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Environmental disclosures in the annual report

Extending the applicability and predictive power of legitimacy theory
Victoria University, Melbourne, Australia
Keywords Environment, Disclosure, Case studies Abstract Much of the extant research into why companies disclose environmental information in the annual report indicates that legitimacy theory is one of the more probable explanations for the increase in environmental disclosures since the early 1980s. Legitimacy theory is based on the idea that in order to continue operating successfully, corporations must act within the bounds of what society identifies as socially acceptable behaviour. The purpose of the practical research undertaken and reported in this paper is to extend the applicability and predictive power of legitimacy theory by investigating to what extent annual report disclosures are interrelated to: attempts to gain, maintain and repair legitimacy; and the choice of specific legitimation tactics. The quasiexperimental method adopted utilised semi-structured interviews with senior personnel from three large Australian public companies. The findings indicated support for legitimacy theory as an explanatory factor for environmental disclosures. Moreover, findings about the likelihood of specific micro-legitimation tactics being used in response to legitimacy threatening environmental issues/ events, and dependent on whether the purpose of the response is designed to gain, maintain or repair legitimacy, are reported.

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Received September 2001 Revised January 2002 Accepted March 2002

Gary O'Donovan

Introduction
Given current corporate practices, not one wildlife reserve, wilderness or indigenous culture will survive the global market economy. We know that every natural system on the planet is disintegrating. The land, water, air and sea have been functionally transformed into repositories for waste. There is no polite way to say that business is destroying the world (Hawken, 1993, p. 3).

Accounting, Auditing & Accountability Journal, Vol. 15 No. 3, 2002, pp. 344-371. # MCB UP Limited, 0951-3574 DOI 10.1108/09513570210435870

It is commonly acknowledged that the main aim of for profit corporations is to generate acceptable returns for their shareholders. Hawken's statement emphasises the emergent, if not already accepted, belief that large corporations have to satisfy a broader group of interested stakeholders, whose interests are more than just financial. The increased use and application of the term ``the triple bottom line'' (Elkington, 1999) in the corporate arena, to explain a corporation's financial, social and environmental performance and its link to the idea of sustainable development, is one indication of this increased awareness. Corporations are social creations and it has been argued that their existence depends on the willingness of society to continue to allow them to operate (Reich, 1998). The idea of a social contract between business and individual members of society suggests that, while the main aim of a business is to make profits, it also has a moral obligation to act in a socially responsible manner (Shocker and Sethi, 1973). This obligation is the basis of an intangible social agreement or contract between business and society. The idea of a social

contract is an integral part on which ``social theories'' such as stakeholder Environmental theory (Clarkson, 1995; Mitchell et al., 1997; Roberts, 1992), legitimacy theory disclosures in the (Guthrie and Parker, 1989; Mathews, 1993; Patten, 1992; Sutton, 1993), annual report accountability theory (Gray et al., 1995) and political economy theory (Buhr, 1998; Guthrie and Parker, 1990) have been developed in an attempt to explain various aspects of corporate social behaviour. While it has been argued that 345 these are not fully fledged theories and that they are still being developed, they do, however, provide useful frameworks for studying corporate social behaviour (Gray et al., 1996). The distinction between these theories is often blurred and there appears to be a great deal of overlap. All are concerned with interplay between the corporation and its stakeholders as it is encompassed in the idea of the social contract. The main distinction between them is the viewpoint from which they are observed and tested. ``Bourgeois'' political economy theorists (Gray et al., 1996) hypothesise that management disclosure decisions are linked to a broad range of interconnected political, social and economic influences and that legitimacy theory and stakeholder theories are more specific theories developed within a political economy framework. Stakeholder theory is based and tested on the direct effect that stakeholders have on management decisions about a corporation's activities and disclosures (Roberts, 1992). Accountability theory is based on the rights of the principal (stakeholder) to require information (Gray et al., 1995). Legitimacy theory is analysed from a managerial perspective in that it focuses on various strategies managers may choose to remain legitimate (Deegan et al., 2000; Patten, 1992). Gray et al. (1996) argue that legitimacy theory is a variant of stakeholder theory, which adds conflict and dissension to the picture and can be employed to explain more specific information about corporate social practices. Legitimacy is the theoretical perspective adopted in this paper. Information about its composition, nature and implications in relation to social and environmental disclosures is well covered in a number of existing publications[1], hence reference to its background and to recent studies will be limited here. Legitimacy theory is derived from the concept of organisational legitimacy, which has been defined as:
. . . a condition or status which exists when an entity's value system is congruent with the value system of the larger social system of which the entity is a part. When a disparity, actual or potential, exists between the two value systems, there is a threat to the entity's legitimacy (Dowling and Pfeffer, 1975, p. 122).

Legitimacy theory posits that the greater the likelihood of adverse shifts in the social perceptions of how an organisation is acting, the greater the desirability on the part of the organisation to attempt to manage these shifts in social perceptions. In order to remain legitimate, organisations may conform with or, in a number of different ways, attempt to alter social perceptions, expectations, or values as part of a legitimation process (Dowling and Pfeffer, 1975; Lindblom, 1994). It is generally agreed, that if a corporation changes its activities or attempts to alter other's perceptions of its activities, these must be

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accompanied by disclosures (Deegan et al., 2000; Cormier and Gordon, 2001). If not, the intended audience will be unaware of what it is the company is doing or trying to achieve and legitimacy will be problematic. Suchman (1995) contended that the choice of legitimation tactics and public disclosures an organisation makes will differ depending on whether it is trying to gain, maintain or repair legitimacy. The extent to which relationships between these variables exist has not been tested. In this context it is argued that studies about whether voluntary social and environmental annual report disclosures are related to legitimacy motives have, to some extent, stagnated. If ``legitimacy theory'' is to develop at a micro level and to continue to provide useful insights in understanding motivations for the disclosure of social and environmental information, these relationships must be understood. The main purpose of this paper is to refine the use and application of legitimacy theory by investigating possible links between: a potentially legitimacy threatening environmental issue/event; the choice of legitimation tactics, resulting in annual report disclosures, and whether the purpose of the choice of tactics is to gain, maintain or repair legitimacy. The approach taken in this paper is deliberately more functionalist than critical. It attempts, in an exploratory way, to discover ways in which micro components of legitimacy theory can be identified and how they effect disclosure decisions. The remainder of this paper is presented as follows. A description of the basic principles involved in managing legitimacy is followed by a discussion on the types of legitimation tactics related to particular legitimation purposes (gain, maintain, repair). The specific tactics/disclosure approaches chosen for use in this investigation are introduced next along with an explanation of the importance of the annual report as a means of communicating the tactics. A description of the method and data analysis techniques adopted for the practical part of the investigation is then provided and is followed by a discussion of the findings. The paper concludes with a discussion of some limitations in interpreting the findings, opportunities for further research and an evaluation of the practical and theoretical importance of the findings. Managing corporate legitimacy It is acknowledged that legitimacy is conferred by outsiders to the corporation, but may be controlled by the corporation itself (Ashforth and Gibbs, 1990; Buhr, 1998; Dowling and Pfeffer, 1975; Elsbach, 1994; Elsbach and Sutton, 1992; Pfeffer and Salancik, 1978; Woodward et al., 1996). This indicates that changes in social norms and values are one motivation for organisational change and also one source of pressure for organisational legitimation. The illustration in Figure 1 adopts the perspective that threats to present or potential legitimacy emanate from a corporation's negative association with an issue/event (Brown and Deegan, 1999; Nasi et al., 1997). The area marked X in Figure 1 represents congruence between corporate activity and society's expectations of the corporation and its activities, based on social values and norms. Areas Y and Z represent incongruence between a corporation's actions

