459.
Platonova, E., Asutay, M., Dixon, R. and Mohammad, S., 2018. The impact of corporate social responsibility disclosure on financial performance: Evidence from the GCC Islamic banking sector. Journal of Business Ethics, 151(2), pp.451-471.
Rivera, J.M., Muñoz, M.J. and Moneva, J.M., 2017. Revisiting the relationship between corporate stakeholder commitment and social and financial performance.Sustainable Development, 25(6), pp.482-494.
Schaltegger, S., Burritt, R. and Petersen, H., 2017. An introduction to corporate environmental management: Striving for sustainability. Routledge.
WOSTMANN, C., VAN ZIJL, W. and MAROUN, W., 2017. Strategy disclosures by listed financial services companies: Signallling theory, legitimacy theory and South African intergrated reporting practices. South African Journal of Business Management.
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