Management Question

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 2
Business Ethics and Organization Social Responsibility (MGT
422)
Due Date: 3/8/2024 @ 23:59
Course Name: Business ethics and
organization social responsibility
Course Code: MGT 422
Student’s Name:
Semester:
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Student’s ID Number:
Academic Year:2023-24-1st
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
Marks Obtained /Out of 15
Level of Marks: High/Middle/Low
General Instructions – PLEASE READ THEM CAREFULLY
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pictures containing text will be accepted and will be considered plagiarism).
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Learning Outcomes:
No
CLO-6
Course Learning Outcomes (CLOs)
Write coherent project about a case study or actual research about ethics
The content is available for free download in knowledge resource from the SEU
homepage:
Read the following article.
Romero, S. & Fernandez-Feijoo, B. (2013). Effect of Hofstede’s Cultural Differences in
Corporate Social Responsibility Disclosure. International Journal of Information Systems
and Social Change (IJISSC), 4(1), 68-84.

available in SDL and answer the following questions:
1. Give a summary of the several viewpoints the author addresses in the study on
cultural differences in CSR disclosure, referencing relevant sources. (Not less than
400 words-4 Marks)
2. Explain the elements in Hofstede’s list of cultural characteristics. (Not less than 400
words-4 Marks)
3. Describe how the author adopted the Hofstede framework, using relevant sources.
(Not less than 600 words- 7 Marks)
68 International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013
Effect of Hofstede’s Cultural
Differences in Corporate Social
Responsibility Disclosure
Silvia Romero, Montclair State University, Montclair, NJ, USA
Belen Fernandez-Feijoo, Department of Finance and Accounting, Universidade de Vigo,
Vigo, Spain
ABSTRACT
This paper looks at culture differences in sustainability reporting among countries. The authors use data from
the survey conducted by KPMG in 2008 within 22 countries, applying Hofstede’s framework. The authors find
an effect of culture on the interest in highlighting the credibility of sustainability reports in different countries.
Level of corporate social responsibility disclosure, on the other hand, does not change with cultural differences,
but with the levels of enforcement of the regulations. The results are revealing, given that assurance statements
are not mandatory. Companies in countries with collectivistic characteristics and low power distance do not
need to increase their credibility in terms of the disclosure levels of corporate social responsibility; they are
democratic and careful of their inner group. On the contrary, companies in countries with individualistic
characteristics and high power distance need to run the extra mile to show their commitment and guarantee
that their reporting on social responsibility is transparent.
Keywords:
Corporate Social Responsibility, Cultural Differences, Hofstede, KPMG Survey, Sustainability
INTRODUCTION
Reporting on Corporate Social Responsibility
(CSR) is increasing worldwide, as evidenced
by the KPMG international survey conducted
every three years. The purpose of the survey
is “to gain insight into CSR reporting and to
contribute to the evolving global dialog on
transparency and accountability” (p. 2). In
the 2008 survey (KPMG, 2008) they find an
increase from 50% to 80% of reporting in the
companies interviewed, which they define as
a “shift with CSR becoming the norm instead
of the exception” (KPMG, 2008). The level
of disclosure changes along countries and industries. Some of the differences are produced
because the countries in which the companies
operate have rules asking for mandatory disclosure (e.g., UK, Japan and Australia), while
in others, companies are just starting to involve
themselves in CSR and report on a voluntary
basis. Even in countries with regulation, the
DOI: 10.4018/jissc.2013010105
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International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013 69
degree of disclosure is affected by the role of
enforcement in the society. The comparison
among their practices is difficult, since CSR has
different meanings. While for some companies it
refers to “sending employees off to volunteer at
a local not-for-profit organization or committing
a certain percentage of profits to a good cause”
(Fenn, 2011), to other companies it means making conscious usage of natural resources, or
taking care of their immediate environment. In
this line, Gallego (2006, p.95) posit “some of the
objectives that companies hope to obtain with
sustainable development are social progress,
protection of the environment, prudent use of
natural resources and the maintenance of stable
levels of economic growth.” Similarly, Adam
and Shavit (2009, p. 298) consider “disclosure
and transparency” as incentives for boards to
invest in CSR to insure better governance. Kemp
(2010, p. 553) affirms that organizations “must
base decisions on a combination of intellect
(brains), emotionality (heart), and a sense of
purpose (courage).”
In terms of credibility of sustainability
reports, the inclusion of assurance statement
with the sustainability report is not mandatory,
which limits the value of the assurance statement. For example, we did not find assurance
statements indicating a low quality of corporate
sustainability reporting in the Global Reporting
Initiative (GRI) website for Spain during 2009.
We cannot assure, however, that there were
none; this fact simply indicates that they were
not released. The lack of mandatory assurance
can therefore make the assurance statement a
tool to convey reported credibility to the report,
rather than actually increasing its credibility.