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Figure 1. Issues/events and corporate legitimacy

and society's perceptions of what these actions should be. These areas represent ``illegitimacy'' or legitimacy gaps (Sethi, 1978). The aim of the corporation is to be legitimate, to ensure area X is as large as possible, thereby reducing the legitimacy gap. A number of legitimation tactics and disclosure approaches may be adopted to reduce the legitimacy gap. The status of a corporation's legitimacy may be difficult to establish, given that a corporation's legitimacy is based on social perceptions and values which can and do change over time. In order to manage legitimacy, corporations need to know how legitimacy can be gained, maintained or lost. At a broad level, Wartick and Mahon (1994) suggest that legitimacy gaps may arise because: . corporate performance changes while societal expectations of corporate performance remain the same; . societal expectations of corporate performance change while corporate performance remains the same; and . both corporate performance and societal expectations change, but they either move in different directions, or they move in the same direction, but with a time lag. Corporations whose legitimacy is, or may become, elusive can only successfully manage legitimacy by identifying important ``manageable'' issues/events at the same time as identifying groups of stakeholders who have the necessary attributes to be able to confer or withdraw legitimacy on the corporation in respect of those issues/events (Neu et al., 1998). It is posited that once legitimacy is threatened, a corporation will embark on a process of legitimation targeted primarily at those groups who it perceives to be its ``conferring publics'' (O'Donovan, 2000), those who have the necessary stakeholder attributes (Mitchell et al., 1997) to confer or withdraw legitimacy. Terms such as relevant publics (Buhr, 1998; Lindblom, 1994; Neu et al., 1998), constituents (Bansal, 1995) and social actors (Ashforth and Gibbs, 1990; Deephouse, 1996; Pfeffer and Salancik, 1978) have been used to describe stakeholders who may be potentially influential in determining an organisation's legitimacy. The term ``conferring publics'' is both a tightening and amalgam of these terms.

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If senior management perceive that legitimacy is threatened, then legitimacy theory can now be described as: the greater the likelihood of adverse shifts in a corporation's conferring publics' perceptions of how socially responsible a corporation is, the greater the desirability on the part of the corporation to attempt to manage these shifts in social perceptions. This description includes a number of variables that need to be identified and unpacked, including the ways that ``adverse shifts'' arise and how a corporation might ``manage'' these shifts (see Table I). If a corporation consciously changes its activities, one would assume that managers would be aware of possible effects on legitimacy caused by these changes. In some circumstances, however, identifying the status of one's legitimacy can be difficult because a corporation could lose legitimacy even though it does not change its activities. This may happen to a corporation because: (1) of a change in the composition of its conferring publics; (2) its conferring publics' values alter because of:
. . . . .

evolving social awareness (Elsbach and Sutton, 1992); regulatory or institutional pressures (Deegan and Gordon, 1996); media influences (Ader, 1995); interest group pressures (Tilt, 1994); corporate crises (Marcus and Goodman, 1991).

Each of these could be important in isolation or may be interconnected, causing a flow-on effect. For example, media or interest group pressures could cause regulatory or institutional pressures, which could lead to an evolving social awareness on the part of an entity's conferring publics. Contemporary social issues/events are precursors to legitimacy threats (Brown and Deegan, 1999;
Response/tactic A. Avoid B. Attempt to alter social values C. Attempt to shape perceptions of the organisation Table I. Possible response/ tactics to legitimacy threats D. Conform to conferring publics' values Sample tactics: oil company involved in a significant oil spill causing environmental damage (a) Do not enter public debate on the affects or aftermath of the oil spill; (b) Do not publicise what may be perceived as negative information Educate the public on the risks associated with transporting oil and the positive uses of oil with respect of standard of living measures (a) Reiterate past social and environmental achievements of the company; (b) Indicate the company did not breach any current legislative guidelines for transport oil Announce an immediate inquiry into the cause of the spill and assure the public that any measures necessary to ensure this type of accident does not happen again will be undertaken

Patten, 1992). In relation to these issues/events, for a corporation to manage Environmental legitimacy effectively, it must: disclosures in the . identify its conferring publics; annual report
.

establish what are its conferring publics' social and environmental values and perceptions of the corporation (public pressure variables); decide on the purpose or aim of any potential organisational response to legitimacy threats; and, decide what tactics and disclosure options are available and suitable for managing legitimacy, related to the purpose of the organisational response.

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It is beyond the scope of this paper to investigate specific public pressure variables and to identify the nature and composition of particular conferring publics. The practical part of the investigation is concerned with identifying links between the purpose of the organisational response, the choice of legitimacy tactics and related annual report disclosures. The purpose of the corporate response to legitimacy threats: gain, maintain or repair? It has been argued that the choices of legitimation tactics are to some extent dependent upon the different purposes or aims of any organisational response (Ashforth and Gibbs, 1990; Oliver, 1991; Suchman, 1995). Legitimation techniques/tactics chosen will differ depending on whether the organisation is trying to gain or to extend legitimacy, to maintain its level of current legitimacy or to repair or to defend its lost or threatened legitimacy. If a large corporation moves into a new, largely uncharted, area for itself and its stakeholders it will face the task of gaining legitimacy, either for the propriety of the new activity in general, or for management's own validity as managers. This is a ``liability of newness'' (Ashforth and Gibbs, 1990). In attempting to gain legitimacy, management would tend to be proactive. They have advance knowledge of the change which could possibly threaten the organisation's legitimacy. Because of this they should, in most instances, be able to control the dissemination of information. In general the task of maintaining legitimacy is thought to be far easier than either gaining or repairing it. According to Ashforth and Gibbs (1990, p. 183):
. . . once conferred, legitimacy tends to be largely taken for granted . . . Reassessments of legitimacy become increasingly perfunctory if not mindless.

The challenge for management in maintaining legitimacy is to identify that conferring publics' needs and wants change over time. Legitimacy represents a relationship with stakeholders that the organisation must keep current. Organisations need to observe, or even anticipate, change and protect past accomplishments if they are to maintain their legitimacy (Suchman, 1995).

