Corporate social responsibility disclosure in agroholdings
23 September 2021
Firms’ corporate social responsibility (CSR) reporting has gained increasing attention from scholars over the last decades. The corporate transparency’s strong signaling effects for creditors and investors and self-disciplinary impact on management have been widely acknowledged as essential to corporate viability. Extant research largely examines motivational drivers behind communicating corporate activities, such as trust building, impacts on dominant investors, or the creation of a candid corporate culture. Meanwhile, CSR disclosure has become more extensive going far beyond mandatory corporate details.
The agricultural sector of transition economies, in particular that of Ukraine, serves as a strong platform for more in-depth research on motivations for CSR disclosure. Over the last decade, Ukraine has witnessed a rapid development of so-called agroholdings, horizontally and/or vertically integrated farming structures operating vast farmland areas and generally consisting of dozens or hundreds of farms controlled by a mother company. CSR information voluntarily disclosed by Ukrainian agroholdings is often broader than that required by markets and society and covers initiatives like ad hoc support of individual rural inhabitants, investments in technical infrastructure in rural communities, and charitable donations to rural schools, churches, and sport clubs. Meanwhile, institutional settings for corporate transparency in transition countries remain weak. These developments call for an extension of the existing research on CSR disclosure in agribusiness, which is still limited and dominated by the strategic legitimacy perspective.
A recent article on instrumental motivations for CSR disclosure using the case of Ukrainian agroholdings co-authored by Taras Gagalyuk, Lioudmila Chatalova, Oleksandr Kalyuzhnyy, and Igor Ostapchuk, partly addresses this gap by employing the institutional approach to CSR disclosure alongside the predominant strategic one. Having focused on CSR disclosure as an important instrument for gaining and maintaining legitimacy, the authors argue that the strategic view of organizational legitimacy and, accordingly, of CSR disclosure should be complemented by the institutional perspective on legitimacy. The article has been published in the special issue of International Food and Agribusiness Management Review (IFAMR).
The article is based on case study analysis of the data collected during in-depth interviews with corporate managers of four publicly listed Ukrainian agroholdings in 2019. The obtained data were further complemented with information from available company documents, such as annual financial and nonfinancial (sustainability) reports, presentations for investors and company websites.
The results show that the studied agroholdings have both strategic- and institutional-legitimacy considerations behind their voluntary CSR reporting, including shareholder-, stakeholder- and institutional environment-oriented CSR activities.
Strategic-legitimacy motivations for CSR disclosure: the economic perspective
Due to listings on European stock markets, the studied agroholdings must comply with EU legislation. According to the nonfinancial reporting directive (NFRD) of the EU, the agroholdings are required to include a nonfinancial report in their annual reports since 2018. However, the interviewed managers argue that they had started issuing nonfinancial reports long before this directive came into effect and that they would have produced such reports even if the NFRD had not existed. Moreover, the scope of nonfinancial reporting by agroholdings is much broader than the NFRD requires.
Strategic-legitimacy motivations for CSR disclosure: the resource-based perspective
In Ukraine, farmland purchases by legal entities are prohibited, so leasing is the only way for commercial farms to access farmland. In case of very large agroholdings, there is a threat that a significant number of landowners may get better rental offers from competing agroholdings and withdraw from existing rental contracts. Therefore, the agroholdings not only offer the benefits to landowners that go beyond rental prices in terms of their CSR activities, but they also broadly disclose the information about these activities in order to maintain landowners’ commitment and, thus, to secure long-term investments in the leased-in farmland.
Also, higher transparency helps agroholdings to develop a more positive image in the public spotlight. Disclosing the information that is rarely made public by nonlisted corporate and family farms, e.g., data on taxes, land rents and charitable donations paid, the agroholdings aim to achieve loyalty among their employees, local authorities, and rural inhabitants.
Institutional-legitimacy motivations for CSR disclosure
The study results point to three general sets of motivations for CSR disclosure from the institutional-legitimacy perspective. The first set involves the institutionalization of CSR communication itself as a response to a nontransparent business environment. Second, CSR disclosure appears to be an integral part of the CSR policies implemented by agroholdings helping communicate corporate values and raise awareness of the problems that persist in the business environment. The third set of institutional-legitimacy motivations for CSR disclosure resonates with the second one: agroholdings perceive CSR communication as a proactive feedback mechanism in their relations with rural communities.
The paper empirically verifies the theoretical proposition that firms’ moral considerations may take the form of instrumental motivations for deliberate socially responsible actions in weak institutional environments. The obtained results suggest that CSR disclosure of agroholdings pursues two general objectives: facilitating agroholdings’ adaptation to institutional bottlenecks as well as achieving loyalty of the major stakeholders.
Both the strategic-legitimacy and institutional-legitimacy CSR disclosures are driven by the instrumental rather than moral motivations of agroholdings. The instrumental nature of higher transparency is the consequence of generally weak and non-transparent institutional environment. The two perspectives differ, however, by their intentions: strategic legitimation aims to create and appropriate value from the agroholdings’ interactions with stakeholders, while the institutional legitimation activities pursue the establishment of a favorable environment for value creation and appropriation.
By Taras Gagalyuk and Anna Feshchenko