Cultural factors in each country affect the
behaviour of their constituents, including their
understanding of CSR (Orij, 2010; Vachon,
2010; Steurer, Langer, Konrad, & Martinuzzi,
2005; Scholtens & Dam, 2007). Hofstede (1997)
presents a discussion about cultural differences
among companies based on the results of the
analysis of the responses of employees of IBM
in different countries. Those differences relate
to five dimensions, namely, power distance
(PD), individualism/collectivism, masculinity/
femininity, uncertainty avoidance (UA), and
long or short-term orientation. Finally, previous research found industry as determinant of
disclosure level, with industries considered
more “dangerous” to the environment like oil
or chemicals found to disclose more than companies in other industries (Fernandez-Fejjoo,
Romero & Ruiz, 2012; Monteiro & AibarGuzman, 2010; Perrini, Russo, & Tencati, 2007;
Lattemann, Fetscherin, Alon, Li, & Schneider,
2009; Broberg, 2010).
The purpose of this study is to determine
how cultural differences affect the levels and
credibility of disclosure on CSR. We extend
the existing literature on CSR by looking at
differences in reporting among countries using
the Hofstede’s model as well as other variables
found in literature. We choose Hofstede’s model
because it has been used extensively in research
(e.g., Scholtens & Dam, 2007; Vachon, 2010;
Orij, 2010; Swaidan & Hayes, 2005) and it
provides a framework with general characteristics of culture for the countries included in
the sample. The following section discusses
the KPMG survey, continued by a description
of Hofstede’s model and the literature review
focused on culture, CSR and ethics. We then
present the hypotheses development followed
by the methodology and concluding with the
results and analysis.
THE KPMG SURVEY
The survey conducted in 2008, examines CSR
reporting practices of the global fortune 250
plus the 100 largest companies by revenue in 22
countries (around 2400 companies). It includes
only information available in the public domain,
which includes data about reporting practices
as well as demographic data at the country
and industry levels. Given that our purpose is
to evaluate the effect of country culture in the
levels of CSR reporting, we only consider in
this study those variables for which country
data is included. These variables are:
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70 International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013
1.
2.
3.
4.
Disclosure of CSR strategy. The survey
assess if reporting by leading companies
is linked or not to broader corporate strategies and management approaches. They
find that around 75% of the Global 250
companies disclose their sustainability
strategy and issue a sustainability report.
Only 37 companies that issue a report do
not disclose their strategy, and 13 of the
companies with strategy do not provide a
report.
Existence of stand-alone reports. The survey shows that nearly 80% of the largest
companies in the world issued reports,
while 4% included the information in the
financial statements. Japan and the UK
are at the top of the countries, with 88%
and 84% of the companies providing
stand-alone reports. The report states “the
potential of regulation, along with the tendency of economic stakeholders (investors,
customers) to demand greater social and
environmental information, could stimulate
widespread integration of corporate responsibility information into annual reports.”
And “integrating corporate responsibility
information into annual reports may meet
the needs of some stakeholders, but may
exclude others” (p. 16).
Reporting on business opportunities and
financial value of CSR. The report finds
“54 percent of the G250 have disclosed
business opportunities and or the financial
value of corporate responsibility” (p.25).
They express that “this value could be in
terms of bottom line savings due to efficiency or risk aversion, or top line growth
due to new innovations in products and
services as direct response to social or
environmental challenges” (p. 25). The
report also states that criticism to CSR
are diminishing since “implementing and
committing to a corporate responsibility
strategy appears to be paying off” (p. 27).
Reporting of supply-chain risks. The report
finds that 63 percent of the G250 companies are reporting on this topic (p.46).
5.
6.
This area involves reporting not only on
the company’s risk, but also on the risks
of its supply chain; since “high profile
environmental, quality, and human rights
crises have put supply chain risk in the
spotlight” (p. 46).
Reporting on carbon footprint. The report
finds that although nearly half of the G250
companies report on carbon emission, 62%
of N100 do not. UK is the leader in this
area of disclosure. The survey also finds
that most companies are working on the
reduction of their carbon footprint.
Inclusion of Assurance Statement (AS).
The report finds that only a minority of
the companies include AS in their Sustainability Reports. They also find that some
companies include the commentaries of
a panel of stakeholders or experts in the
field.
HOFSTEDE’S MODEL
Hofstede (1997) presents an analysis of cultural
differences among countries. He identifies and
defines four dimensions to explain the variance
in the behavior of industrial employees in 74
countries. These four dimensions describe
different perspectives for the structure of an
organization and for the motivation of people in
an organization and within society. The defined
dimensions of cultural characteristics are:
1.
Power Distance (Small to Large): A low
index value is associated with societies
where power is based on formal position,
expertise, and ability to give rewards.
