Corporate social responsibility (CSR) reporting: a study of selected banking companies in Bangladesh Md Habib-Uz-Zaman Khan, Abdel K. Halabi and Martin Samy

Md Habib-Uz-Zaman Khan is Senior Lecturer, Department of Business Administration, East West University, Dhaka, Bangladesh. Abdel K. Halabi is Senior Lecturer, Department of Accounting and Finance, Monash University Gippsland Campus, Churchill, Australia, and is also based at the School of accountancy, University of Witswaterrand, Johannesburg, South Africa. Martin Samy is Senior Lecturer, Leeds Business School, Leeds Metropolitan University, Leeds, UK.

Abstract Purpose – The purpose of this paper is to examine corporate social responsibility (CSR) reporting by banks in the developing economy of Bangladesh. This paper also aims to examine the users’ perceptions relating to CSR disclosures issues. Design/methodology/approach – The study collected two types of data. First the annual reports of 20 selected banking companies, which are listed in Dhaka Stock Exchange (DSE), were considered. A questionnaire was also used to investigate the level of users’ understanding and their perception of CSR reporting. Findings – The principal findings are twofold: first, the study shows that the selected banking companies did some (albeit little) CSR reporting on a voluntary basis. Second, that the user groups are in favor of CSR reporting, and would like to see more disclosure. The current disclosures by the selected banks, however, are not ample at all to measure the social responsiveness of the organizations. Originality/value – The paper provides useful informaiton on users’ perceptions relating to CSR disclosures issues. Keywords Corporate social responsibility, Information disclosure, Banking, Bangladesh Paper type Research paper

Introduction In the last 20 years, users of accounting information have demanded more information not only relating to economic activities but also to the impact of a firms’ activities on society. Corporate social responsibility (CSR) evidenced through social responsibility accounting (SRA) is a means for attaining social responsiveness (Abrol, 2002). There are two main arguments in favor of SRA, these being market- and socially-related. The market-related argument notes that SRA is necessary to promote market efficiency and performance. The socially-related argument means that SRA is essential on the moral agency and social connection of companies. SRA advocates that accounting and reporting should deal with the measurement and communication of both economic performance and social responsibility. Behaving in a socially responsible manner is increasingly seen as essential to the long-term survival of companies. An international survey conducted by Price Waterhouse Coopers in early 2002 found that nearly 70 percent of the global chief executives believed that addressing CSR was vital to their companies’ profitability (Simms, 2002). Today, many companies in many countries and across many industries have introduced some form of social reporting. This study specifically investigates the social reporting practices by some Banking companies in Bangladesh. In addition the study examines users’ perception relating to these CSR disclosures. Banks help to mobilize and reallocate resources of the society, and prior research has been conducted examining the social responsibility of banks, yet not in the

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VOL. 5 NO. 3 2009, pp. 344-357, Q Emerald Group Publishing Limited, ISSN 1747-1117

DOI 10.1108/17471110910977276

developing nation of Bangladesh. Further, while some CSR studies have been conducted in Bangladesh, a study of the banks has not undertaken. This study then is the first to observe the CSR reporting practices in Bangladesh banks, and presents an insight into CSR reporting practices in this developing nation. The paper proceeds as follows: first, an overview of CSR is provided, incorporating the definition and SRA, historical development, benefits, and prior research in the Banking sector. This is followed by a brief summary of the Bangladesh economy, and the types of CSR studies undertaken in this nation. The aims and objectives of the study are then outlined. The paper then explains the methodology, and results, and concludes on the basis of the findings.

Overview of CSR CSR has been defined as: [. . .] the integration of business operations and values whereby the interests of all stakeholders, including customer, employees, investors, and the environment are reflected in the organization’s policies and actions (Smith, 2002, p.42).

Kok et al. (2001), add that CSR is: [. . .] the obligation of the firm to use its resources in ways to benefit society through committed participation as a member of society, taking into account the society at large, and improving welfare of society at large independently of direct gains of the company.