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A potential problem arises if one is to test which tactics are used to maintain legitimacy. A distinction needs to be made between corporations with different levels of legitimacy to maintain. If a corporation is accepted as a good corporate citizen, acts responsibly or even in a proactive manner in regard to social issues, the public will have certain expectations in relation to the organisation's social and environmental activities. The less ``legitimacy'' an existing organisation has to begin with, the less it needs to maintain. Oliver (1991) points this out in reference to institutional pressures on corporations. She asserts that when an organisation's performance and survival are only moderately dependent upon the good opinion of the public (e.g. weapons manufacturers), avoiding the issue may be the extent of an organisation's response to institutional rules and expectations. In the reverse situation, if an organisation that promotes itself as extremely socially and environmentally responsible were to maintain its legitimacy, it would need to ``keep one step ahead'' of what its conferring publics would expect of it. Repairing legitimacy has been related to different levels of crisis management (Davidson, 1991; Elsbach and Sutton, 1992). The task of repairing legitimacy is, in some ways, similar to gaining legitimacy. If a ``crisis'' is evolving proactive strategies may need to be adopted, as has been the case for the tobacco industry during the last two decades (Pava and Krausz, 1997). Generally, however, the main difference is that strategies for repairing legitimacy are reactive, usually to an unforeseen and immediate crisis, whereas techniques to gain legitimacy are usually ex ante, proactive and not normally related to a crisis. An environmental accident of the magnitude of the Exxon Valdez oil spill is an example of a crisis that warranted repairing legitimacy. It is argued that, in this situation, legitimation tactics suitable to gain or maintain legitimacy would tend to be less useful, as they would already appear to be discredited to a great extent. The occurrence of the crisis itself implies that any previous legitimation techniques were:
. . . nothing more than puffery regarding performance (Ashforth and Gibbs, 1990, p. 183).

The majority of empirical research into managing legitimacy has been concerned with responses to issues or events that were widely publicised and brought the industry or corporation in question into the public spotlight. These studies have, in the main, been concerned with organisational responses consistent with the purpose of repairing or defending legitimacy (for example, see Elsbach, 1994; Sutton and Callahan, 1987). Moreover, much of the research seeking to explain the increase in environmental disclosures in annual reports, using a legitimacy framework, has also been linked to ``negative'' events or crises (Patten, 1992; Deegan and Rankin, 1996; Walden and Schwartz, 1997), conducted ex post and consistent with attempts to repair legitimacy. An evaluation of the literature in this area suggests that the organisational response will take on a different form and will have different characteristics, depending upon the purpose of the response. It is contended that the different

purpose and different characteristics will result in different legitimation tactics Environmental and disclosure approaches being used. There has been a lack of research into disclosures in the the types of tactics/strategies and disclosures used to gain or maintain annual report legitimacy. These areas are given consideration in the practical part of this investigation. Communicating legitimation tactics: environmental disclosure and the annual report Literature on managing legitimacy both explicitly and implicitly states that controlling and communicating tactical responses is one means of managing legitimacy (Dowling and Pfeffer, 1975; Lindblom, 1994; Sethi, 1978; Suchman, 1995). The annual report has been the major communication medium and data source for researchers investigating motivations for environmental disclosures (Gray et al., 1995; Unerman, 2000). The annual report has long been considered to be a major public document, which is a pivotal presentation by a company and has significant influence on the way financial markets and the general public perceives and reacts to a company (Anderson and Epstein, 1995). It has been argued that the inclusion of voluntary information in the annual report can be, and is, used by managers to send specific signals and messages to the public (Salancik and Meindl, 1984). It has also been emphasised that the inclusion of information in the corporate annual report is used to persuade readers to accept management's view of society (Amernic, 1992) and that annual reports are both reflective and constitutive of a wider set of societal values (Dyball, 1998). These views are consistent with management using the annual report for legitimation purposes. It has been recognised that corporations voluntarily disclose social and environmental information in the annual report to send messages to ``society'' and other corporate stakeholders about their social and environmental actions and activities (Deegan et al., 2000; Frost and Wilmshurst, 1998; Gibson and O'Donovan, 2000). Corporate management identified a list of perceived benefits to the corporation in reporting environmental information to diverse groups of stakeholders (Coopers & Lybrand Consultants, 1997). The benefits included: aligning management's values with social values; pre-empting attacks from pressure groups; enhancing corporate reputation; providing opportunities to lead debates; securing endorsements; demonstrating strong management principles; and demonstrating social responsibilities. These assertions were supported in empirical work undertaken by Brown and Deegan (1999), O'Donovan (1999) and Simmons and Neu (1998), who concluded that the annual report is used by management to respond to public pressure, especially in response to negative media reports. Moreover, in interviews with senior corporate managers, O'Donovan (1998) discovered that management saw the use of the annual report as a way of correcting misconceptions the public may have formed about a company/industry and its environmental activities. One interviewee saw the annual report as a way of:

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. . . allaying public fears about the industry . . . we can educate the public about what we do in regard to environmental issues and do this from our point of view (O'Donovan, 1998, p. 97).

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From an annual report user's perspective, research indicates that stakeholders want to see an increase in corporate environmental disclosures in the annual report (Dierkes and Antal, 1985; Anderson and Epstein, 1995). In the most comprehensive study to date in Australia, Rankin (1996) found that 68 percent of the stakeholders she surveyed sought environmental information from the annual report in the first instance, with 43 percent seeking this information from other sources. The results of this survey highlight the importance of the annual report as a source of environmental information. More specifically, Tilt (1994) discovered that members of environmental groups, such as Greenpeace and the Australian Conservation Foundation, considered the annual report as the main source when seeking information about a corporation's environmental performance. The emergence of stand-alone environmental reports in the late 1990s (KPMG, 1999), has led to questions about the relative importance of the annual report as the main medium a corporation chooses to disclose environmental information (Unerman, 2000). However, Gibson and O'Donovan's (2000) study found that the amount of environmental information disclosed in the annual reports of Australian companies from 1983 to 1997, was still on an upward trend at the end of 1997, despite a number of the companies in the study producing separate environmental reports from 1994 onwards. O'Donovan (1999) also discovered that managers believe that the audiences for separate environmental reports are different than those of annual reports and that the emergence of these reports will result in more detailed information in the stand-alone reports which will often be cross-referenced to annual reports. The implication was that the necessity for annual report disclosures was unlikely to decrease, and may in fact increase. It is acknowledged that in situations where issues/events require more immediate and widespread responses to legitimacy threats, other means of communication including media releases and advocacy advertising may be used instead of, or in conjunction with, the annual report (Zeghal and Ahmed, 1990). Nonetheless, the main focus of this study is the corporate annual report. In evaluating the methods used in prior research on legitimacy theory and social disclosures, only a few researchers (Buhr, 1998; Campbell, 2000; O'Donovan, 1999; O'Dwyer, 2000) have used methods to gather qualitative data about management's views and perceptions, related to disclosure decisions, directly from management. The majority of the research conducted to confirm legitimacy motives for disclosures has used ex post content analysis[2] of annual reports and/or other published data in an attempt to establish a relationship between increased disclosures and environmental issues/events. Using ex post data alone is limited in usefulness as they only allow for explanations about data that were actually disclosed. Gathering data, directly from management, about their perceptions and from an ex ante perspective is more useful in evaluating reasons for certain environmental disclosures and, more importantly, why decisions not to include environmental information were made. The predominant use of content analysis alone in extant research has not extended the testing of

