Social and environmental reporting at the VRA: institutionalised legitimacy or legitimation crisis?

Critical Perspectives on Accounting 15 (2004) 35–56

Social and environmental reporting at the VRA: institutionalised legitimacy or legitimation crisis? Abu Shiraz Rahaman a , Stewart Lawrence b,∗ , Juliet Roper b a

Faculty of Management, University of Calgary, Calgary, AB T2N 1N4, Canada Waikato Management School, University of Waikato, Hamilton, New Zealand

b

Received 12 September 2000; received in revised form 18 February 2001, 4 July 2001; accepted 8 July 2002

Abstract Literature on social and environmental disclosure has sought to provide explanations for corporate decisions to disclose information in annual reports. This paper uses a combination of institutional theory and Habermas’ legitimation theory to explain social and environmental reporting at a Ghanaian public sector organisation, the Volta River Authority (VRA). In the case of the VRA a major influence on environmental reporting is the constant pressure to comply with the requirements of funding agencies, such as the World Bank, in order to provide institutional legitimation. The same sources of pressure which encourage the reporting of physical environmental impacts, lead to undesirable outcomes for the local population. Institutionalised practices lead to prices beyond the reach of local people and work against the original developmental goal of the VRA project. Such effects are invisible and remain so in accounting systems designed to meet the requirements of international institutional legitimisation. The result of institutionalised reporting procedures is not legitimacy, but a crisis of legitimation. © 2003 Elsevier Science Ltd. All rights reserved. Keywords: Environmental and social reporting; Institutional theory; Legitimacy; Volta River Authority

1. Introduction Recent writings have demonstrated how ‘institutional theory’ helps to illuminate accounting practice in organisations and society (see Covaleski et al., 1993, 1996; Hoque ∗

Corresponding author. Tel.: +64-7-856-2889x8794; fax: +64-7-838-4332. E-mail address: [email protected] (S. Lawrence).

1045-2354/$ – see front matter © 2003 Elsevier Science Ltd. All rights reserved. doi:10.1016/S1045-2354(03)00005-4

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and Alam, 1999; Scapens, 1994). These studies have mainly focused on managerial accounting, broadly defined, and have argued that for organisations to survive they must interact with their wider environment in ways perceived as acceptable to the various constituents in that environment. Accounting practices from such a perspective are represented as tools for documenting institutional compliance or as means for seeking external legitimation (see, e.g. Ansari and Euske, 1987; Covaleski and Dirsmith, 1988). Yet few studies have explicitly drawn upon institutional theory to examine external reporting practices of organisations. This paper reports evidence of institutional compliance in the area of social and environmental reporting within an organisational context. It provides evidence of and reasons for disclosure by a Ghanaian public sector organisation, the Volta River Authority1 (VRA), which claims to be at the leading edge of social and environmental reporting. In the case of the VRA a major influence on environmental reporting is the constant pressure to comply with the requirements of funding agencies, such as the World Bank, in order to provide institutional legitimation. The findings show that highly visible damage control projects, necessitated by the construction of the largest man-made lake in the world, are reported in detail. What is not reported, however, is the less visible social and economic impact on large parts of the rural Ghanaian communities arising from the pressure to perform as a commercial organisation and earn a return on assets. The same sources of pressure which encourage the reporting of physical environmental impacts, lead to prices beyond the reach of local people and work against the original developmental goal of the VRA project. Such effects are invisible masked by accounting systems designed to meet the requirements of international institutional legitimisation. In order to examine the failure of the VRA to respond to the interests of Ghanaian communities, the case is further analysed at a socio-cultural and political level. The framework employed for this second level of analysis is that of Habermas’ (1976) legitimation theory. The paper is organised as follows: after a background discussion of the case study site, we review the literature on motivations for social and environmental reporting. We then present the argument for an institutional perspective, followed by a discussion of legitimation from the Habermasian perspective. The case study is then presented beginning with the methods for data collection, the evidence at the VRA interpreted through institutional theory, legitimation theory, and a conclusion.

2. Background to the case study The Volta River Authority is a public corporation established in 1961 by the Government of Ghana in collaboration with the British Government, the American Government, the World Bank and two American-based multinational aluminium corporations (Kaiser Aluminium and Chemicals Corporation, and Reynolds Metals Company). These parties provided funding for the Volta River Project, the precursor of VRA, after a series of negotiations before the project that generates electricity from the largest human-made lake 1

Also referred to as “the Authority” in this paper.

