University of Washington-Tacoma’s Milgard School of Business

TACCT521: International Accounting

Spring, 2016

Corporate Social Responsibility Reporting As Analyzed by Independent Variables

Prepared by:

Caron Schmidt

Jamey Schoeneberg

Miriam Krause

Yalun Liu

Presented to:

Dr. Shahrokh M. Saudagaran

May 25, 2016

TABLE OF CONTENTS U.S. RANKING FOR NATIONALITY ANALYSISU.K. RANKING FOR NATIONALITY ANALYSIS RANKINGS FOR INDUSTRY ANALYSIS

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INTRODUCTION

Companies worldwide strive toward many objectives beyond just

crunching numbers to arrive at the bottom line. Although profits are a key driver

to most management decisions, increased competition has led many companies

to go above and beyond what is required of them in order to appeal to potential

investors and other stakeholders. Companies are continuously seeking different

ways to not only improve performance, but to protect their assets, and win

shareholder and stakeholder trust. One of the ways companies are

accomplishing this is by implementing Corporate Social Responsibility (CSR)

reporting.

With the arrival of the 21st century, the concept of CSR reporting emerged.

In today’s world, companies worldwide report their social responsibility efforts as

a best practice. CSR reporting has become an important component of

employee, shareholder, and stakeholder relations, as its focus on sustainability

gears organizations around the world toward managing their environmental and

social impacts. As a byproduct of increasing sustainability efforts, CSR reporting

also serves as a way for companies to differentiate themselves in the competitive

market and to foster employee loyalty, as well as investor trust and confidence

(The Value of Sustainability Reporting).

There are many benefits to CSR reporting, including building a better

reputation, meeting expectations of employees, improving access to capital, and

increasing efficiency and reducing waste. Since companies are required to

gather information that they may not otherwise be collecting for financial

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statement purposes, they are equipped with new data that can provide them with

the necessary tools to reduce their use of natural resources, increase efficiency,

and improve their operational performance (The Value of Sustainability

reporting). Essentially, if companies truly are making efforts to make operations

more efficient, it will likely cut costs and create a win-win scenario for both the

company and society.

METHODOLOGY

We selected a sample of 50 companies, 25 of which are headquartered in

the United States of America and the other 25 are headquartered in the United

Kingdom. These companies are further broken down into five industries: airline,

hospitality, pharmaceutical, auto, and residential development. In regards to our

sample, in each country there are five companies in the airline industry, five in

hospitality, five in pharmaceutical, four in auto, and six in residential

development. The reason there are not five companies in each industry is

because there are not five automotive companies headquartered in the U.S. that

are not subsidiaries of foreign or domestic companies.

Our sample of companies consists of companies with some sort of CSR

report or information regarding sustainability located on its corporate website.

Furthermore, these companies all clearly indicated gross revenues. Companies

that did not provide information regarding their financial position or their

sustainability were not included as part of our sample.

With the 50 companies chosen, we use the Global Reporting Initiative’s

reporting guidelines to assess the quality of the companies’ CSR reports. The

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Global Reporting Initiative (GRI) serves as the premier standard and reporting

assistance in the world. Their commitment is to improving sustainability and

disclosures by assisting both firms and users in understanding the reporting of a

firm’s CSR actions and goals. GRI’s reporting guidelines are based on their G4

standard, which lists the following principles that should define the reported

content in a firm’s CSR: stakeholder inclusiveness, sustainability content,

materiality, and completeness. It is important to identify the stakeholders that will

assist in identifying the needed scope of the report that aligns with stakeholders’

interests and expectations. The report should also be placed in the proper

context of economic, environmental, and social conditions. To bring focus to the

report, a materiality threshold should be considered, which reflects the context

and interests of stakeholders. Finally, the basis of the report should be complete

and sufficient. This paper utilizes these principles to evaluate a firm’s CSR report

from a user perspective. Each principle was evaluated as non-existent, poor, fair,

and above expectations with the score of 0 - 3, respectively.