legitimacy theory to the choice of specific micro-legitimation tactics or the Environmental legitimacy purpose. This is conducted in this investigation and many of the disclosures in the limitations are overcome by the qualitative interview methods used to collect annual report data and the ex ante nature of the questioning adopted. Method The primary data source was interviews with six senior managers from three ``suitable'' large Australian companies. The managers were from companies which operate in the mining (BHP Ltd), chemical (Orica Ltd) and paper and pulp (Amcor Ltd) industries. Stakeholders and environmentalists, in particular, view these three industry groupings as being amongst the most likely to have a detrimental impact on the environment (Elkington, 1994) and are considered to be ``dirty'' companies (Gorman, 1992). Each of these companies was the largest Australian public company, by market capitalisation as at 30 June 1998, within the industry group. These companies were the leading disclosers of environmental information via the annual report within the industry group for the years 1983-1997 (Gibson and O'Donovan, 2000). The aims of the investigation were to ascertain disclosure choices, the reasons for choices and manager's perceptions about the issues/events that precipitated the choices. The in-depth interviews consisted of a series of closed and open-ended questions and they were designed to generate responses relating to a series of factors described in four vignettes, developed by the investigator and provided to the interviewees. These vignettes were used to describe scenarios involving hypothetical environmental issues/events and fictitious corporations. The environmental issues/events were chosen by the investigator and were allocated to a response designed to: gain, maintain a high level of, maintain a low level of, and repair, legitimacy. The basis of each vignette (gain, maintain, repair) was not made known to the interviewees. Secondary data sources which included: extant literature on legitimacy theory; media reports about current environmental issues; media reports linking the companies in the study to environmental issues; and prior annual reports of the companies, were extensively scrutinized to help build ``realistic'' vignettes. An integral part of the interviews required the interviewees to make a choice as to the likelihood of adopting different types of annual report disclosures (legitimation tactics), to rank them, in response to the issue/event and to explain why the rankings were made[3]. The interviews were conducted with six senior personnel, one from Amcor, three from BHP and two from Orica. The people were senior managers directly responsible for the decision to include and the writing of environmental disclosures in the annual reports of the companies for which they worked (O'Donovan, 1997). A list of the environmental issues/events supplied, response purposes and the legitimation tactics/types of annual report disclosures used for the four vignettes is included in Table II. One of the vignettes and related questions, related to gaining legitimacy, is provided in the Appendix. Answers to the closed questions for each vignette were completed by the interviewer on a

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Vignette Vignette 1 ABC Co Ltd

Legitimation tactic/ intention of annual Fictitious environmental Designated purpose report disclosure approaches provided issue/event of response Gaining Maintaining high A. Avoid B. Attempt to alter social values C. Attempt to alter perceptions of the corporation D. Conform to expectations

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Table II. Fictitious environmental issues/ events, purpose of response and intention of disclosure approach

Decision to introduce new environmentally damaging technology Vignette 2 Recycling decision to XYZ Cosmetics Ltd be made about using plastics instead of recyclable paper Vignette 3 Water pollution Military Hardware Ltd housing estate being planned where corporation currently operates Vignette 4 Large oil spill in Ashforth Refining Ltd Australian capital city

Maintaining low

Repairing

template, during the interviews as the respondent answered. The vignettes were presented in the same order (1 to 4 Table II) for each interviewee. While it is acknowledged that the presentation order of the vignettes may have influenced disclosure choices, the consistency of order reduced the possibility of getting less comparable responses. The interviews were audio-taped and were subsequently transcribed for analysis purposes. Each interview lasted approximately one hour. Using the vignettes in this way allowed the respondents to indicate, ex ante, which legitimation tactics they would be likely to choose in given situations and most importantly, why choices were made and others were not. By collecting information on an ex ante basis, relevant information about the thinking, perceptions and thought processes of management was more likely to be discovered than would be the case if management were responding solely about why past disclosures were made. It is argued that using the vignettes also allowed for the likelihood of getting more ``honest'' responses, given the interviewees were not responding to sensitive disclosure issues related directly to their own corporations. In turn, the interviewer was able to ``push'' a bit harder for answers than otherwise might have been the case if the questions were corporation specific. The interviewees were very experienced in composing, editing and compiling environmental disclosures for the annual report in the companies for which they worked. The fact that the situations, companies and industries in the vignettes differed from the interviewees' companies does not contaminate the findings of the study, although it is acknowledged that some institutional pressures may differ between industries. Nonetheless, it is contended that the legitimacy tactics and disclosure approaches provided in this exercise were generic enough to be useful and relevant for the purposes of this study.

Data analysis Environmental The interview data were analysed in two distinct stages: first using disclosures in the quantifiable analysis techniques for the closed questions; and second, using annual report qualitative techniques to search for recurring themes from the open-ended answers. Answers to closed questions, which utilised a Likert scale for responses, were analysed by aggregating and averaging the responses for 355 display purposes. Further, a technique based on an analytic hierarchy process (Saaty, 1980) was used to provide a systematic means of quantifying decisionmaker perceptions in situations involving primarily qualitative data. A ``tradeoff'' concept was also used where users' perceptions were captured on a systematic pairwise basis across the variables in the structure (Weil et al., 1996). In this investigation, for each annual report disclosure approach under consideration, the interviewee was required, first, to indicate a preference for a particular disclosure approach; and second, to provide a measure of preference towards the disclosure approach. The ``trade-off'' linked the likelihood of choosing an annual report disclosure to a ranked preference. Answers to the open-ended questions were initially placed in a ``question-byquestion'' matrix that allowed the reduction and display of the interview data in a form which assisted in identifying key points and recurring themes. The matrix design allowed for the inclusion of selected quotations from the interviews considered pertinent to the question and, where applicable, researcher memos and notes were included to assist in uncovering recurring themes and patterns. Finally, to bring the data together, a qualitative-quantitative linkage technique known as ``quantizing'' (Miles and Huberman, 1994) was used. A twovariable conceptually ordered display matrix was the quantizing tool developed. Developing the matrix helped to reduce, combine and display the quantitative and qualitative data in a form which aided in identifying relationships between the specific purposes of the corporate response (gain, maintain, repair) and the choice of legitimation tactics resulting in annual report disclosures. It is important to note that the ``cases'' in the developed matrix were the specific purposes of gaining, maintaining (high), maintaining (low) and repairing legitimacy, not the interviewees or the corporations. The known variable was the purpose of the corporate response and the four ``cases'' (gain, maintain high, maintain low, repair) were ordered on that variable. The intention of the matrix design was to aid in establishing relationships between these purposes and several aspects (mainly the alternative disclosure approaches) of the lesserknown variable, the intention of the annual report disclosures. When examining the two-variable conceptually ordered display matrix, if the analysis did not indicate clear patterns or indicated contradictory findings, the investigator reexamined answers to the closed questions and/or the open-ended answers in the interview transcripts in an attempt to help guide the analysis. Findings In displaying the findings (Figures 2-6) it should be noted that the interviewees had four disclosure approaches to rank and that these were scaled to five for