In summary, CSR is the commitment of business to contribute to sustainable economic development – working with employees, their families, the local community and society at large to improve the quality of life, in ways that are both good for business and good for development (World Bank, 2005). The concept of SRA is tied with the ‘‘triple-bottom-line’’ accounting, and includes, information about the company’s financial well being, its employees’ and community well-being, and the environmental impacts of its operations (Adams, 1999). In relation to SRA, Bernhut (2002, p.18) stated that the objective of socio economic accounting is ‘‘to internalize the social costs and benefits to determine a more relevant and exhaustive result that represents the socio- economic profit of a firm’’. Abrol (2002) noted that SRA is the measurement and reporting of cost and benefits relating to socially responsible actions taken by business firms. It may be carried out through publication of a list together with disclosure of the cost of each activity. SRA includes aspects like control of pollution, energy, health and safety measures, employment, community involvement and donations to educational institutions and charities. Overall, SRA is an important vehicle to evaluate the accountability of business towards society (Habibullah, 1989)

Origins of CSR reporting The origin of CSR reporting can be traced back to the early 1970s (Mathews, 1997). During this time the subject was relatively underdeveloped, and empirical studies were less sophisticated, mainly descriptive and the development of numbers of social accounting models (e.g. Estes, 1976; Linowes, 1972; Ramanathan, 1976), whereas philosophical discussions were limited (Mathews, 1997). In the early period of CSR Reporting, dominance by US research was evident. Gray and Kouhy (1996) stated that in the 1970s more is known about CSR in the USA than any other country. The Ernst & Ernst (1978) study which systematically monitored the development of CSR reporting in the USA, shows that out of all Fortune 500 companies, 89 percent made social disclosure, and one in every two companies made disclosures related to the environment and energy, followed by human resources and then community involvement. A later study by Guthrie and Parker (1990) found that three in every four companies made human resource disclosures. Research also found that relative emphasis on the different areas CSR reporting varies with the country of domicile (Preston and Chapman, 1978) and Gray and Kouhy (1987) stated that legislation could influence the emphasis on different issues of CSR reporting.

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Benefits of CSR reporting Prior research has found that companies that demonstrate social responsibility gain specific benefits, (see Adams and Ambika, 2005). These benefits include: B

Better recruitment and retention of employees. This is evident from the findings of a survey conducted by Hill and Knowlton’s Corporate Reputation Watch in Europe, the UK and the USA. The survey found that 88 percent of British businesses believe that social responsibility will be more important in the future in recruitment and retaining employees (Simms, 2002, p. 49).

B

Improved internal decisions making and cost savings. Organizations that produce social and environmental reports develop better internal control systems and better decision making and cost savings, resulting in continuous improvements (Adams, 2002). This improved operational and process efficiency results in reduced risks and improved safety at work (King, 2002; Simms, 2002). This is facilitated when organizations seek to communicate badly, as well as good news, to their employees and other stakeholders through social reports.

B

Improved corporate image and relations with stakeholders. Adams (2002) stated that disclosing information on social and environmental issues could minimize risks of powerful consumer boycotts by external parties. Further, better understanding of corporate activities reduces criticism from external and internal sources leading to improved reputation and improves communication with the community and other stakeholders and results in a competitive advantage (Adams, 2002; Bernhut, 2002, Marx, 1992/1993; King, 2002). Pike (2000, p. 18) stated that social reporting remains valuable, because it provides on informed basis for explaining the company’s actions. Finally, evidence of organizations benefiting by CSR can be seen in a study of ten entrepreneurs who had developed successful new ventures (Joyner and Payne, 2002). The study found that all organizations and their entrepreneurs went beyond the requirements of the law with respect to corporate social responsibility and in their interactions with their stakeholders and benefited by growing in size and establishing their presence in the community.