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in the world got off the ground. The involvement of the two aluminium-giant corporations was necessary to guarantee that excess power would be utilised, especially during the first few years after the project had started. Kaiser and Reynolds established a smelter in Ghana named Valco at a cost of US$ 128 million of which their shareholders contributed US$ 32 million that was covered by the US Government political risk guarantee. The remaining US$ 96 million was provided by US EXIM Bank as a loan to the project. A contract signed between Valco and VRA entitled Valco to about 60% of power generated from the project at 2.625 cents/kWh. This was to prevail for an initial period of 30 years subject to further 20-year period if Valco exercised an option to continue operating in Ghana (Appendix A provides power consumption rates of the various customer groups from 1966 to 1984). The amount of power consumed by Valco, however, has reduced following the re-negotiations of the early 1980s (see Appendix B). A spokesman of Valco in justifying the decision to establish the smelter to American-based shareholders noted: “where else . . . could we get a 120,000 ton aluminium smelter, costing US$ 150,000,000, of which 85% was supported by debts and 90% of that covered by the American Government” (Graham, 1982, p. 187). Although the entire cost of building the dam, power station and transmission lines was estimated at 70 million pounds sterling, the project was completed under budget at a cost of 56 million pounds sterling (Sims and Casely-Hayford, 1986). The government of the newly independent Ghana provided 35 million pounds sterling representing over half of the total cost of the project (Tsikata, 1986). In addition the Ghana government also provided about 7.5 million pounds sterling for the necessary infrastructure including the construction of roads for access to the dam and housing and to resettle the people displaced by the project (Sims and Casely-Hayford, 1986). The other parties then provided the remaining funding for the project almost in equal proportions. However, the World Bank has been a major provider of subsequent funding for various projects that VRA has undertaken since it started its operations in 1966 (see Appendix C). The Authority has a capacity in excess of 6000 GWh and supplies electric power to Ghana and neighbouring countries, including Burkina Faso and Ivory Coast, but an unfortunate fact is that a large number of the Ghanaian population still does not have access to electricity. The negotiations which preceded the establishment of the VRA have attracted a lot of international interest in the management of the organisation (see Graham, 1982). External constituents who are currently closely monitoring the management process of the VRA include a large number of lenders such as the World Bank, CIDA, European Development Fund, OPEC Fund, Danida, Mediocredito Centrale, etc. In particular, these lenders have shown significant interest in the financial management process including the design, maintenance and change of accounting and reporting systems at the VRA. Since the establishment of the VRA, the World Bank in particular has had considerable influence on its accounting and financial management practices. After the first few years of operations a performance contract was signed between VRA and the World Bank requiring the Authority to achieve at least 8% return on assets every fiscal year. In accordance with the World Bank’s requirements, VRA must revalue its assets every 5 years to ensure that its rate of return on assets is based on ‘accurate’ asset valuations in a country that has one of the

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highest inflation rates in the world. The World Bank also undertakes occasional review of VRA’s systems of financial management and reporting practices to ensure that they accord with acceptable international practices.

3. Social and environmental issues at the VRA The construction of the Volta Lake and Akosombo Dam, the main sources of VRA’s hydro electricity, led to the displacement of a number of villages including Torgome, Natriku, West Kpong, South Senchi, Fadzoku, Old Akrade and some farmlands in the area (Vittor-Quay, 1996). The “natural environment” of the area was also significantly, and indeed, permanently altered. Water-borne diseases such as bilharzias and river blindness are now common among the inhabitants of surrounding villages. In addition, the villages are under constant threats from floods in periods of heavy rainfall when VRA spills excess water from the dam. Furthermore, some of the Authority’s high-tension power lines pass through areas earmarked for wildlife conservation and need to be constantly monitored. To supplement its hydro generation plant during periods of drought, VRA has undertaken feasibility studies to establish a thermal generation plant at Aboadze near Takoradi, one of the regional capitals in Ghana. This plan has raised very serious environmental concerns because of the high potential pollution level associated with thermal generation plants. Since 1984, VRA has not only consistently acknowledged responsibility for the environmental and social problems associated with the construction of the dam and its operations in the area, but has always disclosed detailed information on these issues in its annual reports (see Vittor-Quay, 1996). The Authority has always hired international consulting firms to assess and advise on ways of minimising the effect of its operations on the environment and villagers in the surrounding areas of the dam. In 1995 the Authority went “a step further” to create a new functional department responsible for monitoring and reporting on the social and environmental impacts of its operations. The question then is what motivates this high degree of environmental and social awareness/ ssssreporting?

4. Motivations for social and environmental reporting: a review of the literature Various theorists have provided explanations for social and environmental practices. Most of these are grounded in the economic rationalist perspective. Using agency theory as their lens, Belkaoui and Karpik (1989) examined the factors influencing decisions to disclose social information in corporate annual reports. They hypothesised that “the decision to disclose social information is positively correlated with social performance, economic performance and political visibility, and negatively correlated with contracting and monitoring costs” (p. 38). Drawing on the work of Abbot and Monsen (1979) they argued that firms which engage in socially responsible types of activity involving the outlay of

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resources, do so to create an impression of sensitivity to important non-market influences that may be in the long-term interest of the shareholders (p. 38). In a similar context, Fry and Hock (1976) also argue that disclosure of social and environmental information by “politically visible firms,” which are usually large in size, are “public relations gestures meant to ward off grass root attacks by social activists” (see Belkaoui and Karpik, 1989, p. 40). In their concluding remarks, Belkaoui and Karpik (1989) observed the strong “need for research on the determinants of the decision to disclose social information” (p. 47). Patten (1992) extends the discussion by using a political economy or social contract perspective. Patten (ibid) draws on ‘legitimacy theory’, as elaborated by Preston and Post (1975), to argue that “social reporting can be viewed as a method of responding to the changing perceptions of a corporation’s relevant publics” (p. 471). Organisations are represented as having social contracts with society, which constantly expects them to address social issues inherently related to their operations. Thus social disclosure is perceived, from such a perspective, as one of the strategies employed by corporate entities to seek acceptance and approval of their operations from society. Patten (ibid) examined the effects of the Alaska oil spill and concluded that: The increase in environmental disclosures of the petroleum companies, along with the significance of the size and Alyeska variables in explaining that increase, can be interpreted as evidence in support of legitimacy theory. It appears that at least for environmental disclosures, threats to a firm’s legitimacy do entice the firm to include more social responsibility information in its annual reports. (p. 475) If the above argumentation holds, then we can expect a growth in disclosure of social and environmental issues in corporate annual reports as today’s society is increasingly becoming “aware of the adverse consequences of corporate growth” (Tinker and Neimark, 1987, p. 84). Mathews (1997) hinted at such a growth in his review of the literature in this area. In a recent examination of environmental and social disclosures in annual reports of Canadian companies operating in the mineral extraction, forestry, oil and gas and chemical industries, Neu et al. (1998), provided additional evidence that “environmental disclosure in annual reports provide organisations with an effective method of managing external impressions” (p. 269). They identify the “relevant publics” of corporate entities to include stakeholders (primary) and environmentalist groups (secondary). The latter group includes environmental regulatory bodies. Dual and multiple listings on major stock markets have also been identified as important motivations for social and environmental reporting. In a review of the determinants of social and environmental disclosures in New Zealand, Hackston and Milne (1996) also noted society’s growing awareness of the consequences of corporate growth (see also Tinker and Neimark, 1987). Their study confirmed previous findings in the literature that firm size, systematic risk, industry and managerial decision horizon explain social and environmental disclosures and concluded that: In addition to size and industry relationships, this study also provides some tentative evidence that dual and multiple overseas listings may be associated with greater social disclosure . . . . (p. 102)