The GRI G4 rating also gives the following framework to score the quality

of each report on the following attributes: balance, comparability, accuracy,

timeliness, clarity, and reliability. A balanced report will give an unbiased picture

of the firm’s current condition, identifying both favorable and unfavorable material

results. It is important that the report clearly distinguish between facts and

interpretation of those facts. The report should be comparable over years, which

will assist stakeholders in identifying progress toward goals.

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Accuracy of the report is evaluated by sufficiency of information to

determine firm performance. This is determined by measurable data, which

should include both qualitative and detailed quantitative information. The report

should also be presented with timely, relevant, and reliable information to assist

stakeholders in evaluating the current status of the firm. All this information

should be written in a manner that is understandable and accessible to its users.

Finally, the information in the report should instill confidence in the reliability of

the information that is supported by internal controls.

This paper evaluates the quality of the CSR reports based on the prior

attributes of balance, comparability, accuracy, timeliness, clarity, and reliability.

Each attribute was evaluated as non-existent, poor, fair, excellent with the score

of 0 - 3, respectively. Because of the limits of this paper, the comparability

attribute for a firm’s CSR reports will be assumed to be consistent and given a

score of 3.

HYPOTHESES

For each category of analysis, before rating any CSR reports, we noted a

hypothesis based on what we anticipated our results would show. Our

hypotheses assume that the country, industry, etc. with the highest overall score

will have the CSR reports that are more user-oriented and useful. Our

hypotheses are based on knowledge gained from empirical studies reviewed in

class, group discussions, and independent assumptions and opinion. Our

hypotheses are as follows:

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i. H1: CSRs will be more useful if U.S. companies rather than U.K.

companies report them.

ii. H2: CSR reports in the airline and hospitality industries will be of higher

quality than the other examined industries.

iii. H3: CSR reports will be higher quality in larger companies.

iv. H4: CSR reports will be more useful to users of these reports if older

companies rather than newer companies report them.

ANALYTICAL FINDINGS

CSR reports were analyzed according to GRI criteria and scores were

compiled based on four different categories: nationality, industry, size, and age.

Each category was analyzed independently and did not take into consideration

the other variables.

Nationality as a Determinant of CSR Usefulness

In this study, one of the research methods was using the country as a

determinant to evaluate the usefulness of CSR. First, we classified all 50

companies into two categories by their nations, then we calculated the average

principle scores, average attribute scores, and the average total scores as well

by these two categories, as shown in the following Table #1.

Table #1

CountryPrinciple

MeanAttribute

MeanCumulative

MeanU.S. 10 15.04 25.04U.K. 8.8 14.12 22.92

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We can see from the table above, both average principle score and

average attribute score of US companies are higher than those of U.K.

companies. The average principle score of US companies is 10 while the

average principle score of U.K. companies is 8.8; the average attribute score for

US companies is 15.04 but for U.K. companies is 14.12. Therefore, on average,

the total ranking of each US companies is 2.12 times greater than the total

ranking of each U.K. companies.

To further research, we analyzed the companies in each country based on

their total ranking from the highest to lowest score (See Appendices A and B).

We found that the number of companies that had a cumulative score of over 25

is higher in the U.S. as compared to in the U.K. sample. By contrast, the number

of companies with a cumulative score of less than 5 is greater in the U.K. group

than in the U.S. group. Overall, the sample of U.S. companies had better CSR

reports than the sample of U.K. companies. Therefore, H1 is affirmed.

As a stakeholder, it is highly possible that the nationality of a company is

an important factor when deciding whether or not to invest in it. The quality of a

company’s CSR reports is also important while making this decision. Therefore, if

it were possible to know that one country’s CSR reports were more useful and

reliable than another’s, an investor would likely prefer to invest in the company

with the more quality CSR reporting. Since our studies found that, at least in this

case, CSR reports of U.S. companies are better than those of U.K. companies,

and therefore an investor would be more likely to invest in one of the U.S.

companies than one of the U.K. companies.

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Industry as a Determinant of CSR Usefulness

As a part of our analysis on Corporate Social Responsibility reporting, we

examined the relationship between industry and CSR cumulative mean score

(based on the GRI standards). Our objective was to determine whether we

identified a trend associated with CSR reporting quality based on type of

industry, without the consideration of any other variable (such as location, age,

size, etc.).