B

Improved financial returns. Margolis and Walsh (2003) examined the relationship of corporate social performance (CSP) with corporate financial performance (CFP) between 1972 and 2002. Their review suggests a positive association and very little evidence of a negative association. Orlitzky et al. (2003), in an analysis of 52 CSP and CFP studies, also found a positive association and concluded ‘‘corporate virtue, in the form of social responsibility and, to a lesser extent environmental responsibility, is likely to pay off’’.

B

In reviewing the corporate benefits of CSR, Bernhut (2002) and Evans (2003) noted that some are difficult to measure or quantify in dollar terms. This can result in challenges for managers trying to convince company directors of the advantage or usefulness of good reporting and disclosure systems (Simms, 2002). In an interview from the Adams (1999) study on respondent stated ‘‘We strongly believe it is good for us to report on environmental issues, but we can’t measure the effects in financial terms’’.

While benefits of CSR can be examined from a corporate viewpoint, CSR Reporting is important to promote efficiency and stability of an economy. CSR Reporting discloses the information of a society and is essential in the formulation of national policies.

CSR and banks Prior research has noted the involvement of banks with CSR reporting. Banks and other financial services providers play an important role as banks are not only the recipient, but also the purveyors of socially responsible investments (Montgomery and Ramus, 2003). Heal (2004) stated that banks could clearly benefit from applying some of the most elementary ideas of CSR to their own human resources policies, and community involvement, yet the involvement of banks towards CSR reporting is not over-whelming or consistent across countries (Heal, 2004).

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Some countries (e.g. France) have made CSR and its reporting mandatory (Wikipedia, 2006) while in some other countries, banks perform CSR activities more or less as a voluntary basis. Gray et al. (1995a, b) noted that CSR reporting practices have witnessed an escalation in the UK and USA. Douglas et al. (2004) stated that Irish banks are well behind the leading European banks with regard to the quality and quantity of social disclosures. Tsang(1998) stated that corporate social reporting in Singapore on banking, food and beverage and hotel industries revealed the few CSR disclosures. A study by Halabi et al. (2006) found that four banking companies are in Australia’s top ten, and all banks make disclosures in relation to the environment, labor practices, and human rights. Finally, a study by Nikolaou (2007) on the banking sector in Greece stated that this sort of information is disclosed through an ad hoc environmental accounting method.

Banking in Bangladesh Bangladesh is a country located in South Asia with a per capita gross national income of only $440 per year (World Bank, 2005). Although the agricultural sector dominates the Bangladesh economy, the service sector’s contribution to total gross domestic product (GDP) increased sharply from 36 percent in 1970 to around 52 percent in 2005-2007 (Bangladesh Bank, 2007). The financial sector of Bangladesh, like most developing countries, is dominated by banking enterprises (Ahmed, 2005). Ahmad and Khanal(2007) stated that banks and other financial institutions (OFIs) have been playing a key role in boosting economic activities and social conditions in the Bangladesh economy. In 2008 there are 49 banks in Bangladesh (with 6,318 branches) of which there are 32 Private Commercial banks (PCBs); ten foreign commercial banks (FCB) and nine nationalized commercial and specialized banks (NCBs) (Bangladesh Bank, 2007). The banking sector employs about 110,000 people. From the total assets of the financial institutions, the share of the commercial banks is more than 93 percent. In 2005, the NCBs held approximately 40 percent of total industry assets, the PCBs had approximately 43 percent, and the FCBs held 10 percent (Bangladesh Bank, 2007). Those commercial banks convey their financial performances to the shareholder as per the mandatory requirement of Banking Companies Act 1991. Corporate financial reporting in Bangladesh is mandatory[1] and directed towards the traditional accounting based profit margin or percentage based result to the fund provider rather than company’s contribution to the society, to the people and to the country as a whole. In the developed and developing countries, reporting corporate social responsibilities are emphasized but generally neglected. The major problem concerns selecting events to be reported (SalimUddin et al., 1999). Selection of information needs guiding principles or a framework for developing disclosure index. The Institute of Chartered Accountants of Bangladesh (ICAB) has recommended many accounting standards but no social reporting requirements[2]. Further, the International Accounting Standard Committee (IASC) does not provide any standard for CSR reporting. Chowdhury and Chowdhury (1996) noted that there are in effect, no disclosure requirements for social reporting under the different Acts and rules currently in use in Bangladesh. There are, however, few empirical studies on CSR practices in Bangladesh. Belal (1997) for instance noted that out of 50 companies only 6 percent made environmental disclosures. A later study, however, revealed that all companies disclosed at least some social information (Belal et al., 1998). Belal et al. (1998) showed that most companies disclosed information on employee issues whilst the least areas were on ethical and environmental disclosures. Uddin et al. (1999) found that communicating social responsibility performance is not considered a priority among stakeholders. They also found that disclosure as well as performance of social responsibility activities has been confined to mainly employees’ welfare, contribution to government, operational activities and business expansion. Uddin et al.(1999) observed that social responsibility performance in the private sector is superior compared to public sector enterprises. A study conducted by Bala and Habib (1988) found that separate financial reporting to employees is not mandatory in Bangladesh and thereby not in practice.