These societies are more democratic and
governments are based on the outcome of
majority of votes. They can be considered
as more transparent. On the other hand,
large power distance societies are characterized by power based on family or
friends, charisma, and ability to use force.
Their governments are mostly autocratic
or oligarchic.
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International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013 71
2.
3.
4.
Collectivism vs. Individualism: Individualistic societies require its members to
look after themselves and their immediate
family. There are societies that act professionally, objectively and universally, being
them more transparent. In collectivistic
societies, on the other hand, people are integrated into strong cohesive groups in which
members protect themselves. He found that
in collectivistic societies identity is based
on the group. In individualistic societies,
on the other hand, identity is based on the
individual. Collective interest prevails over
individual interest in collective societies,
while in individualistic societies individual
interests prevail.
Femininity vs. Masculinity: The masculinity index groups those characteristics
related to earnings, recognition, advances
and challenge. Feminine characteristics
are those related to management, cooperation, living area and employment security.
Hofstede discusses that while in feminine
societies the dominant values are caring
for others, consensus and resolution of
conflicts by compromise and negotiation,
masculine societies value material success
and progress, and stress equity, competition
and performance.
UncertaintyAvoidance (Weak to Strong):
This index measures the difficulties in the
society to confront unexpected situations.
Countries with weak uncertainty avoidance find uncertainty as normal and each
day is accepted as it comes. On the other
hand, societies with strong uncertainty
avoidance find uncertainty as a threat and
fight it. They have an emotional need for
rules and strict laws due to their search for
precision and formalization.
Hofstede and Hofstede (2005) include a
fifth dimension, namely long-term and shortterm orientation, which is based on Confucius’
pragmatic rules. Long-term orientation represents societies focused on future rewards; in
particular, perseverance and thrift. Short-term
orientation represents the recognition of virtues
related to the past and present, in particular,
respect for tradition and fulfilling social obligations. These differences are notorious between
eastern and western cultures but with little differences between other groups. Besides that, three
out of the 22 countries in the sample are not
included in Hofstede’s list. Therefore, we only
include in the study the first four dimensions
as done in other studies like Vachon (2010).
Table 1 presents the cultural dimensions for
the participating countries.
LITERATURE REVIEW
There is a body of literature looking at differences in sustainability assessment and ethical
issues among countries. Some of them present
comparisons of managers’ ethics. For example,
Robertson, Hoffman, and Herrmann (1999)
find that Ecuadorian managers are more ethically oriented towards the environment than
Americans, and Armstrong and Sweeney (1994)
report that Australian managers find ethical
problems of greater concern than managers in
Hong Kong. Other studies compare perceptions
of students. Among them, Wong, Long, and
Elankumaran (2010) conduct a survey among
business students in the U.S., China, and India,
to find cultural differences. For example, they
find that American and Indian students assign
more importance to non-economic factors of
CSR, Indian students assign higher value to
philanthropy, and American students emphasize
legal obligations. Regarding perceptions of
consumers, Singhapakdi, Rawwas, Marta, and
Ahmed (1999) find that Malaysian consumers
would be less sensitive to unethical marketing practices than Americans. Finally, there is
another set of papers that deal with reporting.
In this line, Guthrie & Parker (1990) reviewed
disclosures related to the environment, energy,
human resources, products, community involvement and others, and found that disclosures in
Australia (measured by number of pages of
the report) were low compared to UK and the
U.S. Adams and Kuasirikum (2000) compared
UK and German chemical and pharmaceutical
companies, looking at ethical reporting. They
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72 International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013
Table 1. Hofstede’s cultural dimensions
Country
PD
Individualism
Masculinity
UA
Short/Long
orientation
Score
Score
Score
Score
Score
Australia
36
90
61
51
31
Brazil
69
38
49
76
65
Canada
39
80
52
48
30
Czech Republic
57
58
57
74
13
Denmark
18
74
16
23
46
Finland
33
63
26
59
41
France
68
71
43
86
39
Hungary
46
80
88
82
50
Italy
50
76
70
75
34
Japan
54
46
95
92
80
Mexico
81
30
69
82
Netherlands
38
80
14
53
44
Norway
31
69
8
50
44
Portugal
63
27
31
104
30
Romania
90
30
42
90
South Africa
49
65
63
49
South Korea
60
18
39
85
75
Spain
57
51
42
86
19
Sweden
31
71
5
29
33
Switzerland
34
68
70
58
40
UK
35
89
66
35
25
US
40
91
62
46
29
found that German companies reported more
information and matured to the current level of
disclosure earlier than UK companies. Snider
et al. (2003) examined the legal, ethical and
moral statements available on the websites of
Forbes top 50 US firms and the top 50 non-US
firms. They found that although both groups
concentrate in the same CSR issues, there are
differences in the specificity of the CSR message with regards to their goals and objectives.