Our sample consisted of 50 companies, which included eight companies

from the automobile industry, 12 from the residential development industry, and

10 from both the hospitality and pharmaceutical industries. Each company’s CSR

reports were rated on a cumulative (sum of principle and attribute criteria) scale

from 0-30, and averaged. Our findings can be observed in Table #2 below.

Table #2

Industry# of

FirmsPrinciple

MeanAttribute

MeanCumulative

MeanCumulative

RankAutomobile 8 8.5 13.4 21.9 4Residential Development 12 8.5 12.1 20.1 5Airline 10 10.7 17.1 27.8 1Hospitality 10 9.2 14.1 23.3 3Pharmaceutical 10 10.1 16.4 26.5 2

The airline industry had the highest cumulative average score of 27.8.

Following closely behind was the pharmaceutical industry with a cumulative

average score of 26.5. The hospitality industry had a score of 23.3. The

automobile industry had a score of 21.9. Lastly, the residential development

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industry had the lowest cumulative average score of 20.1. See Appendix C to

better understand how the mean amounts were calculated for each industry.

With regards to our H2, our overall results show that the airline and

pharmaceutical industries had CSR reports with the most user-oriented

information available for stakeholders who are interested in social responsibility

practices. Although the hospitality, automobile, and residential development

industries had lower cumulative scores, we found them to be fairly informative

and useful for stakeholders as well. Our hypothesis was partially confirmed.

It is important for users of CSR reports to consider industry variables when

comparing the usefulness of CSR reports. Standards vary from one industry to

the next, and what is crucial in one industry may be immaterial in another. For

example, the airline industry may address fuel consumption in its sustainability

reporting, whereas the hospitality or residential development industry would not

likely address such a component. If a stakeholder was comparing CSR reports,

the fact that a hospitality company CSR report lacks information about fuel

sustainability efforts does not make it inferior to the airline CSR statistics. Users

must remember to keep these types of variations in mind when making decisions

based on CSR reporting.

Size as a Determinant of CSR Usefulness

We chose to classify the 50 evaluated firms by their 2014 total revenue in

USD into four different classifications: $0 - $3,000M, $3,000M - $7,500M,

$7,500M - $50,000M, and firms over $50,000M. The smallest firms by size made

up 32 percent of the surveyed firms. The next two classifications by firm sizes

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each contain 24 percent of the firms. The final classification, which contained the

largest firms, represented 20 percent of the surveyed firms. A CSR mean of each

classification was taken on the basis of principle, attribute, and total rating. Our

findings are presented in Table #3.

Table #3

CategoryTotal Revenue

(In millions)# of

FirmsPrinciple

MeanAttribute

MeanCumulative

Mean1 0 - 3,000 16 7.44 12.19 19.632 3,000 - 7,500 12 10.58 15.5 26.083 7,500 - 50,000 12 11.08 17 28.084 50,000 + 10 10.4 16.1 26.5

Possible 50 12 18 30

As the table shows, the principle score for the revenue classifications from

the smallest to the largest firms was 7.44, 10.58, 11.08, and 10.4, out of a

possible score of 12. The attribute score for each revenue class from smallest to

largest was 12.19, 15.5, 17, and 16.1, out of a possible 18 points. The total score

for each revenue class from smallest to largest was 19.63, 26.08, 28.08, and

26.5, out of a possible 30 (Table #3). Appendices D through G show the attribute,

principle, and cumulative scores for each individual company in each of the four

categories.

The smallest firms had the lowest scores in both principle and attribute,

which lead us to believe our H3 would be confirmed. This may be due, in part, to

limited resources and limited public demand in relation to firm’s size. This study

showed a positive relationship between firm growth and CSR scores to a point.

However, at the highest classification level scores receded slightly, forcing us to

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reject our H3. Approximately two-thirds of the reduction was due to lower

attribute scores. This reduction was primarily caused by the reports receiving a

lower score in regards to balance reporting. The larger firms were more likely to

only report positive outcomes from CSR activities and negated to list limitations

or challenges the firms may have been experiencing in attaining their goals.