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Figure 2. Significance of issues/ events for each legitimacy purpose

Figure 3. Gaining legitimacy: likelihood of choosing and ranking of annual report disclosure approaches

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Figure 4. Maintaining legitimacy (high): likelihood of choosing and ranking of annual report disclosure approaches

Figure 5. Maintaining legitimacy (low): likelihood of choosing and ranking of annual report disclosure approaches

display purposes. This was done to allow for easier comparison with both the significance of the issues/events and the likelihood of choosing a response, both of which had five response choices. Figures 2-6 are used as ``pictorial indicators'' for the reader and no statistical significance is tested or should be placed on the average rankings and likelihoods displayed in the Figures. Although the findings are based on an amalgamation of the quantitative and qualitative, space limitations precluded using as many of the respondents'

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Figure 6. Repairing legitimacy: likelihood of choosing and ranking of annual report disclosure approaches

direct quotations as was considered desirable to represent the findings. Selected direct quotations are used where appropriate to represent the general thrust of the open-ended responses. Where these are included in the paper, the letters A-D, in brackets in the quotations, correspond to the specific approach being discussed (Table II). In establishing the significance of the issues/events supplied (Figure 2), it was not surprising that the event that caused immediate negative public reaction (Vignette 4 Ashforth Refining Ltd), which required legitimacy to be repaired, was considered the most significant of the four issues/events. Also predictable were the responses which related to maintaining legitimacy. The interviewees considered that the corporation with low legitimacy to begin with (Vignette 3 Military Hardware Ltd) would not see the issue of polluting a creek which ran through a planned housing estate as being important to the social standing of the corporation. Conversely, they considered that XYZ Cosmetics Ltd (Vignette 2), which was portrayed as being environmentally responsible, would view the relatively much lower environmental impact issue of using non-recyclable packaging material, as being between very and extremely significant. The issue/event related to gaining legitimacy was also considered to be very significant. This result was, perhaps, a little unexpected, given the ``newness'' of the issue and the current lack of public awareness about it. Nevertheless, the magnitude of the potential environmental damage coupled with an awareness of the potential negative effects of the issue becoming public knowledge, contributed to the level of significance given to the issue.

The results relating to gaining legitimacy (Figure 3) indicated that attempts to Environmental alter social values were most likely to be adopted and conforming to social values disclosures in the least likely. In this scenario, the environmental issue was set up in such a way annual report that its environmental impact was not known by anybody outside the senior managers of the corporation. Attempting to alter social values is a proactive strategy that suggests the corporation may wish to get its message across before 359 the issue becomes more ``public'' and less controllable by the corporation itself. The high likelihood given to the avoidance approach was not unexpected considering that the general public did not know the issue in the case and it is logical to think that the corporation would wish to restrict the public's knowledge of this event as long as it could. When ranking the approaches, however, this choice did lose favour relative to the intention of altering social values. This suggests that while making no disclosure was attractive, the significance of the issue prompted a more proactive response, rather than a reactive one. In many ways, however, these two most preferred choices are at odds. The avoidance approach implies a management style of secrecy, a donothing approach or an attempt to buy some time, while the attempt to alter social values can be seen as a proactive attempt by the corporation to confront the issue and bring it into the open, by putting the corporation's own positive interpretation on it. Reasons to make no disclosure were best summed up by the following quotation:
. . . I figure in this corporation that, as a manager, you would go the no disclosure mode. (A) I mean you have nothing to gain by disclosing this now.

Two factors emerged in respect of attempting to alter social perceptions. First, the environmental issue in the case was seen to be substantial enough to deserve more than just a ``window dressing'' approach of merely highlighting the past social and environmental achievements of the corporation; and second, it was noted that this approach could be chosen in conjunction with attempts to alter social values, or as a disclosure option, not necessarily linked to this, or any other specific, environmental issue/event.
You might do (C) anyway, but you may be more likely to do this if you wanted to soften the audience for the future.

It was clear that the least preferred disclosure approach was to conform to what ``society'' expected. This was not unexpected as the facts of the case indicated that the decision had been made and the economic viability of the corporation was questionable if the new technology was not used. References to shareholders, governments and employees, in relation to the significance of the issue, suggested that another reason that this was clearly the least supported choice was that ``society'', as a homogeneous group, was not an important stakeholder in respect of gaining legitimacy. The second vignette was designed to portray a corporation with a high level of legitimacy to maintain. While not having anywhere near the environmental impact of the situation described in the first vignette, the issue/event was deemed to be more significant. Clearly the disclosure approach least likely to be chosen

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was to avoid the issue and make no disclosure (Figure 4). Each respondent identified that the reputation and beliefs of this corporation determined it would not be an option to avoid any environmental issue brought to its attention. There was not a distinct preference for any of the other three approaches, as indicated by the closeness of the average likelihood of choosing these approaches. The ranking of the approaches failed to clarify the situation. This demonstrated that, while the issue was very significant, no one legitimation tactic and disclosure approach was clearly preferable to maintain the high level of legitimacy the corporation enjoyed. Attempting to alter social values appeared to confirm that the interviewees perceived that XYZ believed it enjoyed a high level of legitimacy. The feeling was that it would be unlikely to risk losing this unnecessarily and therefore the decision about the environmental impact of the packaging decision would not have been made in the first place without due consideration of its environmental reputation and legitimacy. The popularity of this disclosure approach indicated that the interviewees believed that XYZ was a corporation confident enough of its image to speak from a position of knowledge and authority. Attempting to alter social perceptions of the corporation and conforming to society's wishes were also possible options and were both ranked accordingly. An example of the common argument put forward in support of choosing the conforming approach was:
Yes we are going to respond to public opinion. We're definitely going to do that, because that is the basis on which we survive (D).