Scholtens and Dam (2007) look into human
rights policy, governance of bribery and corruption, and find significant differences among
countries.
term
Among the reasons discussed for differences in reporting, Trotman and Bradley (1981)
find that size, systematic risk and long term
emphasis determine the level of disclosure,
while Fernandez-Feijoo et al. (2012) find that
those variables related to the industry of the
company (sector, size, leverage) are associated
with the quality of the sustainability report.
Most of the studies dealing with size have
found that this is a variable that explains CSR
information disclosure (Belkauoi & Karpik,
1989; Patten, 1991; Scott, 1994; Gray, Kouhy,
& Lavers, 1995; Hussein, 1996; Adams, Hill,
& Roberts, 1998; Jaggi & Low, 2000; Hossain
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International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013 73
& Reaz, 2007). It has been assessed that, in
general, large organizations are widely exposed
to public and media (Falkman & Tagesson,
2008), have a great effect on their community
(Tagesson Klugman, & Ekström, 2011) and
have a considerable press from their stakeholders (Knox, Maklan & French, 2006). Despite
this scenario, there is also a vindication of the
importance of CSR in small and medium size
enterprises (Del Baldo, 2009).
We indicated in the previous section that
there is no requirement to submit the sustainability reports with an assurance statement,
which may make it a tool to manipulate the
credibility of the report. Different scholars
have questioned the value of the assurance
statement. Hasan, Maijoor, Mock¸ Roebuck,
Simnett, and Vanstraelen (2005) report that
the assurance level provided by audit firms is
not high because of the lack of performance
standards, cost/benefit considerations, lack of
evidence and user needs. O’Dwyer and Owen
(2005) analyse the increase in transparency
and accountability provided by the assurance
statements. They find that consultants are more
likely to include a statement of independence
from the client and that the AS is generally
addressed to the managers. They also find that
accountants adopt a more cautious approach,
looking at consistency, and avoiding terms like
‘true and fair.’ Deegan, Cooper, and Shelly
(2006) question the value-added by the assurance process, in terms of the independence of
the assurors. They ask for improvement in the
assurance process. Manetti and Becatti (2009)
report the need of specific guidelines for assurance providers to increase effectiveness and
reliability of assurance services.
Although the influence of cultural characteristics on the level of reporting in CSR in
different countries is expected, it is not frequent
to bound findings to them. Kirkman, Lowe, and
Gibson (2006) review 180 studies published in
40 business and psychology journals, between
1980 and June 2002, to assess the research lines
using Hofstede’s model of cultural characteristics. They identify a set of twenty research areas,
none of them related to CSR or sustainability.
Nevertheless, they assess the validity of Hofstede’s variables as relevant for cross-cultural
research. Using a similar methodology, Taras,
Steel, and Kirkman (2010) conclude that cultural
values, represented in Hofstede’s model, are
strongly related to emotions, followed by attitudes, behaviours, and finally job performance.
These three elements are present in economic,
social and environmental CSR. In a study using
South Korea data, exploring the relationship
between Hofstede’s cultural variables and
public relations practitioners’ perceptions of
CSR, Kim and Kim (2009, p. 493), found that
“individualism was correlated negatively with
CSR models, while UA, collectivism, masculinity, femininity and Confucian dynamism
were correlated positively with CSR.” In other
words, Hofstede’s variables significantly affect
practitioners’ perceptions of CSR in Korea.
However, they find that social traditionalism
values have more power in explaining CSR
attitudes, which is expected from Asian countries. Williams and Zinkin (2008) study the
relationship between attitudes towards CSR
and the Hofstede’s model, in terms of consumer
punishment to irresponsible social behaviour,
using a sample of nearly 90,000 stakeholders
from 28 countries. They find evidence that
differences in consumer behaviour in different
countries are consistent with Hofstede’s cultural
variables. Vachon (2010) find that countries
with high degrees of individualism and UA are
linked with green corporatism, environmental
innovation, fair labor practice and corporate
social involvement.
Demirag and Khadaroo (2011) highlight
that “cultures, forms and mechanisms of accountability may influence behaviour, transparency and value for money (VFM) decisions
in private finance initiative (PFI) processes.”
Since some of the disclosures on CSR relate to
social and environmental issues dealing with
anti corruption and anti discrimination practices,
as well as children and human rights, we look
into the ethics literature to extend our understanding of the impact of cultural factors. Vitell,
Nwachukwu, and Barnes (1993) hypothesize
relationships between ethics and Hofstede’s
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74 International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013
dimensions, without testing them. They expect
that individualistic societies will be more ethical
since they don’t cover up for the group. They
also hypothesize that masculine societies will be
less ethical, given that unethical behavior is usually associated with competitiveness and greed.
Regarding power distance, they hypothesize
that individuals with larger power distance will
be less sensitive to ethical problems. Finally,
individuals with strong uncertainty avoidance
are hypothesized to be more sensitive to ethical problems; as well as individuals with high
Confucian dynamism (long term orientation).