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With the increasing importance of environmental and social issues in shareholder assessment of corporate risk and returns, the effects of multiple listings on decisions to disclose environmental and social information requires further investigation. Samuels (1990) notes that the main motivation for social and environmental reporting within developing countries centres on the inability of conventional accounting models, developed in the West, to serve the present and future needs of today’s developing countries. He argues that just as the paths towards socio-economic development of contemporary developing nations may differ from those of pre-capitalist West, so would their accounting needs and reporting mechanisms. He further observes that there is an enormous amount of pressure on developing countries to over-exploit their natural resources in their drive towards advancement in the socio-economic living conditions of their people. Such pressure will require governments of developing nations to provide mandatory regulations for corporate entities to report on the impact of their operations on the environment. These regulations are urgently required because of the fear that multinational corporations may take advantage of these countries in ways that will not be possible in the developed world. The need for environmental and social reporting can also be viewed from the critical perspective of hegemony (Gramsci, 1971; Hall, 1988). Hegemony (or dominance through non-coercive means) is achieved through the societal acceptance of practices to the extent that they remain unquestioned. While constantly under challenge at various points of contestation, hegemony is maintained through the means of concession. Thus, for example, as the practices of the VRA are challenged by groups such as environmental activists, concessions are made in the form of increased environmental reporting. These concessions do not necessarily, however, reflect a fundamental shift in core practices. The concept of hegemony is closely paralleled by Habermas’ (1976) theory of legitimation, as explored later.

5. Theoretical framework for this study This paper offers dual theoretical frameworks for the analysis of the case of the VRA. In the first instance the theoretical framework is derived from institutional theories in sociology and organisational theory (e.g. DiMaggio and Powell, 1983, 1991; Meyer and Rowan, 1977). The second theoretical framework is provided by Habermas’ (1976) theory of legitimation. This critical framework serves to contextualise the actions of the VRA at a socio-political level.

6. Institutional theory Institutional theory explores how organisational structure and action are moulded by cultural, political and social forces that surround entities (Fogerty, 1996, p. 245). According to the theory, ‘institution’ is used to connote ‘a way of thought or action of some prevalence and permanence, which is embedded in the habits of a group or customs of people’. Such patterns of thought and behaviour can be stated to embody ‘programmed actions’ (Berger

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and Luckman, 1967, p. 75) and to provide ‘common responses to situations’ (Mead, 1934). They are also drawn upon by members of an organisation or community regularly and commonly (Burns and Scapens, 1996, p. 3). Institutional theorists such as Meyer and Rowan (1977) suggest that institutional arrangements (rules, procedures) are often introduced in order to maintain appearances which in turn help confer legitimacy upon the organisation, rather than to enable efficient organisational decision making or better outcomes. Accounting represents one form of institutionalised practice within organisations. According to Covaleski et al. (1996, p. 11) accounting in the form of an institution may represent ‘a ceremonial means for symbolically demonstrating an organisation’s commitment to a rational course of action’. Demonstration of adherence to the expectations, norms, and beliefs valued by society at large may help an organisation gain the support of society, and hence legitimacy (Scapens, 1994). Practices are influenced by the organisation’s external and internal institutional environment. The external institutional environment comprises the economic, political and social circumstances that an organisation must be aware of, and adaptive to, if it is to receive support and legitimacy from the environment. The internal institutional environment comprises the goals, structure and culture of the organisation. According to DiMaggio and Powell (1983) there are three forces at work in creating institutionalised behaviours. First, there is pressure to conform exerted by individuals and organisations (such as governments or the World Bank for public sector organisations in developing countries). This source of pressure to conform to institutionalised procedures is referred to as coercive isomorphism. Second, there is conformity produced in order to reduce uncertainty through attempts to model or copy procedures used in other organisations, called mimetic isomorphism. Third, there is pressure to conform to set norms and rules developed by professional and occupational group which is referred to as normative isomorphism. These mechanisms help maintain a congruence between the institutional environment and accounting practices. Powell (1991, p. 9) outlines reasons why institutionalised behaviour is reproduced and is resistant to change. Similar to coercive isomorphism, Powell refers to the exercise of power. At crucial stages, interventions by people with power may play a critical role in institutional formation and maintenance. Once behaviour is institutionalised, there are taken for granted assumptions and routinised behaviour; established routines may reproduce themselves without active intervention. Also supporting the status quo are complex interdependencies; so if a particular practice is linked with a network of practices, a change in one requires changes to others, which could be costly and hence may be avoided. Another explanation for reproduction Powell refers to as path dependent development processes, by which he means that future options are precluded by initial choices that organisations make. Government units, highly regulated organisations, and private sector organisations which are highly dependent on public financing, provide the most obvious examples of an institutionalised environment (Fogerty, 1996, p. 246). The VRA being a public sector organisation with a commercial objective had features that suited an institutional theory study of how cultural, political and social forces affect structure and action. Institutional theory may help to understand the reasons for the VRA reporting on environmental issues and also why certain types of social reporting are repressed.