The ``closeness'' between the preferred approaches, along with the qualitative analysis in this case, clearly highlighted indecision about which approach to take, but just as clearly indicated that, perhaps because of the indecision, including more than one of the approaches was most likely. All but one of the six respondents suggested that they would consider using all three of the approaches. This was best explained in the response:
I think the way to remedy this issue is to simply explain the practical social and economic reasons for decisions on the banning of our normal paper packaging in favour of plastic (B). We would then go on to talk about environmental initiatives the corporation's adopting (C) as part of the same disclosure. I think then we could say, because it flows on quite simply, that if the public opinion doesn't like the approach we've taken, then we're happy to change it (D). But clearly, we thought that we're acting on customer feedback. Perhaps we haven't been haven't made the right judgement there, but the tone definitely would be indicating that if the public opinion had been misread by us or the position misjudged, we'd certainly change our attitude to it. We would probably use all these approaches.

The vignette relating to maintaining a low level of legitimacy produced markedly different results from the one designed to test responses relating to a perceived high level of legitimacy. This issue/event was considered to be only of moderate significance (Figure 2). The general reasons given for this related to the low existing legitimacy of the corporation, the fact that it appeared to have government support and because the issue/event was unlikely to affect economic performance greatly.

One would expect a corporation with the characteristics portrayed in this Environmental vignette not to be too concerned about legitimacy motives in annual report disclosures in the disclosures. The ideas of communicating a message consistent with intentions annual report to conform to social values and attempts to alter social values, were not likely to be chosen. These two approaches were, almost without exception, the two lowest ranked and least likely options (Figure 5). 361 Avoidance (making no disclosure) and attempting to alter society's perceptions were most preferred. A recurring theme in arguments supporting no disclosure was that the corporation was complying with all of the current laws and regulations, therefore it did not need to do any more than that to maintain whatever ``poor'' reputation it already had.
I think it's highly unlikely you'd make any disclosure. This corporation does not need to do anything as it has a poor image anyway (A). This corporation does not need to make any disclosures. They have nothing to gain (A).

While making no disclosure was the most popular choice, the idea of disclosing something to deflect attention about the issue was also considered very likely. It seems that the main reason for this appeared to be that at some point in time managers believed a stance ought to be taken. This stance did not seem to be directly concerned with the existing level of legitimacy of Military Hardware, which was acknowledged to be of little importance, but more of an approach consistent with an ``enough is enough'' approach and the corporation is not solely to blame. If the corporation sought to align itself with the institutions that support it (governments and government authorities), knowing the public do not approve of its activities, they are in essence cultivating a thought in the public arena that perhaps the corporation is not at fault. The corporation has institutional support for its activities, so perhaps it is those institutions that are to blame and the expectations placed on the corporation to act above and beyond the current requirements are not realistic.
Well if the corporation's going to dispose of waste that way, I would look at sharing the blame. In a way you're putting a bit of it onto the EPA because the EPA's saying it's OK to do it that way (C).

This ``shared'' blame approach indicated that decoupling strategies were also given some prominence by interviewees, confirming the idea elaborated by Lindblom (1994) that a fifth tactic based on the idea of altering expectations of the corporation was a likely legitimation tactic in this case. In respect of repairing legitimacy, all interviewees indicated the event involving a significant oil spill was extremely significant (Figure 2). Three common themes emerged: first, the disruption the event caused the public; second, the fact that it was widely publicised; and third, how this would impact on the reputation of the corporation. The importance of the significance of the event for this purpose was more important to the choice of legitimation tactics and annual report disclosures than it was for the purposes of gaining and

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maintaining legitimacy. This is understandable because if the event were not considered to be significant, then, in normal circumstances, there would be no lost legitimacy to regain. From an environmental perspective, the perceived importance of major oil spills, linked to the repercussions of the 1989 Exxon Valdez oil spill, gained some prominence. Three of the interviewees made passing reference to Exxon Valdez and one indicated how important the accident was for oil corporations and the environment in saying:
[This issue is] extremely significant. The Exxon Valdez has permanently put oil spills and related effects on the agenda for any corporation associated with major oil spills.

The immediacy and urgency of events causing legitimacy to be repaired also ``demand'' that corporations respond (react) in a timely manner. As one would expect, avoiding the event was the tactic least likely to be adopted, whereas conforming to social values, albeit symbolically, and altering perceptions were most likely to be chosen. Acknowledging responsibility and reassuring society that all steps will be taken to ensure the event does not recur (conforming), coupled with an account of past environmental achievements (altering perceptions) are, clearly, the most likely tactics to be used (Figure 6). Reasons for choosing the conforming approach centred on the need to be seen to be proactive and to portray the image of a repentant (without directly apologising), responsible corporation and one that was in control of the situation.
The thing is what you would end up doing is just saying that it happened and you emphasised what the good things you did about it and what you intend to do (D). You should adopt the open approach and not to try and get out of it. You are at the public's will a bit here, so don't rock the boat.

While choosing to conform, a couple of responses indicated a desire to ``decouple'' the corporation from the event, by linking the dangers of operating in the industry.
I think (D) is most likely and I think we'd also indicate a whole-hearted support of external enquiries by authorities into construction standards and maintenance standards for this sort of equipment across the industry, because clearly we're not doing anything different, but it's happened to us, and I think the whole industry has to learn from it.

The disclosure approach consistent with altering social perceptions was seen as being supplementary to conforming. While a popular option, it was unlikely it would have been chosen as the sole disclosure.
After conforming . . . You then go into saying the corporation does have a good record and that accidents do happen and you will try and minimise these events in the future (C).

The ``no disclosure'' approach did not enjoy any support, either as a likely disclosure or as a ranked preference. The main theme discovered was that the managers believed that the public would not let the corporation get away with ``doing nothing'' or ``staying silent''. In this context, appearing to be ``doing'' the right thing was extremely important to the corporation, even if it was not

actually doing anything substantive. The unanimous reaction from Environmental interviewees was that any issue/event, which attracts strong and immediate disclosures in the negative public reaction, necessitates a quick and very public response from annual report the corporation involved if a loss of reputation is to be averted. Attempts to alter social values by explaining to the public the environmental hazards involved with oil refining, that the public would need to accommodate, 363 garnered some guarded support, but was considered to be a somewhat risky approach. It appears that only those managers who did not feel the need to yield to public pressure would seriously consider this option. Most thought the approach was fraught with danger. It was mentioned a number of times that corporations do not wish to appear to be lecturing society in the wake of negative public sentiment. Conclusions The findings from this investigation continue to support legitimacy theory as an explanation for the decision to disclose environmental information in the annual report. Moreover, the applicability of legitimacy theory was enhanced during this investigation. The collection of open-ended interview data, directly from managers and from an ex ante perspective, enabled the discovery of more explicit reasons for environmental disclosure decisions than has previously been the case with much of the extant research into social and environmental reporting. At a micro-level, the predictive capacity of legitimacy theory has been enhanced. The findings from the research are summarised in the legitimation disclosure response matrix (Table III). The matrix indicates how likely it is that certain legitimation tactics, in the form of an annual report disclosure approach, will be chosen based on the perceived significance of an environmental issue/ event to the corporation and the particular purpose of the legitimation response. It was clear from the findings that the significance of an environmental issue/ event has a major affect on environmental disclosure decisions. Only two levels of significance are included in the matrix, high and medium. The findings indicated that if an issue/event was of low significance, it would not, in most circumstances,
Legitimation tactic/intention of annual report disclosure approach Alter Avoid Alter values perceptions Conform Likely Very likely Likely Unlikely Very unlikely Very likely Unlikely Possibly Likely Possibly Very likely Inconclusive Very unlikely Unlikely Unlikely Unlikely Likely Very unlikely Possibly Possibly Likely Very likely Likely Possibly Very likely Very unlikely Likely Unlikely Very likely Very likely Very likely Likely