Husted (1999) looks at the impact of national
wealth, income distribution, government size,
and four cultural variables on the perceived
level of corruption in a country. They find that
corruption is significantly correlated with GNP
per capita, power distance, masculinity, and
uncertainty avoidance. He also finds interaction
effects between collectivistic and high power
distance countries. Swaidan and Hayes (2005)
work on the relationship between Hofstede’s
model and cross-cultural ethics. They propose
an ethical profile based on Hofstede’s variables:
individualist, feminine, small power distance,
strong uncertainty avoidance, and long term
orientation individuals and countries will be
more sensitive to ethical problems than collectivist, masculine, large PD, weak UA and
short term orientation individuals and countries.
These results are supported by Scholtens and
Dam (2007). Also with an ethical perspective,
Bernardi (2006) conduct a study with 1537
students from 12 countries, to evaluate the association among social desirability response
bias, cultural constructs measures in terms of
Hofstede’s model and gender. He finds that
women as well as individuals in high UA and
collective cultures would respond in a more
socially desirable manner than male and their
counterparts in individualistic and low UA
countries.
Chiang (2005) uses a cross-cultural comparison of reward preferences in four countries
to test Hofstede’s model to conclude that other
contextual factors, not only country culture,
can be used to explain country behavior. In
the same critical line, Linghui and Koveos
(2008) argue that economic circumstances
influence cultural variables. They found that
GDP per capita has a curvilinear relationship
with individualism, long-term orientation,
and power distance scores; while uncertainty
avoidance and masculinity can be considered
structural values. In spite of these and other
critics of the validity of Hofstede’s model, it
was validated with other populations in recent
years (e.g., Merritt, 2000; Hood & Logsdon,
2002; Singh, Carasco & Svensson, 2005) and
used extensively in research. Ramin, Firoz, and
Kwarteng (2010) find that economic success
is positively related to cultural dimensions,
highlighting the interest of this relationship for
implementing globalization policies on a given
society/country.
HYPOTHESES
Hypotheses 1 – Power Distance
As described before, a low index value is associated with democratic societies, while large
PD countries are mostly autocratic or oligarchic.
The analyzed bibliography shows that as PD
increases, more autocratic societies will be
less sensitive to ethical problems (Vitell et al.,
1993; Husted, 1999). Hence, we expect more
autocratic societies will be less sensitive to social
effects of their actions, and therefore, they will
report less on social responsibility. On the other
hand, companies in more democratic countries
are expected to report truthfully; hence, they
will not need to include assurance to guarantee
quality of reporting. We therefore expect that
when PD increases, more companies will include AS in their CSR reports. The hypothesis
are stated as follows:
H1-a: As PD increases, the levels of CSR
disclosure will decrease.
H1-b: As PD increases, the reported credibility
of the CSR reports will increase.
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International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013 75
Hypotheses 2 – Individualism
Countries with individualistic characteristics
require its members to look after themselves
and their immediate family. Since they represent societies that act more professionally,
with objectivity and universalism, it is expected
that companies will have higher levels of CSR
reporting than their counterparts in collectivistic
societies. Husted (1999) and Vitell et al. (1993)
support this hypothesis. Husted expects individualistic societies to behave more ethically
than collectivistic ones, and Vitell et al. (1993)
define that individualistic societies cover less
for the group.
In terms of credibility, the professional
characteristics of individualistic countries will
make companies include assurance in the report.
On the other hand, given that collectivistic
countries rely on the group, their stakeholders
do not need assurance of the information to
increase its credibility.
The hypotheses are stated as follows:
H2-a: As individualism increases, the levels of
CSR reporting will increase.
H2-b: As individualism increases, the reported
credibility of the CSR reports will increase.
Hypotheses 3 – Masculinity
Masculine countries have an aggressive management style and companies will disclose as
little as possible to keep their advantage by not
exposing all their strategies. Feminine countries
have a more communal strategy and will try to
improve their public image by showing what
they are doing to benefit that group. Therefore,
we expect lower levels of CSR reporting in
companies in masculine countries.
Regarding AS, masculine societies are aggressive and companies in this group might not
be as interested as those in feminine societies
to have their reports assured, unless mandatory.
Having masculine characteristics might make
them less willing to be controlled.
The hypotheses are stated as follows:
H3-a: As masculinity increases, the levels of
CSR reporting will decrease.
H3-b: As masculinity increases, the reported
credibility of the CSR reports will decrease.
Hypotheses 4 – Uncertainty
Avoidance
According to the KPMG report, the integration
of information is driven by users demanding
credibility and higher quality of information.
This effect is expected to dominate in countries
willing to reduce their levels of uncertainty. We
expect companies in countries with higher levels
of UA higher levels of disclosure on matters that
might increase their risk or produce uncertainty.