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7. The Habermasian perspective of legitimacy A more critical perspective of legitimacy is provided by Habermas (1976). Within this framework, legitimacy is provided for a political institution by society’s acceptance of socio-political norms. That is, while society accepts, without question, the actions carried out by its representatives in government, it will continue to provide the necessary support for that government. Habermas argues that, under advanced Western capitalism, societies have become increasingly complex, and the political and economic spheres intertwined. The role of the political has become one of actively creating and protecting the infrastructure necessary for the economic. Because of its loss of an autonomous role, the political sphere has become increasingly vulnerable, both to the demands of the economic sphere and to those of the socio-cultural system. In answering to the demands of the economic sphere, governments may have to make decisions which lack rationality from the perspective of socio-cultural society. This lack of rationality is reflected in a reduction of unquestionable belief in hitherto hegemonic norms. Habermas uses the terms ‘meaning value’, or ‘motivation’ for the societal acceptance of norms, with motivation providing political legitimation. The reduction in motivation occurs because the norms to which motivation is tied require constant justification. The reduction in motivation results in a reduction of legitimation. Thus, Habermas maintains, advanced capitalist societies are now susceptible to at least one of a range of crisis tendencies: economic, rationality, motivation and legitimation. Crises in the economic sector become political because the administration, in order to maintain the social infrastructure, must in some way avoid the effects of that crisis passing directly to the socio-cultural sector and thus affecting the means of production. This is possible because, while the administration takes action that lacks rationality, the consequent questioning of that action can be appeased by the provision of consumables, or ‘consumable values’ (ibid, p. 93), the material comforts such as provided by the welfare-state programme. As the political administration continues to make decisions that are not rational because they are not in the general interests of all society, huge compensatory demands can be placed upon it. If those demands are not met, the administration faces a crisis of legitimation. Habermas’ theory of legitimation was first published in 1973, a time when economic spheres were still largely nationally based. By the late 1980s, however, and particularly through the 1990s, the economic sphere has become primarily international. This means that, although the political and economic are still interdependent, the political remains national but with imperatives imposed upon it by an international economy that is grounded in advanced Western capitalism. This is a view echoed by Kuttner (2000) who maintains that as the economic power of global corporations grows, ‘so does their political and intellectual reach, at the expense of nation-states that once balanced their private economic power with public purposes and national stabilisation policies’ (p. 147). The complexities and problems of such an interdependence are particularly valid for those nations of the developing world where rationality and legitimacy are increasingly difficult to maintain. The continued inability of the governments of such nations to compensate, through material provision for their people, for a lack of rationality has resulted in a loss of legitimacy and widespread economic crisis in the socio-cultural sector.

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8. Research design and data collection methods The VRA was chosen initially as a suitable field site for a broad study of accounting procedures in a developing country. It is one of the most politically visible organisations in Ghana with a well-documented history. For this particular study, it was ideal because scrutiny of corporate annual reports over the period 1985–1995 revealed that the VRA had consistently provided more detailed social and environmental information in its annual reports than any other Ghanaian organisation. The data collection methods included interviews and document analysis. Three types of interviews were conducted: exploratory interviews, in-depth interviews, and follow-up interviews. The initial exploratory interviews were semi-structured covering various aspects of financial reporting and included a section on environmental reporting. The main interviews were conducted over a period of 2.5 months from March 1996 to May 1996, although some ad hoc follow-up interviews were conducted, mainly over the telephone, from August 1997 to June 1998. There was a total of 54 interviewees including top management and operational level staff members of the VRA. In addition, some officials from other government departments who had knowledge of VRA’s operations and its financial management and reporting practices were interviewed. Most of the interviews lasted between 30 min and 1 h. Permission was granted for all interviews to be recorded and later transcribed. Interview questions were open-ended and designed to extract the motivations for environmental and social reporting at the VRA. These questions were drawn from the various discussions in the social and environmental accounting literature (reviewed earlier) and framed to allow organisational participants to provide their perspectives on the issues raised. In particular, the public/media pressure thesis, legitimacy theory and other explanations for social and environmental reporting practices, which have been well argued in the literature, were raised in the context of the VRA. Interviews could not be conducted with the World Bank resident representative because of concerns about client confidentiality. The documents which were accessed include VRA’s annual reports, World Bank reports on the VRA, letters from funding agencies, letters from the government of Ghana, internal memos, reports from external auditors, and reports from the Ghana Public Services Commission.

9. The “driving force” behind VRA’s social and environmental practices The origins of the VRA made it susceptible to what DiMaggio and Powell (1983) refer to as coercive isomorphism. The initial agreement to fund the operation gave the World Bank a strong incentive, and possibly duty, to monitor and direct financial reporting procedures. The World Bank and other lending institutions have continuously provided financial support for the Authority’s operations. Such support, however, has not been without conditions attached. In particular the lending institutions have always insisted on the existence of effective financial management systems for tracking the resources advanced to the Authority. As an organisational participant observed:

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. . . we rely on the World Bank and other banks for financial support to fund our operations because the Government cannot provide such funds . . . . We are also required to run our operations on sound commercial footing and sometimes this means going out to borrow to ensure projects are completed on schedule. But these loans come with conditions . . . . The conditions take a number of forms including the presence of adequate accounting systems. One of the often-cited criticisms of accounting systems in developing countries is their lack of suitably trained and qualified accountants (Gujarathi and Dean, 1993). This was not the case at the VRA. Many of its accountants and senior management were sent to Harvard Business School. This guarantees a standard of financial reporting and reflects the institutional mechanism of normative isomorphism (pressure to conform through professional groups). The accountants were also sent to spend periods at Ontario Hydro in Canada, so that there was a mimetic isomorphism (e.g. modelling on other organisations). The result was a reputation for a high standard of financial reporting at VRA. There was also an overwhelming positive perception not only among organisational actors but other external constituencies about the effectiveness of the Authority’s systems of financial resource management (see also Rahaman and Lawrence, 2001a, 2001b). In particular, the World Bank observes in a review of VRA’s systems that: VRA’s accounting and budgeting systems are generally satisfactory and provide timely and reliable financial information. It has an independent internal auditing department which forms part of its system of internal control . . . . Improved financial systems and reporting are expected following the full computerisation of VRA’s accounts, and other improvements are expected as a result of the full integration of financial management . . . . Each year its fixed assets are revalued, using a satisfactory indexation formula . . . . Present auditing arrangements are satisfactory. VRA’s accounts and auditors’ reports are submitted within six month period agreed with IDA under the ongoing Northern Grid Project. VRA’s auditors (Coopers and Lybrand, Accra) have never had occasion to qualify VRA’s accounts. (World Bank Official Report No. 8207-GH, 1990, p. 11) The Northern Grid project refers to the extension of the transmission lines to the north of Ghana. Such extensions are governed by strict environmental impact reports. Reports on environmental issues are mandatory for the VRA. The same coercive influence from overseas financiers was felt in the area of environmental reporting as in financial reporting. It is important for legitimacy that the Authority is seen to be socially and environmentally responsible. The World Bank has insisted that the VRA publicly acknowledges its responsibility of environmental effects of its operations, and report on them. So in its annual reports the Authority provides very detailed information on the various environmental and social issues which were outstanding in the previous fiscal year and how these issues have been addressed. This is followed by information on environmental and social issues which have come to light during the current period and how management is tackling them. A respondent observed: We handle the environmental issue seriously and we always provide in-depth information of the environmental impact of our operations. No doubt, we are among the leaders in this area.

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For example, the 1994 annual report provided, among other things, that VRA had formulated: . . . measures to check the adverse effects of land degradation along the Volta Lake by reafforesting about 430 hectares of degraded areas on the slopes of the Adjena Gorge . . . . We plan to extend this programme to similar areas along the lake in the coming years . . . , we are also educating and involving people living in the towns and villages along the shores of the Lake to fight against environmental degradation . . . . (VRA Annual Report, 1994, p. 10) Similarly, the 1993 annual report provided that: . . . In preparation for the construction of the Takoradi Thermal plant, the Authority organised well-attended fora during which a draft Environmental Impact Assessment Report on the Project was publicly discussed with all interested parties, groups and non-Governmental organisations to assess the possible impact of the Project on the environment and the adequacy of proposed mitigating measures to be put in place. (VRA Annual Report, 1993, p. 10) Such measures continue to dominate the Authority’s response to the environmental problems created by its operations in recent years. There was also a strong and consistent view among respondents that the World Bank is “the main driving force” behind VRA’s applaudable social and environmental disclosure practices. An organisational participant elaborated this: The banks, in fact, the World Bank is the main driving force. They are always interested in seeing how we address our environmental obligations . . . . Copies of our annual reports must be delivered to them, so we make sure our reports are always timely . . . . Last year we established a Department for the sole purpose of monitoring our environmental and social obligations. This was a step that the Bank appeared to be extremely happy with . . . . Although we are still having teething-problems in the new Department, as would be expected, I believe it is an important step that the Authority has taken towards meeting its environmental and social obligations . . . Another organisational participant observed: The funding agencies have a significant input in our financial management systems in general. Environmental reporting is only one aspect. It has always been a priority here to provide such reports . . . . It is fair because if you want to lend money to someone, in this commercial world, you have to ensure that the person will live long enough to repay you . . . . That is why a new Department responsible for real estate and environment was created last year . . . One of the roles of the new Real Estate and Environment Department is to find ways of quantifying and integrating environmental and social costs into the Authority’s reporting system. The rationale is to make environmental and social issues even more visible. This, however, requires retraining of staff members in the new department. As Vittor-Quay (1996, p. 8) observed:

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To enable the section [Real Estate and Environment Department] to fulfil its responsibility effectively, management is still considering proposals presented on the effective manpower and equipment needs of the section . . . . It is very important that such a section has some minimal number of experts to look at specific areas especially supervision and assessment of strategies being initiated . . . We see the institutionalisation of environmental protection in the formation of an organisational unit with specifically trained staff. Through normative and mimetic isomorphism, there results a routinisation of environmental issues and their reporting. On some occasions the World Bank has specifically asked for the environmental impacts of particular projects to be assessed before a decision could be reached on a loan for that purpose. For example, in its 1990 proposal for funding (to enable an extension of the national grid to Wa in the Upper Western Region) from the International Development Association, a member of the World Bank group, the VRA disclosed environmental impacts of the project as follows: The proposed project is not expected to have any major adverse environmental effects. An important component of the project (17% of the project costs) is to supply Wa in the Upper Western region. The shortest route to supply Wa is the extension of 161 kV systems from Daboya to Wa (approximately 150 km). However, the line would need to go through the Mole National Game Reserve. Cognizant of the environmental needs of the project and the African Convention for Conservation of Nature and Natural Resources Agreement, signed by Ghana in 1969, VRA has decided to build the transmission line to Wa by circumventing the Mole game reserve and thereby protecting it. This has increased the distance to be covered by about 280 km . . . the transmission line in the north will provide grid supply to an area presently supplied by diesel generators and would, therefore, eliminate air pollution caused by diesel generation . . . . (World Bank Report No. 8207-GH, 1990, p. 23) In response to the health and social problems resulting from its operations, the Authority has also built a modern well-equipped hospital employing specialist doctors to treat villagers in the surrounding areas of the lake. The Akosombo Township Hospital has the reputation as the best hospital outside the two largest cities in the country. The Authority’s commitments to assisting settlements affected by its operations is further illustrated by the creation of a Trust Fund of US$ 500,000 a year towards this purpose (see also Rahaman and Lawrence, 2001a). As a respondent noted: VRA is the most socially responsible in the country. We take our obligations seriously and not only talk about them like other organisations . . . . Yes, these are problems that we created, and we don’t run away from them . . . . The support we continue to get from the World Bank is because of the way we handle these issues. They appear to be very particular about environmental and social concerns in the country. Human resource development and education are also major priorities being pursued by the Authority. The Akosombo Primary, Junior Secondary, and Senior Secondary schools are private schools built and managed by the Authority strictly for the wards of staff members and villagers in the areas around the Volta Lake. It is important to note that the Akosombo

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Senior Secondary School is one of the best schools in the country with excellent performance in the annual examinations organised by the West African Examinations Council. VRA’s annual reports provide updates on the achievements, problems and future plans for these schools. The decision to build the schools and hospital were initiatives taken by the Authority’s management without any pressure from lending institutions. As a respondent noted: The Board decided to build the schools for our children and the local residents, years ago . . . I believe no external body had an influence on it. However, the lending institutions have since ratified these social projects and have provided their support through special loans for equipment to sustain them. It is a part of the legitimising institutionalised practices.