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There are some voluntary and mandatory disclosures of employee-oriented information in the usual annual report, but the extent of disclosure is minimal. Prior Bangladesh research focuses mainly on an insight from manufacturing and other sectors. Imam (2000), for example, examined 40 listed manufacturing companies and found that most of the companies did not provide any information regarding the environment, human resources, community, and consumers. The information that was provided by these companies was qualitative in nature and the disclosure level was very poor (Imam, 2000). In another study Belal (2001) examined 30 companies from different manufacturing sectors and reported that these companies made at least some social disclosures.

Aim of the study Noting the dearth of research in the Banking sector and in developing countries, the aim of this study is to investigate the social reporting practices by banking companies in Bangladesh. The study will also examine users’ perception relating to these CSR disclosures.

Methodology The study collected two types of data. First, the annual reports for the year 2004-2005 of 20 selected banking companies listed on the Dhaka Stock Exchange (DSE) were examined. The sample banking companies include 18 private commercial banks and two from nationalized commercial banks (the detailed list of surveyed companies is given in Table I)[3]. A minimum acceptable sample size depending on the type of research is considered to be 10 percent of the population for descriptive studies (Gay and Diehl, 1992), and therefore, the sample size (n ¼ 20, of 49) for this study is well accepted. This selection of annual reports for analysis is consistent with many other studies (see, for example, Adams et al., 1995, 1998; Gray et al., 1995a, b; Guthrie and Parker, 1990; Roberts, 1990; Singh and Ahuja, 1983). A further reason for choosing annual reports is that, in Bangladesh, annual report is the most widespread and accepted document produced by the companies regularly. Belal (1999, 2000) illustrated that annual reports are considered as the major means through which information about the company is communicated. The sample consists of only the largest companies taken from the banking sectors, a procedure consistent with other studies (see Hall and Jones, 1991; Roberts, 1990; Guthrie and Parker, 1990). For the purpose of this study, a large company has been identified as one Table I Lists of companies surveyed

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Names of the surveyed banking companies

Types of banks

BRAC Bank Limited BASIC Bank Limited Dhaka Bank Limited Prime Bank Limited Islam Bank Bangladesh Limited Bank Asia Ltd Dutch Bangla Bank Ltd National Bank Limited IFIC Bank Ltd AB Bank Limited The City Bank Ltd NCC Bank Limited Exim bank Ltd Eastern Bank Ltd Southeast Bank Ltd Pubali Bank Ltd UCBL Uttara Bank Ltd Agrani Bank Ltd Sonali Bank Ltd

Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Private commercial bank Government commercial bank Government commercial bank