The hypotheses are stated as follows:
H4-a: As UA increases, the levels of CSR
reporting will increase.
H4-b: As UA increases the reported credibility
of the CSR reports will increase.
METHODOLOGY
We collect data about CSR disclosure per country and industry from the KPMG 2008 report,
and compare the differences in disclosure between countries following the variables defined
by Hofstede (1997). We control for other factors
affecting disclosure like economic wealth and
the existence of mandatory rules (Sanyal, 2005).
Variable Definition
Dependent Variables
The dependent variables are based on the definitions in the KPMG report defined previously.
They include:
1.
2.
3.
4.
5.
6.
Existence of stand-alone reports.
Disclosure of CSR strategy.
Reporting on business opportunities and
financial value of CSR.
Reporting of supply chain risks.
Reporting on carbon footprint.
Inclusion of Assurance Statement.
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76 International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013
Table 2. Rotated component matrix of KPMG variables
Variable
Component
1
2
% of Companies with a publicly available corporate responsibility strategy
.891
.065
% of Reports that address supply chain risks
.851
.255
% of Companies that disclose Carbon footprint
.806
.460
% of Reports that include a formal assurance statement
.071
.976
% of Not stand-alone report
-.899
-.160
% of Not disclosure for business opportunity and financial value of CSR
-.909
.128
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
Since these variables are correlated, we
combine them into new ones obtained through
factor analysis. In order to obtain meaningful
components, the variables defined by KPMG
are previously evaluated and recoded when
necessary. Reporting on CSR strategy, supply
chain risk, and carbon footprint, as well as the
inclusion of AS, indicate higher levels and more
transparent disclosures. On the contrary, having
stand alone reports indicates lower quality, as
defined in the KPMG report. Similarly, reporting
on business opportunities and financial value
of CSR is negative towards CSR disclosure,
because it does not indicate willingness to report,
but rather the benefits of CSR disclosure. Therefore, in order to homogenise these variables, the
last two variables are recalculated so that they
express the existence of integrated reports and
not-disclosure of business opportunities and
financial value of CSR.
The results of the factor analysis (Table 2)
deal two components. The first one represents
“level of reporting” and is loaded with the first
5 KPMG variables. The second one represents
“credibility” and it is loaded with the last one
(existence of AS)
Independent Variables
Industry Variables
The KPMG report discloses the percentage of
companies that report on CSR in the follow-
ing industries: electronics, forestry, mining,
oil, utilities, food, retail, communications,
manufacturing, construction, chemicals, other
services, transport, automotive, finance and
pharmaceuticals. Following Campbell (2003),
we use the environmental concern criteria to
classify industries. The industry variable is
defined based on previous studies from Branco
and Rodrigues (2008), Campbell (2003), Cho,
Patten, and Roberts (2006), Deegan and
Gordon (1996), Monteiro and Aibar-Guzman
(2010), Reverte (2009), and Wilmshust and
Frost (2000). We divide the total industries in
two groups, depending on their levels of effect
on the environment. The industries classified
as more harmful are: Forestry, pulp, & paper;
Mining; Oil & gas; Utilities; Construction &
building materials; Chemicals & synthetics;
and Transport. This variable ranges from 0 to
1, representing the proportion of industries in
the harmful sectors in each country.
Hofstede’s Cultural Variables
The values of these variables are collected
from Hofstede (1997), and extended with
Hofstede and Hofstede (2005) to the countries
not included in the original sample. They were
transformed to a dichotomous variable indicating high or low level of PD, masculinity,
individuality or UA. The cutting point for the
dichotomous variable is the mean value in the
Hofstede’s variable.
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International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013 77
Mandatory CSR Reporting
Enforcement
This variable adopts a value of 1 if the country
had rules requiring mandatory disclosures at
the time of the report (2008), 0 otherwise. We
consider as mandatory disclosures, those related
to non-accounting concepts, for example disclosures related to non-discrimination or emissions.
Therefore, if the regulation requires disclosure
of internal controls to increase transparency
and credibility, that country is not included as
having mandatory CSR reporting.
Within countries with regulations, the EU
requires sustainable development disclosures to
all member countries since 2005 (KPMG, 2006,
p. 23). Japan requires the disclosures of emissions and pollutants as well as the disclosure of
environmental information to specific industries
(KPMG, 2006, p. 26). Sweden requires that
some companies have environmental and social
disclosures in the board of directors’ report
(KPMG, 2006, p. 26). Norway requires that
the Directors report addresses environmental,
health and safety issues (KPMG, 2006, p. 26).
The Japanese Institute of Certified Public Accountants issued guideless for CSR reporting in
2001 (KPMG, 2006, p. 29). Finally, in Canada
the Securities Commission requires public companies to report the current and future financial
or operational effects of environmental protection requirements in an Annual Information
Form (KPMG, 2006, p. 23).
