Accounting: Organisational Legitimacy vs Stakeholder Theories

This essay compares and contrasts organisational legitimacy and stakeholder theories within the context of social and environmental accounting. Organisational legitimacy focuses on aligning a company's activities with societal values, while stakeholder theory emphasizes balancing the interests of various stakeholders, including employees, customers, and the community. The essay highlights that legitimacy theory involves disclosing government rules and regulations, potentially impacting investor decisions, whereas stakeholder theory balances stakeholder interests using descriptive accuracy, normative validity, and instrumental power. While stakeholder theory considers both internal and external stakeholders, organisational legitimacy primarily links internal activities with external social values. Both theories are crucial in social and environmental accounting, and companies should consider both frameworks when preparing sustainability reports. Access more solved assignments and study resources on Desklib.

Accounting
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Comparison of organisational legitimacy and stakeholder theories
The social and environmental (sustainability) accounting can be evaluated with the help
of the theories which include organisational legitimacy and stakeholder theories. The paper is
written to the corporate manager and it compares and contrasts the two frameworks.
Organisational legitimacy is defined as the congruency that company look for to form the
link between the social values and with their activities. This has been found that disparity that
exists between the actual or potential value systems of the company which works as the threat for
the company. These threats that take place can be in the form of political, social, legal and many
others (Du Toit, 2017). On the other hand, the stakeholder theory is one of the conceptual
frameworks of organizational management and business ethics which is mainly concern with the
ethical values and moral activities that are performed by the company in managing the business
operations. The theory focuses on balancing the financial interest against the other stakeholders
which include employees, customers and the local community. Thus this shows the importance
of the theory in the social and environmental reporting of any organisation.
Further, while comparing the theories this has been that in legitimacy theory it includes
the disclosure of different government rules and regulations which are required to be followed by
them at the time of preparing a report. This disclosure about the government regulations might
encourage effect on securities traded by the investors within the company. Contrasting this, the
stakeholder’s theory majorly focuses on maintaining the balance between the diverging interests
between stakeholders by making the use of the three essential components which are taken care
at the time of reporting. This includes descriptive accuracy, normative validity and instrumental
power (Jones, Wicks and Freeman, 2017).

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The major difference that has been witnessed is that stakeholder theory of the company
includes the internal and external stakeholder that can link to the company and affect the
reporting activities related to sustainability reporting. On the other hand, Organisational
legitimacy majorly includes the link between the internal activities of the company with the
outside social value.
This has been found that Organisational legitimacy and stakeholder theory are considered
as most cited theories which are used by the companies mainly in the social and environmental
accounting area. Further, each of the frameworks plays a vital role in the business organisation.
Thus, it becomes essential for the company to follow both the framework while preparing the
sustainability reporting.

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References
Du Toit, E. (2017) The readability of integrated reports. Meditari Accountancy Research, 25(4),
pp.629-653.
Jones, T.M., Wicks, A.C. and Freeman, R.E. (2017) Stakeholder theory: The state of the art. The
Blackwell guide to business ethics, pp.17-37.