The firms with the highest total CSR scores were in the $7,500 - $50,000

(in millions) classification. This classification maintained the highest mean in both

principle and attribute score. These firms had complete and easy to understand

reports, showing both successes and challenges in attaining goals. As a

collective, they also included more stakeholders than other firms. This may be

due to their competition with the larger firms and the need to increase credibility

with stakeholders. Because the largest firms have very strong brands and very

loyal customers, this may reduce their need to expose themselves to possible

negativity by reporting unfavorable information.

Age as a Determinant of CSR Usefulness

To determine whether age serves as a determinant of CSR usefulness,

we researched the age of each of the 50 companies, compiled the findings in a

table, and organized the 50 companies based on their age from the oldest

company to the youngest company. We then grouped the companies into three

groups, two of which were analyzed. The oldest 21 firms and the youngest 21

firms were analyzed to determine if the age of the company affects the

usefulness of CSRs. The firms that did not fit into these two categories were not

analyzed. Furthermore, the reason for choosing 21 of the companies with the

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greatest number of years in business and those with the fewest, within our

sample, was simply for aesthetic purposes. Had we chosen to analyze 20 firms in

the two age categories the largest number in Category 2 would have stopped at

39 years instead of 40 and the smallest number in Category 1 would have started

at 71 rather than 70. We believed that visually it made sense to simply extend

each group by one company, making the number of firms in each of the two

categories equal to 21.

What we found while analyzing these two groups is that, overall, the older

firms have better CSR reports than the younger firms, confirming our H4. Though

the low and high principle, as well as the high attribute and the high overall

ranking, are the same for each category of companies, the low attribute is one

point lower for the younger companies. In addition, the low overall rank for the

younger companies is lower than that of the older companies.

Regarding the means, the principle, attribute, and overall ranking

averages are 11.15, 16.9, and 28.05, respectively, for the older companies. For

the younger companies, the averages for these three rankings are 9.05, 14.15,

and 23.2, respectively. These results are also evident below, in Table #4. See

Appendices H and I for a more thorough table of findings.

Table #4

Category Age# of

FirmsPrinciple

MeanAttribute

MeanCumulative

Mean

170-179 Years 21 11.15 16.9 28.05

20-40

Years 21 9.05 14.15 23.2

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There is a drastic difference in the number of years in each category of

companies, which likely contributes to the conclusion that older firms, within our

sample, have better CSR reports than the younger firms. The total years that

Category 1 companies have been in business add up to 2,063 years, as opposed

to the total number of Category 2 years, which equals 519 years. The average

years of a company in Category 1 and Category 2, therefore, are roughly 98 and

25 years, respectively. With this large difference in age, it is understandable that

the older firms would have more quality CSR reports, because they have likely

been reporting on their sustainability efforts longer than the newer companies,

and likely have more knowledge as to what is expected of them.

What this all means for users of CSR reports is that they can likely expect

that older companies will have better quality CSR reports. If an investor is trying

to determine a company to invest in, and this decision were based on the

usefulness or its CSR reports, the investor would likely choose to invest in an

older company in our sample instead of a newer one.

CONCLUSION

After collecting a sample of companies with specific characteristics and

observing their CSR reports, we came to a conclusion on four hypotheses. Our

first conclusion is that CSR reports in the United States are more useful than

those in the United Kingdom. The second conclusion is that CSR reports in the

airline and pharmaceutical industries are more user-oriented. Third, we found

fairly inconclusive results regarding size as a determinant of the usefulness of

CSR reports because, though the cumulative mean rose as the gross revenue

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increased, in the highest-revenue category the cumulative mean dropped. Our

fourth hypothesis was confirmed, affirming our belief that older, more

experienced, companies would likely have higher quality CSR reports than

younger, inexperienced firms. What this means to the users of CSR reports is

that, at least in regard to our sample, they would generally find better, more user-

friendly CSR reports in companies in the United States, in the airline and

pharmaceutical industries, in companies with moderately high gross revenues,

and in older firms.