Purpose of response Gaining Maintain high Maintain low Repair

Significance of issue/event to co. High Medium High Medium High Medium High Medium

Table III. Legitimation disclosure response matrix

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be considered a threat to a corporation's legitimacy and would not normally warrant the use of legitimation tactics and specific annual report disclosures. Columns 3 to 6 represent the four categories of annual report disclosures related to the legitimation tactics formulated for the purposes of this investigation. Rows 3 to 7 represent the conclusions from this investigation in relation to how likely it is that the five legitimation tactics/annual report disclosure approaches will be adopted in relation to the purpose of the corporate response and the significance of the issue/event to the corporation. A five-point qualitative scale was used to indicate the likelihood of a disclosure approach being adopted. The labels used in this scale in the matrix were very likely; likely; possibly; unlikely; and very unlikely. The overarching conclusion reached as to why corporations disclose environmental information was that environmental disclosure decisions were made on the basis of presenting the corporations in a positive light. This outcome came through repeatedly in the data analysis and is consistent with results of prior research (Deegan and Gordon, 1996; Deegan and Rankin, 1996; Simmons and Neu, 1998). This suggests that the decision usefulness value of voluntary environmental annual report disclosures for users of annual reports may be questionable, despite research suggesting that the annual report is a major source of environmental information for stakeholders (Rankin, 1996; Tilt, 1994). This is borne out by the likelihood that the annual report disclosure approach intended to alter perceptions would be chosen irrespective of the purpose of the corporate response and the significance of the event. This tactic/approach was the only one of the four tactics/annual report disclosure approaches that was, at least, ``likely'' to be adopted in response to every issue/event. This reinforces the idea that the annual report is a public relations document and is used by management to portray a positive picture of a corporation's social and environmental performance. It suggests that the information content of environmental disclosures in the annual report is general rather than specific, unlike other forms of communication (e.g. media releases, stand-alone environmental reports). It might be also be argued that the managers' target audiences are those that are less knowledgeable about, or less interested in specifically using, environmental information in the annual report. This apparent lack of substance in current environmental reporting in the annual report, however, may not be as misanthropic as it first appears. If one compares the quantity and quality of corporate environmental disclosures today with those of 20 years ago, it might be argued that a transformation in corporate thinking and action is taking place. Evidence of this transformation is found in the increased production of separate annual environmental reports (KPMG, 1999). Whether this ``transformation'' has more to do with symbolism than substance is an area that could be researched further. Results from this investigation have led to the addition of specific components to the theory and, it is argued, enhanced the predictive power of legitimacy theory in relation to why certain annual report disclosures are made. The contents of the legitimation disclosure response matrix could be expressed

as hypotheses and tested further in order to establish the extent of relationships Environmental between the identified variables and manager's intentions for making ex post disclosures in the annual report environmental disclosures. The ``results'' in the matrix could also annual report be used as a basis to indicate if corporations' tactics are changing over time, perhaps indicating a shift from symbolic to more substantive disclosures, which may be more consistent with a corporation truly attempting to become 365 more legitimate. The results from this study and the framework adopted could be used to assist in making judgements as to the ``value'' and usefulness of environmental disclosures in the annual report. Limitations and opportunities for further research From a theoretical perspective, it should be noted that concentrating on legitimacy theory, as an explanation for increased environmental disclosures, does not invalidate the likelihood that other social theories have explanatory power as well. The imprecise distinction between legitimacy, stakeholder and political economy theories should continue to be examined and explained. Care should also be taken in generalising too much from the results of this study. The study is exploratory in nature and while the methods used delivered a great deal of useful qualitative data, it must be remembered that the results were based on six in-depth interviews with personnel from three companies. There are two methodological caveats to be noted in relation to the findings. First, in order to be able to test legitimacy theory at a micro-level, it was considered necessary that the researcher choose the environmental issues/ events, which precipitated legitimacy threats. Second, the researcher also supplied the legitimation tactics and annual report disclosure approaches from which the interviewees had to choose. If this had not been done it is doubtful that the objectives of the investigation could have been achieved. On an intra- and inter-industry basis, individual corporations have different characteristics; social and environmental goals; perceptions of the importance of social and environmental goals to their conferring publics; and other external pressures on them at any point in time. These perceptions and pressures will also change over time. It is posited that these different characteristics, goals, perceptions and external pressures, which may often be unrelated to an environmental issue/event at the time the issue/event is at its peak importance, will influence the decision to disclose environmental information and the choice of specific annual report disclosure approaches. The effect these external pressures had on the choice of annual report disclosures was not tested in this study. Moreover, at any point in time, corporations have multiple issues/events to deal with, and multiple conferring publics' views to manage in relation to these issues/events. The levels of interconnectedness and the effect of multiple issues/events and multiple conferring publics' views were not tested for during this investigation. There are a number of directions, related to this investigation, in which research could proceed. While this investigation used environmental disclosures as a proxy for public pressure and ultimately, legitimacy, the methods adopted in