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having a turnover of at least BD Tk 15 million and the numbers of employees over 200. The largest companies have also been considered because they are deemed to be more interested to the social and environmental issues. Moreover, it is believed that the larger companies have more wealth to make additional disclosures (Adams et al., 1998; Andrew et al., 1989). The study examined every page in the annual reports, to examine their corporate social responsibility. The second data collected for this study involved a questionnaire to investigate the level of users’ understanding and their perception towards CSR Reporting. For this a questionnaire with a covering letter was used and a postage-paid self-addressed envelope was sent to 50 annual report users through mail. The respondents were assured that the information furnished would be dealt with confidentiality, and individual information would not exposed. The questionnaire was pre-tested several times to ensure that the wording, format, length and sequencing were appropriate and this was to increase validity of the data. The respondents were selected in accordance with the list of users groups mentioned in Framework for the Preparation and Presentation of Financial Statements published by International Accounting Standards Committee (IASC) and Bangladesh Accounting Standard (BAS). The selected users were financial analysts, managers, shareholders, employees, suppliers and customers from firms, which employed between 200 and 1200 employees, with annual turnover between BD Tk 20 million and BD Tk 100 million. The questionnaires were addressed to these people care of the company, and the addresses obtained from publicly available data. The groups of users were selected as they all possess core financial skills and likely to have a degree of interest in social reporting issues. Respondents were supplied with the questionnaire again two weeks after the first was mailed. The participants were provided with a copy of annual reports of banking companies, a concise explanation of corporate social reporting issues, and a number of statements examining their perceptions of CRS reporting. A five-point Likert scale was used on the statements. Voluntary disclosure of corporate social reporting is about people’s attitudes (Marx, 1992/1993, p. 39), and prior studies have used the Likert scale for measuring attitudes and perceptions (see Beattie et al., 1999; Hussy and Lan, 2001). The response scale used for this study was: 5 – Strongly agree; 4 – Agree; 3 – No comments/neutral; 2 – Disagree; 1 – Strongly disagree. For the purpose of the study, any score above 3 was constructed to be a positive response to the question whereas any score below 3 was regarded as negative, which virtually avoids the score given ‘‘No comments’’ or ‘‘Neutral’’ (Hussy and Lan, 2001). Finally data have been analyzed under parametric research procedures. All the respondents returned their completed questionnaire representing a response rate of 100 percent. This amazing response rate may be due to the short size of questionnaires or the participant’s eagerness.

Results analysis of annual reports This section provides an analysis of the CSR reporting by the banks according to the areas of disclosure, types of information and disclosure format, location of social disclosures in the annual reports and the pages used for social disclosure. This process is similar to that followed by Imam (2000) with further adoption of few specific items to be better congruent with the banking industry. Areas of disclosures There were 21 areas of disclosure overall, and the degree to which companies made these disclosures is provided in Table II. Table II shows that of the 21 areas, the banking companies made no disclosure in six (being, employee diversity in respect to race, destitute, employee participation in decision making process, service to disable clients, management of customer complains). Further on five of the disclosure items, only one bank answered in the positive. Conversely all banks reported that they provided training facilities, while 18 of the banks provided positive disclosure on

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Table II CSR reporting practice by selected banking companies Disclosure issues 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

Employee diversity in respect to: Gender Race Destitute Work environment with respect to safety issues Employee participation in decision making process Training facilities Contractual employment rate Facilities to worker’s children Service message to clients Service to disable clients Donation for the causes of humanity and society Management of customer complaint Grants for the disables and destitute of the society Facilities for the community except their product Interest free services Scholarship programme, financial aid to students Distribution of money to fund for flood victimized people Responsibility towards environmental issues Sector wise exposure Direct participation in social activities (SA) Formation of separate foundation to support SA to community

Percentage (n ¼ 20)