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APPENDICES

Appendix A: U.S. Ranking for Nationality Analysis

Ranking (U.S.) # of Firms

30 10

29 1

28 4

27 1

26 1

24 2

22 1

20 1

17 1

14 1

9 1

2 1

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Appendix B: U.K. Ranking for Nationality Analysis

Ranking (UK) # of Firms

30 8

29 3

28 1

27 1

26 2

24 1

23 1

22 1

21 1

16 1

13 1

11 1

4 2

1 1

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Appendix C: Rankings for Industry Analysis

Automobile Principle Total

Attribute Total

Cumulative Total

Ford 12 18 30General Motors 12 16 28Chrysler 12 16 28Polaris 4 10 14Jaguar 12 18 30Vauxhall 3 8 11Lotus Group International Limited

1 3 4

Aston Martin 12 18 30Industry Mean 8.5 13.375 21.875Residential DevelopmentMeritage Homes Corp 2 7 9KB Home 11 13 24Brooksfield Property Partners 12 16 28CBRE 12 17 29Taylor Morrison 1 1 2Barratt Developments PLC 12 18 30Persimmon Public Limited Company

8 14 22

Taylor Wimpey PLC 12 17 29McCarthy & Stone 1 0 1Bellway PLC 12 18 30The Berkeley Group Holdings PLC

10 14 24

Pultegroup, Inc. 9 11 20Industry Mean 8.5 12.167 20.67AirlineAlaska Airline 10 16 26Allegiant Air 11 16 27American Airlines 12 18 30Delta Airlines 12 18 30United Airlines 11 17 28EasyJet 12 18 30British Airways PLC 7 16 23Virgin Atlantic Airways Limited

10 16 26

Thomas Cook Airlines 10 18 28Flybe Limited 12 18 30Industry Mean 10.7 17.1 27.8

16

HospitalityHilton Worldwide 12 18 30Hyatt 12 18 30MGM Resorts 12 18 30Wyndham Hotel Group 12 18 30Marriott International 12 18 30Hand Picked Hotels 1 3 4Guoman Hotel Holdings Limited

8 13 21

JD Wetherspoon Hotels 5 11 16Intercontinental Hotel Groups 12 17 29Principal Haley Hotels 6 7 13Industry Mean 9.2 14.1 23.3PharmaceuticalThe Proctor & Gamble Co 12 18 30Johnson & Johnson 12 18 30Pfizer Inc. 7 10 17Merck & Co., Inc. 8 14 22Gilead Sciences, Inc. 8 16 24GlaxoSmithKline 12 18 30Reckitt Benckiser Group PLC 10 17 27Shire PLC 10 17 37Hikma Pharmaceutical Public Limited Company

11 18 29

Industry Mean 10.1 16.4 26.5

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Appendix D: Category 1 of Size Analysis

Name Principle AttributeRanking

Total

Gross Revenue

($) CategoryMERITAGE HOMES CORP 2 7 9 2170 1ALLEGIANT AIR 11 16 27 1262 1LOTUS GROUP INTERNATIONAL LIMITED 3 8 11 144 1ASTON MARTIN 1 13 14 727 1MCCARTHY & STONE 1 0 1 747 1THOMAS COOK AIRLINES (UK) LIMITED 10 18 28 1620 1FLYBE LIMITED 12 18 30 852 1HAND PICKED HOTELS 1 3 4 14 1GLH HOTELS HOLDINGS LIMITED 8 13 21 376 1JD WHETHERSPOON HOTELS 5 11 16 2360 1INTERCONTINENTAL HOTEL GROUPS 12 17 29 1800 1PRINCIPAL HALEY HOTELS 6 7 13 1609 1TAYLOR MORRISON 12 10 22 2977 1VAUXHALL 12 18 30 2900 1BELLWAY PLC 12 18 30 2750 1HIKMA PHARMACEUTICALS PUBLIC LIMITED COMPANY 11 18 29 2600 1

119 195 314Mean 7.4375 12.1875 19.625

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Appendix E: Category 2 of Size Analysis

