Accountability via Financial Disclosures: An Exploration of the Public's Perceptions

Accountability via Financial Disclosures: An Exploration of the Public's Perceptions

Ushi Ghoorah (Western Sydney University, Australia)
Copyright: © 2019 |Pages: 22
DOI: 10.4018/978-1-5225-8482-7.ch002

Abstract

Social economy sector (SES) organizations are dependent on their funders and, similar to non-profit organizations, are vulnerable to the risk of mission drift as well as to concerns about the extent to which they are accountable for their fund flows. This chapter explores the general public's perceptions of the relative importance of specific financial disclosures which the public believes SES organizations should publish as part of their provision of accountability. Using a survey questionnaire administered to a sample of 400 Australian individuals, the chapter observes that the public perceives financial disclosures relating to sources of funds, mission-related expenses, and the financial sustainability of SES organizations as important. It is recommended that SES organizations cater to the general public's information needs as a way of improving their accountability, reducing information asymmetry, and eventually increasing general trust and confidence in their operations.
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Introduction

Social economy sector (SES) organisations are primarily set up with the objective of promoting social welfare. These organisations operate following a business model to achieve their social or environment objectives, such as those related to the alleviation of poverty, wealth inequality and environmental damage. More specifically, SES organisations generate surpluses from their commercial activities and reinvest these funds into their social activities to increase welfare (Austin, Stenvenson & Wei-Skillern, 2012). SES organisations are neither pure commercial nor pure non-profit organisations, but are instead a combination of both (Ebrahim, Battilana & Mair, 2014). As such, SES organisations have dual objectives; namely, social welfare and profit maximisation (Santos, Pache & Birkholz, 2015). The fundamental purpose of SES organisations remains to pursue their social and/or environmental missions which contribute to the social welfare of their beneficiaries (Barraket, Mason & Blain, 2016) and eventually, of the general public (Justice Connect, 2017a).

To carry out their activities, SES organisations receive support from their external environment in the form of funds from investors, government subsidies, charitable funds, donations (Bugg-Levine, Kogut & Kulatilaka, 2012), fundraising income, membership fees and government grants (Prakash & Gugerty, 2010; Zainon, Atan & Bee Wah, 2014). SES organisations are resource dependent on external funders, including the public at large. This dependence implies that SES organisations, similar to non-profit organisations, have a responsibility to spend their funds on the social causes which they promote to support (Dhanani & Connolly, 2012). SES organisations operate in an environment where trust and confidence are fundamental elements for their fund inflows (Hyndman & McConville, 2018) and ultimately, for the survival of individual organisations (Hyndman, 2017). Given the nature of SES organisations, there is a reasonable expectation that they can be trusted to use funds to maximise their social mission (Arshad, Bakar, Thani & Omar, 2013).

It can be challenging for SES organisations to manage their dual objectives (Canales, 2013) and satisfy all stakeholders’ expectations. Within the SES context, stakeholders have different needs and expectations. For instance, investors, customers and commercial partners have expectations which are more focused on the financial performance and profit maximisation objectives of the organisation, as compared to donors, volunteers and social partners who are mainly interested in the social outcomes of the organisation. Though the dual objectives of SES organisations should complement rather than compete with each other (Ebrahim et al., 2014), this is not always the case. There have been concerns about the risk of mission drift within the sector, where an SES organisation moves its focus away from social outcomes to profit maximisation (Mair, Battilana & Cardenas, 2012). In the past, SES organisations have faced the problem of mission drifts where organisations have focused on their financial performance to the detriment of their social mission (Strom, 2010). An example of such mission drift is the commercialisation of the microfinance sector (Banerjee, Duflo, Glennerster & Kinnan, 2013).

Key Terms in this Chapter

External Accountability: External accountability relates to the provision of disclosures which cater to the information needs of the external stakeholders of an organisation, such as funders, regulators, recipients of the goods and services provided by the entity, and society at large.

Transparency: The condition of not keeping secrets from another party by providing information and making disclosures.

Operational Capability: The ability of an entity to maintain a certain level of operation in the future.

Internal Accountability: Internal accountability involves the provision of disclosures which meet the information needs of the internal stakeholders of an organisation, such as its employees, management, and board.

Information Asymmetry: A situation where, for two or more parties which have competing or common goals, at least one party possess “private” information unknown to but beneficial to the other party or parties.

Social Economy Sector (SES) Organization: An organisation which operates a business model to achieve its social or environment objectives, such as those related to the alleviation of poverty, wealth inequality, and environmental damage.

Resource Dependence: Reliance which an organisation has on external supplies or inputs.

Accounting Information: Disclosures which give details about an entity in money terms. These disclosures are usually prepared and presented in a standardized format following reporting standards, guidelines, and/or generally accepted practices.

Stewardship: The responsibility of managing and taking care of something on behalf of another party.

Economic Benefits: Advantages which can be measured in monetary value.

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