5 0 0 0 0 100 5 5 15 0 50 0 20 55 5 10 10 5 90 40 55

Note: n ¼ 20 ¼ 100 percent response rate, therefore n ¼ 1 ¼ 5 percent

sector-wide exposure. Further analysis showed that ten banks reported their community involvement in the form of giving ‘‘donation for the causes of humanity and society’’ (item no. 9), and four mentioned of granting funds for the disables and destitute of the society (item no. 11). These included a blood donation program, giving funds to eye hospital, annual sports arrangements and money paid to the acid victims. Only two companies disclosed the amount of money granted in the foundation for assisting flood-victimized people (item no. 15) and for granting scholarship for meritorious students (item no. 14). While more than half of the sample (55 percent) mentioned their involvement in giving facilities to the community except their product, none of the companies mentioned the details of the facilities they offer. Only one bank (item 16) revealed their environmental awareness in planting of trees to make the country green and conservation of energy by instituting energy saving scheme, but again no further quantitative information in this respect was disclosed. Overall, Table II reveals that the banks place greater emphasis on human resource disclosure (employees training and other issues) Types of information and disclosure format The analysis found that most of the companies made qualitative disclosure rather than expressing in quantitative manner, and in all cases the disclosures were descriptive. Only two companies disclosed the amount of money granted in the foundation for aiding flood-victimized people and for granting scholarship for meritorious students. This finding is consistent with research in Australia, Canada and Hong Kong (for detailed review, see Trotman, 1979, Guthrie, 1982; Zeghal and Ahmed, 1990; Lynn, 1992). Location of social disclosures in the annual report In relation to the location of social disclosures in the annual report, the findings of the present study revealed that all companies (n ¼ 20) reported social matters in the chair’s statement/directors’ report and 15 companies further disclosed these in the notes to the accounts section. No company attempted to disclose social and environmental information in separate (isolated) sections. These results are consistent with Imam (2000), who found that not a single manufacturing companies reported social activities in the separate sections of the annual report.

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Pages used for social disclosure Analysis of the size of social disclosure shows that 15 companies (or 75 percent) mentioned social activities and other information either within a few sentences or less than half a page. The social disclosures of the other five companies were contained on more than half a page, but it never exceeded one page. This finding is similar the study of annual reports by Guthrie (1982) where the number of pages devoted to social accounting disclosures per company was 0.68 of a page, and only 11 percent devoting more than one page.

Results analysis of perceptions of CSR To measure the users’ perception of social reporting, a number of statements were tested. These had been developed from prior research in social and environmental reporting for the banking sector (see Montgomery and Ramus, 2003; Heal, 2004 Gray et al., 1995a, b; Douglas et al., 2004) and the different research studies attempted in Bangladesh and other developing nations (see for example Imam, 1999, 2000; Belal, 1997, 1998, 1999, 2000; Beattie et al., 1999; Savage, 1994; Singh and Ahuja, 1983; Islam, 2000; Rashid, 1998). As previously stated the responses were provided on a five-point Likert scale from 5 (Strongly agree) to 1 (Strongly disagree). For the purpose of the study, any score above 3 was constructed to be a positive response to the question whereas any score below 3 was regarded as negative, which virtually avoids the score given ‘‘No comments’’ or ‘‘Neutral’’ (Hussy and Lan, 2001). All statements were then tested for their significance by paired comparison t tests and then the acceptance (or rejection) of a statement served the basis for further analysis (Table III). The result of the one sample t tests are provided in Table IV. Table IV shows that statements X1, X2, X3, X4, X5, X6, X7 and X9 are significant at the 5 percent level and therefore accepted, while statements X8 and X10 are not accepted. These findings show that generally the users felt that the disclosures made by the companies on different CSR issues are not sufficient to measure the social responsibility of Bangladesh banking companies. In particular the rejection of X8 and X10 show that the reporting of social activities Table III Statements of X1 to X10 measuring CSR perceptions Test: where m¼ mean score

Statement

H1: mX 1 – 3 H0:mX 1 – 3

X1 ¼ Disclosures regarding compensation and benefits to employees are trustworthy

H1: mX 1 – 3 H0:mX 1 – 3

X2 ¼ The organization is not sufficiently disclosing their involvement of social activities