Name Principle AttributeRanking

Total

Gross Revenue

($) CategoryPOLARIS 4 10 14 4719 2KB HOME 11 13 24 4409 2BROOKSFIELD PROPERTY PARTNERS 12 16 28 4853 2ALASKA AIRLINE 10 16 26 5598 2HYATT 12 18 30 4328 2PERSIMMON PUBLIC LIMITED COMPANY 8 14 22 4300 2TAYLOR WIMPEY PLC 12 17 29 4650 2THE BERKELEY GROUP HOLDINGS PLC 10 14 24 3260 2VIRGIN ATLANTIC AIRWAYS LIMITED 12 14 26 3960 2WYNDHAM HOTEL GROUP 12 18 30 5281 2BARRATT DEVELOPMENTS PLC 12 18 30 5910 2EASYJET 12 18 30 7180 2

127 186 313Mean 10.58 15.5 26.08

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Appendix F: Category 3 of Size Analysis

Name Principle AttributeRanking

Total

Gross Revenue

($) CategoryPULTEGROUP, INC. 9 11 20 8970 3UNITED AIRLINES 11 17 28 9036 3MGM RESORTS 12 18 30 9190 3CBRE 12 17 29 10856 3HILTON WORLDWIDE 12 18 30 10502 3MARRIOTT INTERNATIONAL 12 18 30 14486 3BRITISH AIRWAYS PLC 7 16 23 18200 3SHIRE PLC 10 17 27 16610 3AMERICAN AIRLINES 12 18 30 40990 3DELTA AIRLINES 12 18 30 40704 3JAGUAR 12 18 30 21866 3RECKITT BENCKISER GROUP PLC 12 18 30 22630 3

133 204 337Mean 11.08 17 28.08

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Appendix G: Category 4 of Size Analysis

Name Principle AttributeRanking

Total

Gross Revenue

($) CategoryGILEAD SCIENCES, INC 8 16 24 51840 4GLAXOSMITHKLINE 12 18 30 79230 4ASTRAZENECA PLC 9 17 26 60120 4FORD 12 18 30 149558 4GENERAL MOTORS 12 16 28 155929 4CHRYSLER 12 16 28 149558 4THE PROCTOR & GAMBLE COMPANY 12 18 30 129500 4JOHNSON & JOHNSON 12 18 30 133410 4PFIZER INC. 7 10 17 167460 4MERCK & CO., INC 8 14 22 101780 4

104 161 265Mean 10.4 16.1 26.5

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Appendix H: Category 1 of Age Analysis

Age Principal Attribute Ranking Total179 12 18 30

130 12 18 30

113 12 18 30

112 12 18 30

110 12 17 29

108 12 16 28

103 1 3 4

102 12 18 30

97 12 18 30

97 10 18 28

96 12 16 28

92 12 18 30

90 11 17 28

88 8 14 22

86 12 18 30

84 10 16 26

81 12 18 30

80 8 13 21

74 7 10 17

71 12 18 30

70 12 18 30

TOTAL 2063 223 338 561

AVERAGE 103.15 11.15 16.9 28.05

HIGH 70 12 18 30

LOW 179 1 3 4

Appendix I: Category 2 of Age Analysis

Age Principal Attribute Ranking Total40 10 14 2439 1 0 1

22

37 12 18 3037 5 11 1635 12 18 3035 12 17 2932 10 16 2631 2 7 930 12 18 3030 10 17 2729 8 16 2423 12 18 3023 9 17 2621 12 18 3019 11 16 2717 1 3 411 11 18 2910 6 7 139 12 17 298 1 1 23 12 16 28

TOTAL 519 181 283 464AVERAGE 25.95 9.05 14.15 23.2

HIGH 40 12 18 30LOW 3 1 0 1

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Works Cited

Global Reporting Initiative. (2013) G4 Sustainability Guidelines: Reporting

Principles and Standard Disclosures. Netherlands. Retrieved from:

https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-

Principles-and-Standard-Disclosures.pdf

Global Reporting Initiative. (2013) G4 Sustainability Guidelines: Implementation

Manual. Netherlands. Retrieved from:

https://www.globalreporting.org/resourcelibrary/GRIG4-Part2-

Implementation-Manual.pdf

The Value of Sustainability reporting. (n.d.). Retrieved from:

http://www.ey.com/US/en/Services/Specialty-Services/Climate-Change-

and-Sustainability-Services/Value-of-sustainability-reporting

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