10. What’s the problem with coercive pressure? A common view among organisational participants was that even without the significant pressure currently applied by the World Bank, VRA would still provide environmental and social information although not to the same extent. As a respondent noted: The World Bank’s influence is enormous but I think that we would still provide information on environmental and social issues even if they [the financial institutions] did not require it. Every electricity company has environmental problems in one way or the other and our management would not sweep them under the carpet. Another respondent noted: But it is not only the World Bank and other lenders who are interested in environmental issues. Without any pressure from them I believe the Government will be the dominant force . . . . The Government is only passive, I believe, because of the extent to which we are performing in that area. Some organisational participants also noted the influence of environmental activists groups. But these groups were seen as co-operative because of the way VRA is handling its environmental obligations. As a respondent noted: We organise public discussions on our environmental obligations and these usually attract a lot of NGOs . . . . Yes, environmental activist groups . . . we also make sure the environmental impacts of our projects are well understood and then show how we are addressing them. Some organisational participants seriously resented the interference of lending agencies and other external constituents in the management process of the VRA. They maintained that efforts to meet the requirements of external constituents have, in the past, produced a number of contradictory policies for the Authority. It is here that the problem resides. The economic strategies pursued by the World Bank and its consultants, such as the structural adjustment programmes, which insist on clear commercial objectives and corporatisation

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of public sector organisations creates a tension in social objectives which is mainly invisible and certainly unreported. An example can be found in the Government’s policy of rural/national electrification, seeking to provide “electricity to all corners of the country by 2020,” and the advice from external consultants on pricing to achieve long run marginal cost of operation. The policy objective contradicts the pricing system because of the large number of poverty-stricken Ghanaians who cannot afford any prices based on long run marginal cost of operation. As a respondent noted: Some of the requirements of the Government, the World Bank and others are too restrictive and sometimes in conflict with each other . . . . Yes, sure, if we are to operate on sound commercial footing, as the [Volta River Development] Act says, we will need to be left alone in some particular areas of operations. This view was shared by quite a number of respondents who also noted that the current regime of strong influence from external constituents is likely to be challenged as the dissension among organisational actors grows. The conflict referred to in the above quotation reflects a tension between the social goals of the VRA and its requirements to meet strict financial criteria. Despite the original intentions of the project to provide electricity to the people, there are still a large number of Ghanaian towns and communities who are without power today. There were popular demonstrations in 1998 against a proposed 300% increase in domestic tariffs. In response to a proposal for adjusting domestic rates an Executive Member of the Consumer Association remarked: We shall vehemently oppose the 300% proposed increase in the electricity tariff which the VRA and ECG have been talking about. We do not see any reason whatsoever for them to talk about increasing tariffs . . . I want to ask Mr Addo to tell the Ghanaian public whose business it is that he is running.2 Is it private business he established or he is talking about state property? He should be told that the VRA project is the people’s project and that the $300 m that was used in constructing the project was paid for by the people . . . . We’ll protest. (Public Agenda, 1997 Mar 24–30, p. 6–7) Many rural communities could not afford current charges and were not connected to the ‘national’ grid which had been a major objective of the national electrification project. The posture adopted by the Ghana government is evidenced by the following quote: The national electrification project is regarded as a priority to provide cheap and reliable electricity by extending the national grid to the northern half of the country. (Ministry of Fuel and Power, 1988) Such a priority runs counter to the institutionalised practices and economic imperative imposed on the VRA to satisfy the lending institutions, which required the extension of the grid to be: in accordance with satisfactory economic/financial criteria. (World Bank Report, No 8207, 1990, p. 7) 2 Referring to one of the Directors of VRA who had discussed the need for the 300% increase in a television interview and made reference to VRA’s strategic “business.”

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There is an institutionalised blindness to the plight of rural Ghanaians who simply cannot afford prices ‘in accordance with satisfactory economic/financial criteria’. Domestic rates are already five times those charged to American owned aluminium smelters which had negotiated cheap rates as a condition for their original investment in Ghana. So while the smelters continue to earn profits for the American investors, the local population remains impoverished. The Volta River Project is unable to satisfy its own original intentions, and has become a drag rather than a stimulus to economic development and industrialisation in Ghana. From a critical perspective, the rules and structure of the World Bank serve to lock Ghana (and other developing nations) into a relationship with the international economic sphere. The lack of flexibility of the relationship is deemed necessary to protect private investments. In practice it serves to prevent national governments from breaking from internationally imposed rules and making ‘rational’ decisions, (that is, decisions in generalisable rather than narrow interests) in order to maintain their own legitimacy. As long as national governments are forced to service international debts that they cannot afford, they are limited in their ability to make rational decisions and face a rationality crisis (Habermas, 1976). In the case of the VRA, the Ghanaian government’s initial stated objectives for entering the project were the provision of electricity for all Ghanaians and national economic development. Such objectives would have been deemed to be ‘rational’ and would have generated motivation (belief) at a societal level. However, the demands of the World Bank and other international partners of the VRA project have meant that those objectives cannot be met. Unless the Ghanaian government is able to compensate for its lack of rationality by the provision of material value, it also faces a motivation crisis (ibid) as it loses the support of society. Its lack of funds for the provision of material value results in an economic crisis. The core of the problem of the VRA case is succinctly stated in the question posed by the Executive Member of the Consumer Association: ‘Is it private business he [Mr. Addo] established or is he talking about state property?’ (see the description earlier). The fusion of the role of the political sphere with that of the (international) economy has resulted in the domination of private interests over, and at the expense of, those of the public social sector. The scope for the VRA to assert the perspective of the project as ‘state property’ has been rendered minimal. One of the means by which the VRA and the Ghanaian Government might have made such an assertion would have been through the imposition of regulations upon corporations, designed to limit their environmental and social impacts. Such action would have meant that the VRA was the dominant partner in those domains. However, self-regulation by the corporate partners, enforced by the World Bank, pre-empted the governmental role. In its current role with the dominant economic sector, the VRA arguably supports society only insofar as is necessary to maintain production for international corporations. To this end, education has been provided for the families of VRA workers, as has medical care. Beyond the imperative of production maintenance, the World Bank and its partners are not concerned with legitimation from the rest of Ghanaian society. At the international level, however, the World Bank does need to maintain hegemonic acceptance of global, free market ideology. A failure to do so would result in a legitimation crisis of its own, as its actions could no longer be accepted as rational. Furthermore, the