H1: mX 1 – 3 H0:mX 1 – 3

X3 ¼ The organization should maintain a special quota system in their employment for disable and destitute groups and disclose it

H1: mX 1 – 3 H0:mX 1 – 3

X4 ¼ CSR disclosures play a positive role in caring for the shareholders’ interest

H1: mX 1 – 3 H1:mX 1 – 3

X5 ¼ There should be pressure from regulatory bodies to include social aspects in the financial reports of an organization

H1: mX 1 – 3 H0:mX 1 – 3

X6 ¼ The organization discloses its involvement in providing scholarship to meritorious students, and giving financial assistance to the people affected by natural disasters

H1: mX 1 – 3 H0:mX 1 – 3

X7 ¼ The company’s desire to satisfy their customers and their continuous effort is reflected in the reports

H1: mX 1 – 3 H0:mX 1 – 3

X8 ¼ This company works for a pollution free environment for the society as evidence by their disclosure

H1: mX 1 – 3 H0:mX 1 – 3

X9 ¼ Reporting regarding participation in the social activities is minimal for this company

H1: mX 1 – 3 H0:mX 1 – 3

X10 ¼ These disclosures are helpful and adequate in assessing socially responsible company

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Table IV One-sample t test on the users’ perception of CSR reporting

Variables X1 X2 X3 X4 X5 X6 X7 X8 X9 X10

t

df

Sig. (two-tailed)

Mean difference

5.480 4.039 3.348 10.614 7.086 4.629 4.754 0.871 7.170 1.323

49 49 49 49 49 49 49 49 49 49

0.000 0.000 0.002 0.000 0.000 0.000 0.000 0.388 0.000 0.192

0.76 0.64 0.44 1.12 1.06 0.68 0.66 0.16 0.96 0.18

95 percent confidence interval of the difference Lower Upper 0.48 0.32 0.18 0.91 0.76 0.38 0.38 20.21 0.69 29.35E-02

1.04 0.96 0.70 1.33 1.36 0.98 0.94 0.53 1.23 0.45

Note: Test value ¼ 3

is inadequate. The results of X5 indicate that the different regulatory bodies should come forward to take necessary initiatives for incorporating CSR Reporting along with financial reporting[4].

Respondents’ preference regarding CSR reporting Respondents were also asked to provide their opinion on various disclosures that they believe important for the companies to make. The questionnaire provided seven reporting issues and the users were asked to rank these from 1 to 7 according to their preference. Table V provides the results. Table V shows that, as per users’ opinion, the most important aspect of social reporting to disclose included ‘‘responsibilities performed towards public health, safety and facilities for the community’’. Interestingly, Table II showed that 50 percent of the sample banks disclose such issue in their annual report. The respondents noted that the second most important responsibility was that towards environmental issues, while the least important related to employee diversity. The users’ ranking towards environmental issues for banks is not surprising as banks can also take necessary initiatives to make the county green and pollution free in a number of ways. Interestingly Table II showed that environmental issues are not disclosed by many firms (one bank disclosed that they have taken part in trees plantation scheme and saving energy).

Table V Respondents’ preference regarding CSR reporting issues

CSR reporting issues Disclosure of: Compensation and benefits to employee Employee diversity Employee rights Response against customers demand, complains and rights Responsibilities performed towards public health, safety and facilities for the community Responsibilities performed towards government Responsibilities performed towards environmental issues

Sum of ranks (as per respondents’ score)

Rank

206 268 213 178

4 7 5 3

135 231 169

1 6 2

Notes: The ranks points have been summed. The lowest result indicates more preference and the highest sum indicates less preference