On the other hand, the Swiss Federal constitution declares sustainable practices a national
objective, but there is no regulation requiring
CSR disclosure. There is no mandatory CSR
disclosure in Romania (Dumitru, Ionescu, Calu,
& Oancea, 2011) and Mexico. The Securities and
Exchange Commission requires US companies
to disclose material risks related to climate
change, but it didn’t happen until 2010. Finally,
in Brazil, the disclosure is voluntary and the
Bovespa recognizes Brazilian companies with
high levels of disclosure (UN, 2009).
We follow Ioannou and Serafeim (2011) to classify the countries according to their levels of
law enforcement. They form the groups based
on Reynolds and Flores (1996), who organize
the legal systems with European origins in four
legal families: the English common law, and
the French, German and Scandinavian civil law
countries. They discuss that the English legal
system is based on common law and spread to
other countries through colonialism. We include
in this group UK, U.S., Australia, Canada and
South Africa. They explain how the French
civil code was adopted through occupation
by other European countries like Italy, Spain
and Portugal, and spread to Latin America.
Therefore, we include in this group Mexico,
Italy, Spain, France, Brazil and Romania. The
German civil code influenced countries in the
area as well as China, Japan and South Korea.
Hence, we include in this group South Korea,
Japan, Switzerland, Netherlands, Hungary, and
Czech Republic. Finally, we include the Scandinavian countries Denmark, Finland, Norway
and Sweden. This variable adopts a value of 1
if the legal system is English; 2, if it is French;
3 if it is German and 4, if it is Scandinavian.
Other Control Variables
A connection between wealth and environmental protection was found in literature, with
richer countries having higher demands for
environmental policies, as stated in Vachon
(2010). To control for other correlated affects
that might derive from stakeholders in richer
countries requiring more CSR disclosures, we
include the GDP per capita as a control variable for economic wealth. We considered other
economic variables like unemployment, inflation, change in GDP, current account balance,
and general government net lending/borrowing
GDP percentage. They were all correlated and
dealt similar results; hence, we choose GDP
because it was used in other studies. We also
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78 International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013
include a control variable “has_report” which
records the proportion of companies reporting
in each country.
RESULTS
Test of Hypotheses
Our model is stated as follows:
Disclosure = X0 + X1 PD+ X2 Indiv + X3
Masc + X4 UA + X5 SensitiveIndustry + X6
GDP + X7 Enforcement + X8 Regulation + X9
HasReport + ε
The dependent variable Disclosure assumes
the values of the variables representing level of
disclosure and credibility of the reports.
The first hypothesis is not supported. The
backward regression shows that the level of
disclosure is determined by the regulation in the
country, which eliminates the effect of cultural
factors. This result coincides with Campbell
(2006) findings, suggesting that a strong and
well-enforced state regulation ensures CSR
attitudes. Similarly, Gamerschlag, Möller, and
Verbeeten (2011) conclude that differences in
regulatory environments have to be considered
for international studies and could have affected
previous research results. The results of this
test are presented in Table 3.
The test of the second hypothesis shows
that consistent with H1-b and H2-b, credibility
of the reports is determined by individualism
and power distance (Table 4). These results are
similar to those reported by Redmond (2000)
and Bailey and Kind (2010), although in different arenas, who find that power distance and
individualism interact together face to face to
other variables. Flynn & Saladin (2006) also
report different influence of the four-dimension
variables.
Assurance statements are not mandatory
and hence, the existence of regulation or the
levels of enforcement of the law does not affect
the decision of managers to include some form
of assurance to the report. The lack of the expected effect in H3-b and H4-b might be explained by the correlations between the Hofstede’s variables. Table 5 presents the correlations
of the scores for the studied sample. PD, individualism and UA are highly and significantly
correlated. Masculinity, on the other hand is
not. Hence, the interaction between these variables may explain the fact that some of the null
hypotheses can be rejected and some cannot.
Table 3. Coefficients backward regression – Test of hypotheses dependent variable: Level of
disclosure
Coeff
t
Sig.
(Constant)
-2.84
-9.718
0.000
Enforcement
0.228
3.154
0.005
Has report
0.045
13.097
0.000
Table 4. Coefficients backward regression – Test of hypotheses dependent variable: Reported
credibility
Coeff
t
Sig.