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this investigation could be used for any issue/event that has the potential to have a social impact on a corporation. In this investigation, the annual report was identified as being the major way corporations communicated social and environmental information to various stakeholders. One could use the methods adopted in this research to identify how other means of communication are used in managing legitimacy. For example, the effect that the publication of standalone environmental reports and the use of the World Wide Web has had on the quantity and quality of annual report disclosures and the choice of legitimation tactics is an area which appears timely to research further. The authority of any theory is often connected to its longevity (Eisenhardt, 1989). Longitudinal studies could be conducted, using a combination of interviews with management and ex post annual report/environmental report content analysis, to see if increased environmental disclosures continue to be explained by legitimacy theory. Moreover, this should allow researchers to discover to what extent legitimation tactics/disclosure approaches used in this investigation continue to be used and this may lead to the identification of additional legitimation tactics and disclosure approaches. An obvious extension of legitimacy theory is to establish whether the adoption of legitimation tactics and annual report disclosures has the desired effect on its intended audiences. In other words, to what extent do legitimation tactics work? To do this, future researchers would need to collect data from groups at whom management target legitimation tactics (conferring publics), and discover the groups' views, before and after the legitimation process. Only very limited research has been conducted in this area to date (Elsbach, 1994).
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Elsbach, K. and Sutton, R.I. (1992), ``Acquiring organisational legitimacy through illegitimate actions: a marriage of institutional and impression management theories'', Academy of Management Journal, Vol. 35, pp. 699-738. Frost, G.R. and Wilmshurst, T.D. (1998), ``Evidence of environmental accounting in Australian companies'', Asian Review of Accounting, Vol. 6 No. 2, pp. 163-80. Gibson, K. and O'Donovan, G. (2000), ``Environmental disclosures in Australia: a longitudinal study'', paper presented at the 6th Interdisciplinary Environmental Association Conference, Montreal, 21-24 July. Gorman, B.J. (1992), ``Are corporations becoming more socially responsible? an exploratory study of social responsibility reporting in Canada'', paper presented at the 15th Annual Congress of the European Accounting Association, April. Gray, R., Kouhy, R. and Lavers, S. (1995), ``Corporate social and environmental reporting: a review of the literature and a longitudinal study of UK disclosure'', Accounting, Auditing & Accountability, Vol. 8 No. 2, pp. 47-77. Gray, R., Owen, D. and Adams, C. (1996), Accounting and Accountability, Prentice Hall, Hemel Hempstead. Guthrie, J. and Parker, L. (1990), ``Corporate social disclosure practice: a comparative international analysis'', Advances in Public Interest Accounting, Vol. 3, pp. 159-76. Guthrie, J. and Parker, L.D. (1989), ``Corporate social reporting: a rebuttal of legitimacy theory'', Accounting and Business Research, Vol. 19 No. 76, pp. 343-52. Hawken, P. (1993), The Ecology of Commerce, Harper Collins, New York, NY. KPMG, (1999), KPMG International Survey of Environmental Reporting, KPMG International, Amsterdam. Lindblom, C.K. (1994), ``The implications of organizational legitimacy for corporate social performance and disclosure'', paper presented at the Critical Perspectives on Accounting Conference, New York, NY. Marcus, A.A. and Goodman, R.S. (1991), ``Victims and shareholders: the dilemmas of presenting corporate policy during a crisis'', Academy of Management Journal, Vol. 34 No. 2, pp. 281-35. Mathews, M.R. (1993), Socially Responsible Accounting, Chapman and Hall, Australia. Miles, M.B. and Huberman, A.M. (1994), Qualitative Data Analysis: A Sourcebook of New Methods, 2nd ed., Sage Publications, Thousand Oaks, CA. Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997), ``Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts'', Academy of Management Review, Vol. 22 No. 4, pp. 853-86. Nasi, J., Nasi, S., Phillips, N. and Zyglidopoulos, S. (1997), ``The evolution of corporate social responsiveness'', Business and Society, Vol. 36 No. 3, September, pp. 296-321. Neu, D., Warsame, H. and Pedwell, K. (1998), ``Managing public impressions: environmental disclosures in annual reports'', Accounting, Organizations and Society, Vol. 23 No. 3, pp. 265-82. O'Donovan, G. (1997), ``The decision to include environmental information in the corporate annual report: some Australian case study evidence'', American Accounting Association, Southwest Region Meeting Conference Proceedings, New Orleans, LA, March, pp. 119-126. O'Donovan, G. (1998), ``Corporate strategy and environmental reporting: a multinational's perspective'', in Hickey, K. and Kantarelis, D. (Eds), Our Natural Environment: Interdisciplinary Interactions, Assumption College, Worcester, MA, pp. 89-104. O'Donovan, G. (1999), ``Managing legitimacy through increased corporate reporting: an exploratory study'', Interdisciplinary Environmental Review, Vol. 1 No. 1, pp. 63-99. O'Donovan, G. (2000), Legitimacy Theory as an Explanation for Environmental Disclosures, PhD thesis, Victoria University of Technology, Melbourne.

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Appendix. Vignette and interview questions gaining legitimacy. ABC Company Limited Scenario You have been identified as a senior person responsible for the decision to include (or not include), environmental information in the annual report. When answering the following questions in these fictitious cases, you should adopt an approach consistent with what you perceive to be the corporate culture and social standing of the company as described in the case. Case 1. ABC Company Ltd, is a large mining company, whose head office is in Brisbane. It has been operating profitably in Australia and overseas for over 60 years. With the recent sustained, and most likely permanent, fall in commodity prices, the company has been looking for new, more cost efficient ways of operating. The company has, after many months of investigation and deliberation, only today, decided to use an extremely new technology that will cut the cost of mining activities very significantly. The probable side effects of the new technology indicate that any land used for mining will become unusable by humans and uninhabitable by animals for at least 50 years from the time the mining operations cease. At this stage the company has not decided what geographic locations will be chosen to utilise this new technology. The new technology and its impacts have not been widely publicised to this time. At this stage the mainstream news media have not reported the issue at all. Only the senior engineers and senior management personnel of the company are fully aware of the future profits to be gained and the potential environmental impacts of the use of this technology. It is planned to begin implementing this new technology within the next two years. Questions: (1) How significant do you believe the environmental issues or events, as described in the case, are to the social standing of the company? Circle one answer only.
. . . . .

Extremely significant. Very significant. Significant. Moderately significant. Not significant.

Can you elaborate as to reasons for your choice? (2) With respect to an annual report disclosure, would the magnitude of the issues or events in this case, result in the likely intervention of senior executive directors in the:
.

decision to include or not include a disclosure in relation to this issue or event, (circle one answer only) YES . . . . . . . . . . . . NO Please explain your answer

tone and actual wording of the annual report disclosure YES . . . . . . . . . . . . NO Please explain your answer

(3) Indicate how likely you would be to adopt each annual report disclosure approach listed below, in response to the environmental issues or events identified in the case. Tick only one box under each disclosure approach (5 is highly likely, 4 likely, 3 possibly, 2 unlikely, 1 highly unlikely).

Case 1. Disclosure approach Make no disclosure Highlight the negative economic and social effects of not changing to the new technology Concentrate on past social and environmental achievements of the company Highlight that, if public opinion dictates, your company will not continue using the new technology

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(4) You are deciding on a disclosure strategy for the annual report in relation to the environmental issues raised in the case. Place a number in each box ranking your choice from 1 (most likely), 2, 3, 4 (least likely). Place a number in each box. Case 1. Disclosure approach Make no disclosure Highlight the negative economic and social effects of not changing to the new technology Concentrate on past social and environmental achievements of the company Indicate that your company is a responsible corporate citizen and, if populist public opinion dictates, your company will cease plans to use the new technology Rank

Why did you rank these in the order you did?