This week’s articles look at the company reporting process.

Assessing and improving the quality of sustainability reports: the auditors’ perspective 
This article presents, an analysis of the opinions of assurance providers regarding the quality and the limitations of sustainability reports and their recommendations to improve them using the Global Reporting Initiative (GRI) as a framework.

The qualitative content analysis of 301 assurance statements for sustainability reports from mining and energy companies provides a comprehensive view of the main outcomes of the assurance process, including its limitations, the application of the GRI principles and suggestions for improving sustainability reports. Taking into account the perceptions of practitioners a priori well informed on the quality of sustainability reports—namely assurance providers—this paper complements the current literature on sustainability reporting and its assurance, including critical approaches that question the reliability of sustainability reports, stakeholder engagement and the accountability of reporting practices.

This study contributes to the debates surrounding the quality of sustainability reports, the added value of assurance statements and the ethical issues underlying the assurance process. It also contains important practical implications for auditors, standardization organizations and stakeholders.

Olivier Boiral, Iñaki Heras-Saizarbitoria and Marie-Christine Brotherton. 2019. Assessing and Improving the Quality of Sustainability Reports: The Auditors’ Perspective. 
Journal of Business Ethics, 155(3), 703–721.


An absence of transparency in US corporate charitable and political contributions  
Although stockholders may benefit from information regarding the frequently substantial charitable and political contributions of the corporations they own, US corporations are typically not required to disclose any information about such payments in annual financial statements or information submitted periodically to regulatory agencies.

This lack of transparency is confounded by disclosure requirements of private foundations, which a corporation may choose to establish for the purposes of administering charitable giving for the corporation. The resulting disclosure fog engendered by extant regulations may be confusing to those corporation owners who would like to know what corporation contributions are being made to charities and politicians.

This article enumerates the magnitude of the charitable and political gifts of 40 of the most generous public corporations in the USA, the current disclosure requirements for public companies, the role of foundations, rationales for withholding relevant information from owners, and ethically questionable strategies that corporations may use to manage those disclosures for their benefit.

S. Douglas Beets and Mary G. Beets. 2019. An Absence of Transparency: The Charitable and Political Contributions of US Corporations. 
Journal of Business Ethics, 155(4), 1101–1113.


Is industry self-regulation like marking one’s own homework? 
When is industry self-regulation (ISR) a legitimate form of governance? In principle, ISR can serve the interests of participating companies, regulators and other stakeholders.

However, in practice, empirical evidence shows that ISR schemes often under-perform, leading to criticism that such schemes are tantamount to firms marking their own homework. In response, this paper explains how current management theory on ISR has failed to separate the pragmatic legitimacy of ISR based on self-interested calculations, from moral legitimacy based on normative approval.

The paper traces three families of management theory on ISR and uses these to map the pragmatic and moral legitimacy of ISR schemes. It identifies tensions between the pragmatic and moral legitimacy of ISR schemes, which the current ISR literature does not address, and draws implications for the future theory and practice of ISR.

Read this Open Access article online for free.

Frances Bowen. 2019. Marking Their Own Homework: The Pragmatic and Moral Legitimacy of Industry Self-Regulation. 
Journal of Business Ethics, 156(1), 257–272.


Can audit quality be improved via social norms for honesty and responsibility?
We assert that audit quality can be improved to the extent that social norms for honesty and responsibility are activated in the auditor. To test this assertion, the authors use an experimental audit market setting found in the literature and manipulate factors expected to activate honesty and responsibility norms in the auditor.

The authors find that auditor misreporting is reduced when the investor is another participant in the experiment rather than computer simulated, and thus, the interests of third-party investors are salient to the auditor. The authors also find that auditor misreporting is reduced when the auditor is required to sign-off on the audit report, but only when the investor is another participant in the experiment. Consistent with our underlying theory, the authors find that pre-experimental measures of sensitivity to honesty and responsibility norms help explain the effects of our manipulated variables.

Finally, the authors find that these measures of social norm sensitivity are associated with the moral judgment that auditor misreporting is unethical. Our study helps explain previous anomalous findings in the literature and answers the call in Blay et al. (J Bus Ethics 2017. doi: 10.1007/s10551-016-3286-4) for empirical researchers to use social norm theory to develop stronger tests of moral reasoning in the market for auditing services.

Allen D. Blay, Eric S. Gooden, Mark J. Mellon & Douglas E. Stevens. 2019. Can Social Norm Activation Improve Audit Quality? Evidence from an Experimental Audit Market. 
Journal of Business Ethics, 156(2), 513–530.


Disclosure responses to a corruption scandal at Siemens 
In the current study, the authors examine the changes in disclosure practices on compliance and the fight against corruption at Siemens AG, a large German multinational corporation, over the period 2000–2011 during which a major corruption scandal was revealed. More specifically, the authors conduct a content analysis of the company’s annual reports and sustainability reports during that period to investigate the changes of Siemens’ corruption and compliance disclosure using both quantitative and qualitative methods.

Through the lens of legitimacy theory, stakeholder analysis, and organizational façades, the authors find evidence that Siemens changed its compliance and corruption disclosure practices to repair its legitimacy in the wake of the 2006 corruption scandal. The authors analyse these strategies more closely by using the rational, progressive, and reputation façades framework (Abrahamson and Baumard in The Oxford Handbook of Organizational Decision Making, pp 437–452, 2008).

Our primary findings suggest that the annual reports show peaks of disclosure amounts on corruption and compliance disclosures earlier than sustainability reports, which can be partly explained by analysing the disclosures made about—and to—the different stakeholder groups.

The authors find that the annual report focuses more on internal stakeholders such as employees, while the sustainability report focuses more on external stakeholders such as suppliers. The authors also find that the company uses the façades differently depending on which report is being analysed.

Renata Blanc, Charles H. Cho, Joanne Sopt & Manuel Castelo Branco. 2019. Disclosure Responses to a Corruption Scandal: The Case of Siemens AG.
Journal of Business Ethics, 156(2), 545–561.


Fraudulent financial reporting and technological capability in IT 
Motivated by the disproportionately high incidence of fraudulent financial reporting in the IT sector where technological capability is a major source of competitive advantage, this study investigates the possible relationship between technological capability and fraud probability in the IT sector.

Technological capability is measured by a firm’s technical efficiency relative to peers in transforming cumulative R&D resources into innovative output, which is a source of competitive advantage, according to the resource-based view (RBV) of the firm.

Technical efficiency is estimated via data envelopment analysis. A sample of fraud firms taken from Accounting and Auditing Enforcement Releases is matched with control samples of non-fraud firms.

Consistent with the RBV, technological capability is found to have a negative and economically significant effect on fraud probability. Moreover, fraud probability is insignificantly associated with the scale efficiency of innovative activities, as investment in R&D resources per se is not a source of sustainable competitive advantage.

Michael K. Fung. 2019. Fraudulent Financial Reporting and Technological Capability in the Information Technology Sector: A Resource-Based Perspective. 
Journal of Business Ethics, 156(2), 577–589.