(Constant)
-1.831
-2.379
0.028
PD_Dicotomica
1.672
2.394
0.027
Indiv_Dicotomica
1.682
2.327
0.031
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International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013 79
Table 5. Correlations between the scores for the Hofstede’s variables
Hofstede – Score for
Power distance
Hofstede
– Score
for Power
Distance
Hofstede – Score
for Individualism
1
-.730**
.267
.807**
.000
.230
.000
Pearson Correlation
Sig. (2-tailed)
N
Hofstede – Score for
Individualism
22
22
22
22
-.730
1
.050
-.699
Sig. (2-tailed)
.000**
.825
.000**
22
22
22
22
Pearson Correlation
.267
.050
1
.342
Sig. (2-tailed)
.230
.825
22
22
22
22
Pearson Correlation
.807
-.699
.342
1
Sig. (2-tailed)
.000**
.000**
.119
22
22
22
N
Hofstede – Score for
Uncertainty avoidance
Hofstede Score for
Uncertainty
Avoidance
Pearson Correlation
N
Hofstede – Score for
Masculinity
Hofstede Score for
Masculinity
N
.119
22
Correlations significant at the .01 level (2 tailed)
DISCUSSION
In this study we analyze how Hofstede’s cultural dimensions determine the levels of CSR
disclosure and the reported credibility of such
reports. We base our analysis in the 2008 KPMG
report of top 250 global companies plus top 100
local companies in 22 countries. We include
in the analysis a variable to control for regulation, since by requiring mandatory disclosure
governments modify what would be reported
due to the group’s cultural characteristics. We
also include variables to identify the legal
system, since the level of enforcement will
affect the adoption of a mandated rule. We do
not find an effect of cultural variables in the
level of reporting in CSR, but we do find that
it is significantly affected by the degree of enforcement of the law in the country. Our second
set of hypotheses look at the cultural factors
determining the willingness of companies to
include a tool to assess the credibility of the
sustainability reports. This type of assessment is
not mandatory and considered by some scholars
as having limited value. We find that companies
in countries with collectivist characteristics
do not need to include assurance to guarantee
quality, since their members are expected to
behave with sincerity and in benefit of the
group. Companies in individualistic societies,
on the other hand, include assurance as a way
to enhance the credibility of the sustainability
reports. We also find that companies in countries
with high power distance need to enhance their
credibility as well, as opposed to companies in
more democratic countries. We do not find an
effect of masculinity or uncertainty avoidance
in the issuance of assurance statements with
the sustainability reports.
Even though it is generally accepted that
cultural characteristic of a country affect the
behavior of the individuals in that group, there
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80 International Journal of Information Systems and Social Change, 4(1), 68-84, January-March 2013
is an effect of globalization that needs to be
accounted for. In this paper we analyze the
relationship between country cultural characteristics and companies’ attitudes towards CSR.
We use a sample of the 100 biggest companies
in each of the countries included (except Norway with 70 companies). These companies in
most cases are international, and their profile
may compensate, in some way, the weight of
country cultural factors. On the other hand, as
Gerhart (2009) states, national culture constrains
organizational culture, affecting companies’
attitude towards CSR reporting. But there is a
part of companies’ culture that can be related to
their own idiosyncrasy, their own conception.
This part of organizational culture will differ
from a local to a multinational company. In
the latter, the company culture is going to be a
mix of local (as a result of acting in a specific
environment) and foreign (standardization of
behaviors of the group) factors. Several studies
(House et al., 2004; Nelson & Gopalan, 2003)
tried to measure the percentage of variance in
organizational culture that could be explained
by the country cultural dimensions. There is
not a general agreement about it, unless for the
certainty that this percentage is not one hundred
per cent and that is affected by other variables,
as size or industry, for example.
Globalization is affecting cultural factors
not only at company level, but at country level
as well. Countries like Switzerland or Canada
as well as those with high levels of immigration include groups with their own cultural
characteristics, creating heterogeneity that is
not accounted for by Hofstede’s model (Kirkman et al., 2006). However, there are other
studies validating the model (Merrit, 2000)
and it is widely used in the literature. A second
limitation of the study is due to the number of
observations, since we obtain data from the
survey KPMG conducted in 2008 and it includes
only 22 countries. Future research could survey
companies in a larger number of countries, considering within-country variances, to assess, in
a more appropriate manner, the role of national
cultural dimensions.
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Silvia Romero is an Assistant Professor in the Department of Accounting, Law and Taxation at
Montclair State University, New Jersey, USA. She received her MS in Accounting from Universidad de Buenos Aires, Argentina in 1982. In 2008 she received her MBA and PhD from Rutgers
University in New Jersey, USA, after being a practitioner for over 15 years. Her research interests
are in the areas of auditing and reporting.
Belen Fernandez-Feijoo graduated from the Universidade de Santiago de Compostela, Spain.
She worked in the public sector and in private companies for 12 years. In 1986, she became
Collaborator of the Department of Finance and Accounting at the Universidade de Vigo, Spain,
being hired as an Assistant Professor in 1992. She received her PhD from Universidade de Vigo
in 1994, and became an Associate Professor in 1997. Her research interests are in the areas of
corporate social responsibility and cooperative enterprises.
Copyright © 2013, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

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