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investments of its corporate clients could be put at risk. Indeed, there is growing evidence of a reduction in motivation for international finance and regulatory institutions through an increased questioning of their practices and of their fundamental raison d’etre.3 As a counter measure, the World Bank has imposed accounting practices designed to serve its own legitimation needs. However, the practices imposed create an accounting system that suits external foreign investors by the limited use of selective environmental impact reports. Accounting practices should be based upon truly rational decisions if belief in institutions such as the World Bank is to be restored. Such practices would need to serve the needs of both the private as well as the public sector.

11. Discussion and conclusion The above evidence suggests that strong institutional pressure, particularly from the World Bank, is the dominant explanation for the Authority’s environmental reporting practices. The Authority has found itself in a situation where it has to comply with these pressures for various reasons including its historical circumstances and constant financial difficulties. Organisations are interdependent and the continued existence of most organisations cannot be guaranteed without this interdependence. As noted in the case of the VRA, it did not only rely on the World Bank and other organisations for funding at the time of its establishment, but continues to depend heavily on international financial institutions for its operations. The debt has served to lock Ghana into a relationship, at a political and social level, in which Ghana is the weaker partner. Accounting and financial reporting systems have significant roles in this interdependency relationship. They not only provide confidence to the lending agencies about VRA’s ability to manage loans advanced by these institutions but are also used as means for promoting the social and political agenda of these international financial institutions, in some cases, to the detriment of the borrowing organisation. As Burchell et al. (1980, p. 13) noted: Whilst they may be introduced in the name of particular conceptions of social and organisational efficiency, rationality and relevance, in practice accounting systems function in a diversity of ways, intertwined with institutional political processes and the operation of other forms of organizational calculative practice . . . Indeed, VRA’s reporting systems, with regard to social and environmental issues, seem to simply document institutional compliance. Management and other organisational participants are subjects of the coercive, mimetic and normative forces of institutionalised behaviours. While VRA continues to function as an effective and efficient unit, much of its internal operational procedures tend to be heavily influenced by constituents whose “interests” may not necessarily be congruent with those of the people it was set up to serve. The World Bank’s policy on environmental and social reporting is producing visible results 3 The most widely accepted evidence of international public questioning of the ideologies of the World Bank, along with those of its sister organisations, the World Trade Organisation and the International Monetary Fund, was the anti-globalisation rioting in Seattle, 1999.

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at the VRA, from the perspective of the environmental activist. However, other policies recommended by the same institution are significantly jeopardising the Authority’s relations with other constituencies. Because of the preclusion of future options by initial choices that an organisation has made (the path dependent development processes of institutional theory), the VRA has become an institutionalised hindrance to economic development. Clearly, while VRA’s efforts to provide information on social and environmental issues in its annual reports are applaudable, it seems true to say that it is struggling to effectively manage its social environment. The social processes, which characterise relations between VRA and its financiers, particularly, the World Bank seems to affect not only the internal structure but also the larger social systems within which VRA exists. Indeed, VRA’s inability to manage its boundaries properly, partly because of the constant interference of external constituents such as the World Bank, is resulting in its isolation rather than integration with the Ghanaian public. Herein lies the irony. The quest for environmental and social reporting aims to assure that VRA’s operations leads to sustainable development: development which does not sacrifice the needs of future generations, yet the same institution (World Bank) pushes the Authority into financial management and reporting practices that reproduce inequities and continuing poverty for the people that the Authority was set up to enrich. Legitimation is sought through institutionalised reporting practices, but leads instead to a crisis of legitimation, for the VRA in this case, but one suspects more generally in the developing world. In this paper it has been argued that since the appearance of Habermas’ theory of legitimation, the economic sphere has changed from being largely nationally based to become primarily international. This means that, although the political and economic spheres remain interdependent, the political remains national but is increasingly affected by imperatives imposed upon it by an international economy that is grounded in advanced Western capitalism. Global economic forces have expanded at the expense of nation-states that once balanced private economic power with public purposes and national stabilisation policies. The complexities and problems of such an interdependence are particularly evident in those nations of the developing world where rationality and legitimacy are increasingly difficult to maintain. Institutions such as the World Bank have insisted on accounting practices designed to serve its own legitimation needs. The accounting systems imposed on countries such as Ghana suit external foreign investors and aim to sustain hegemonic acceptance of global, free market ideology, by insisting on selective social and environmental impact reports. Such practices, to be truly rational, would need to serve the needs of both the public as well as the private sector. Without that there will be increasing crises of legitimation.