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Conclusion and further research This study examined the CSR disclosures practices in 20 Bangladesh commercial banks. Results show that the sample of banks did disclose information in many areas (see Table II). This confirms past studies in other countries that have shown that banks do disclose CSR reporting (Gray et al., 1995a, b; Douglas et al., 2004; Tsang, 1998; Nikolaou, 2007). The study shows that the banks place a high emphasis on human resource disclosure. Half of the companies reported that they have direct participation in social activities and half also made a separate foundation to support social activities to community. This is a good signal for the users and community as a whole, but inadequate disclosure in this respect makes this issue more blurring to users. Above all, no formal reporting arrangement in a separate content was found among the selected samples and most of the length of reporting was confined within few sentences or less than a half of a page. The second section of this study collected information on the perceptions of users relating to CSR disclosures. Results showed that the user groups are in favor of such CSR reporting. Most users assumed that ‘‘disclosure of responsibilities performed towards public health, safety and facilities for the community’’ is the most significant aspect in social reporting. The importance of the community is reinforced in the general definitions of CSR (see Smith, 2002; Kok et al., 2001). This study has presented an insight into CSR reporting practices of the banking sector in a developing country. It can lead to further research to compare and contrast these results with the banking sectors of other developing or developed countries. Or future research endeavor can also be instigated (e.g. case study type research) in order to explore why companies makes social disclosures in Bangladesh. In the light of above-mentioned results, this study has a number of possible implications. It is evident from these findings that a significant number of banks in Bangladesh have formulated their own foundation for social activities. The banks report many areas, but perhaps should reflect on the findings from Table V on what users perceive as being important, and report more on these issues (that is the responsibility towards public health, safety and facilities for the community). Overall the CSR reporting was found to be quite limited, so banks should devote more pages to disclose their activities, and head this under a separate heading. It might also be useful to disclose the amounts in monetary terms rather than in qualitative form. In the year 2004, Bangladesh suffered severe floods with some banks reporting their involvement with this. However CSR reporting should not be a practice only for special or infrequent events rather it should be a continuous process, and companies need to incorporate social reporting more. This study also has implications for the regulatory bodies in Bangladesh and beyond. The findings of this study found that users demand enhanced CSR reporting and expects the regulatory bodies to play a pivotal role. These can be either in the form of incorporating some provisions in the Companies Act, 1994 regarding social and environmental disclosure or developing a checklist of such disclosures through the initiatives of a ministerial agenda. While this study has found some useful information, it is not free from certain limitations. These limitations however could provide a stimulus for further research. First, this analysis of the annual reports study is based on a small sample of Bangladeshi commercial Bank’s annual reports in the year 2004. Hence, the consequential finding cannot be generalized to the non-banking sector and other developing countries. Second, the results of the study must be interpreted only with largest companies and should not be generalized to small and medium-sized banking sectors. Further research could targeted towards a more longitudinal study based reasonably on a large sample (and also including the non-banking sector). CSR reporting will continue to be important to all companies in all countries and research in this area important and should be ongoing. Perhaps the greatest challenge for all companies during the next century will be to incorporate social issues into strategic planning so that the company addresses in a serious way those issues where it can make a difference.

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Notes 1. See the Companies Act, 1994 which replaced the Companies Act, 1913 (for all companies except public enterprise.), the Bank Companies Act, 1991 (for banking institutions), the Insurance Act, 1938 (for insurance companies), the Income Tax Ordinance, 1984, (for all companies and public enterprise), the Securities and Exchange Rules, 1987 (for only public limited companies). 2. For example disclosure of Accounting Policies, Information to be disclosed in Financial Statements, Accounting for Property, Plant and Equipment, Statement of Changes in Financial Position, Presentation of Current Assets and Liabilities, Accounting for Research and Development Costs, Revenue Recognition 3. Specialized banks are excluded from the study because the intention of this research was to be familiar with CSR practicing of commercials banks. 4. These bodies include the Bangladesh Central Bank (BB), The Securities and Exchange Commission (SEC), The Institute of Chartered Accountants of Bangladesh (ICAB) and The Institute of Cost and Management Accountants of Bangladesh (ICMAB).

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Corresponding author Martin Samy can be contacted at: [email protected]

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