Acknowledgements The authors wish to thank the editors of this special issue, Rob Gray, participants at the IPA conference in Manchester, AAANZ in Hamilton Island, EAA in Munich and the seminar series at the University of Calgary, and the two anonymous referees for comments which improved the paper. Thanks also to the staff of the Volta River Authority.

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Appendix A. VRA: annual energy consumption per class of customer (1966–1984) Year

Mines (GWH)

Akosombo Textiles (GHW)

Akosombo Township (GWH)

Valco (GWH)

CEB (GWH)

Total (GWH)

300.90 360.30 420.10 502.80 564.80 659.25 699.45 768.12 893.46 893.17 980.01 1,034.70 1,062.84 1,027.76 1,074.71 1,115.33 100.29 948.04 799.05

127.20 164.10 177.40 185.50 206.80 226.50 242.64 243.07 257.02 271.02 278.28 260.27 250.25 259.34 271.85 273.99 257.78 232.49 218.83

– – 2.00 6.30 14.85 20.82 20.94 21.98 19.27 22.57 22.98 24.31 24.15 17.60 11.53 6.56 1.93 2.97 4.22

2.70 6.30 6.80 6.80 7.20 8.81 9.01 12.54 11.06 11.50 9.68 11.00 11.33 13.01 13.14 9.53 8.77 8.09 7.44

13.90 923.20 1,865.90 1,972.20 2,012.40 1,919.00 2,263.81 2,625.99 2,734.77 2,518.24 2,644.89 2,783.61 2,086.38 2,907.53 3,318.68 3,303.24 3,008.71 752.93 13.18

– – – – – – 1.26 99.72 127.78 136.70 153.34 178.81 216.63 299.25 439.77 472.19 521.46 490.78 316.89

444.70 1,453.90 2,472.20 2,673.60 2,806.05 2,834.37 3,237.10 3,771.41 4,043.33 3,853.20 4,091.17 4,292.70 3,651.57 4,524.49 5,129.68 5,180.83 4,798.92 2,453.33 1,359.60

15,105.06

4,404.29

244.96

174.68

39,668.60

3,456.57

63,054.14

Source: Adapted from: VRA Accounts, Sims and Casely-Hayford (1986, p. 27).

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1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984

ECG (GWH)

Total generated Total sold (1) Valco ECG NED Mines Akosombo Township Akosombo Textiles Aluworks Ltd. Akuse (VRA) CEB, Lome (2) Export to CIE (1)

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

2,996,191 2,609,364 853,175 1,039,386

4,372,026 4,252,017 2,125,090 1,158,499

4,676,301 4,461,237 2,474,998 1,264,763

4,807,877 4,699,641 2,745,343 1,319,028

257,186 7,416 4,487 600

272,835 8,517 7,632 5,677

447,120 236,835

436,290 237,477

283,698 8,717 11,658 7,415 398 409,590 99,292

296,747 10,347 15,439 8,121 5,115 299,501 85,349

5,230,598 4,935,994 2,788,480 1,459,502 13,696 299,598 10,200 16,403 7,053 5,412 335,650 189,779

5,720,863 5,227,722 2,788,500 1,560,812 66,071 315,047 11,343 20,599 7,195 6,077 452,078 308,962

6,108,668 5,462,656 2,795,159 1,752,777 93,233 407,565 16,255 22,883 9,222 6,674 358,887 449,163

6,602,366 6,382,022 2,853,643 2,020,733 128,887 418,539 19,364 28,047 11,422 6,910 485,097 409,380

6,313,115 6,196,836 2,821,877 2,291,416 151,471 469,100 21,202 27,129 12,218 7,650 310,787 83,987

6,104,843 5,974,177 2,275,447 2,465,673 166,797 589,875 15,772 22,860 12,392 6,937 400,344 18,082

(1) Energy excludes CIE consumption of 449,162,900 kWh for 1991. (2) Energy excludes Aflao feedback consumption of 6,087,000 kWh for 1991.

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Appendix B. Annual energy consumed per class of customer in 1000 kWh

53

54

Appendix C. VRA’s long-term loans Original loan cedisa ’000

Kpong hydro project IBRD 1380 GH European Development Fund (EDF) Saudi Fund for Development (SFD) Kuwait Fund CIDA OPEC Fund 120P BADEA Systems improvement OPEC Fund 192P Mediocredito Centrale IDA No. 1628 GH Danida ODA

5,655,900

1

5,655,900

5,655,900

Nil

6,870,404 1,282

2 3

6,825,251 1,282

5,295,582

Nil

40,986,270 11,570,193 35,963,719 48,963,002 26,194,350 3,888,441 8,836,597

4 5 6 7 9 10 10a

40,986,270 10,821,750 35,963,719 48,963,719 26,194,350 3,888,441 8,836,597

34,428,467 2,575,697 28,508,349 37,621,290 0 2,900,567 8,836,597

6,305,580 9,248,184 3,077,076 5,220,379 6,795,923

11 12 13 14 14

6,305,580 9,248,184 2,844,268 5,220,379 6,795,923

3,993,534

218,551,613

−129,815,983

219,577,300 a

5,665,621 696,551 3,174,665 2,373,776

Balance, cedis ’000

Nil 1,529,669 1,282 12,223,424 8,942,604 4,280,705 8,967,936 26,194,350 987,874 0 2,312,046 9,248,184 2,844,268 5,220,379 6,795,923

813,731

89,548,644

One US dollar translated to about 1000 Ghanaian cedis as at the end of 1994, although the Ghanaian cedi has depreciated significantly over the last few years. As at June 2001 one US dollar equals about 7100 cedis.

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Akosombo hydro project International Bank for Reconstruction and Development, IBRD 618 GH CIDA Ghana Government

Number Drawings as at Repayments/adjustments Exchange 12 December as at 12 December 1994, variation, 1994, cedis ’000 cedis ’000 cedis ’000

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