PRIVATIZATION IMPACT & SOCIAL DISCLOSURE: THE CASE OF SYDNEY AIRPORT By Dorothea Zakrzewski and Professor Introduction Roger Juchau, School of Accounting, College of Business, University of It has been argued that governments have Western Sydney (UWS). little incentive to concentrate on efficiently running state-owned utilities such as airports Abstract in an era of increased competition (Daniel 1986; Abelson 1987; Bos 1991; Vickers and Privatization literature and theories Yarrow 1995; Boycko et al. 1996; Funnell sympathetic to neo-liberalism suggest that 2001). Traditionally, airports have been privatization leads to greater efficiency in seen as publicly owned utilities, operated the production of public sector goods and and subsidized by the government with the services. Airports have also been privatized primary objective of facilitating the largely because of their commercial rather movement of passengers to serve the public than public value orientation. Because of good, rather than to engage in profitable, the complex nature of their operations, customer orientated commercial activities airports are accountable to a range of (Doganis 1992; Humphreys and Francis stakeholders. This article provides insight to 2002; Graham 2003). Airports in Australia how airport privatization has not only led to were and are still viewed as major tourism a change of the airport business in general and trading gateways to large economic but how its disclosure of corporate and regions and with a constant need for capital social activity has changed over time. investment to meet growing domestic and Utilizing Ullmann’s (1985) framework of international demand. corporate social reporting, pre and post privatization reports of Sydney Airport have Australia was the third country in the world been analyzed. Results of the analysis to privatize its airports (Knibb 1999). The reemphasize an existing “myth” that first phase of airport privatization in privatization has resulted in improved Australia in 1996 included the sale of company performance, efficiency of Melbourne, Perth and Brisbane airports and operations and social disclosure. was triggered by the country’s growing Furthermore, the quality and volume of the potential as a tourist destination as well as financial reports have increased with time, pressure from global liberalization reforms consistent with the argument that privatized on the aviation industry (Ashford et al. companies are in the process of continuous 1997; Knibb 1999; Graham 2003). learning whilst adapting to the “private sector” and the need to keep markets, The direct consequence of these analysts and credit raters informed. This privatizations in 1996 and of Sydney in study is part of a larger study assessing the 2002, as reported to external stakeholders, impact of privatization on airports in was a boost in revenues, increased share Australia. prices as well as commercial expansion of non-aeronautical activities. Few observers believed that airports could be privatized 4 and even fewer predicted the success of stories to major stakeholders involved. Prior privatization. Before privatization research and theories suggest that accountability was the prime concern. privatization can lead to greater efficiency in Additional doubts related to airport security, the production of public sector goods and overall airport economic efficiency where services (Emmons 2000; Parker 2003). government had no control over the assets and whether private operators would Controversy does suggest, however, that minimize the investment in infrastructure private managers may not act in the best and services. Yet, today, somewhat in interests of stakeholders; privatization will contrast, airports are perceived as attractive and can only be effective when managers and lucrative investment opportunities have incentives to act in the public interest. offering high returns with moderate risk De Neufville (1999) argues that it is (Schneiderbauer and Feldman 1998; debatable whether all activities, especially Ferguson 2005; Myer 2005). those that are central to a community’s’ welfare and open to monopolistic Airport Privatization exploitation of the public, such as airports, can and should be privatized. As there is a The global air transport industry has strong public interest in airport operation i.e. undergone major changes since the embrace size and level of service, prices for the of privatization reforms all over the world. service, accessibility to these services; full Leading airports such as Frankfurt, and unfettered airport privatization, it is Schiphol, Manchester and Copenhagen, as argued, will fail the public interest test. It is well as merged airport operator groups, have claimed however that as government realized the potential of the airport business remains a major stakeholder, through in both the domestic and global markets. regulation, it will regulate airports and hold Entrants into the airports business were them accountable to the public. The question financial consortia and they have become arises as to whether privatized companies key players in financing, developing and have become more accountable following operating airports. The new commercial- the commercialization of airport operations orientated approach to airports has attracted through increased transparency via their more traffic movements, increased disclosure of social activities. congestion and pollution, encouraged public transport and expanded the business Ullmann (1985) develops a conceptual environment surrounding airport sites framework to explain the relationship (Aviation-Strategy 1999; Humphreys 1999; between social disclosure and social and Enright and Ng 2001; Graham 2003). economic performance of companies. In Governments have kept control of noise and essence the framework demonstrates that pollution as well as airport charges (price companies exhibiting strong economic regulation). Airports have become subject to performance increase their level of social regulatory provisions and social reporting. The idea is based on Freeman’s responsibilities such as pollution (1983) stakeholder approach to strategic management and environmental reporting. management. Deegan (2002), O’Dwyer (2005) and Gray (2002) call for further Privatization enabled companies to focus on research in this area of social accounting and profitability and to report their success its evolution within organizations. Prior 5 research indicates that corporate social on the public perception of the company reporting has been favourably embraced by (Alexander and Buchholz 1978; Ingram the public, generating a demand for more 1978; Spicer 1978; Abbott and Monsen studies in this area especially those 1979; Anderson and Frankle 1980; Ullmann referencing contemporary economic reforms 1985; Epstein and Freedman 1994; Baird such as the privatization of utility services. 1996; Balabanis et al. 1998). Social Disclosure Research Design and Model Prior research in the field of corporate social For the purpose of this article corporate reporting lends support to Freeman’s (1984) social responsibility has been defined as notion that a company is not solely policies of action which identify a company responsible to its shareholders but to all of as being concerned with socially related its stakeholders (Carroll 1979; Balabanis et issues (Friedman 1962; Ullmann 1985; al . 1998; Harrison and Freeman 1999). Cowen et al . 1987; Roberts 1992; Moir Roberts (1992) applies Ullmann’s (1985) 2001). Ullmann (1985) provides a three framework to test its ability to explain dimensional model that correlates social corporate social responsibility activity, disclosure and social and economic consistent with Freeman (1984). performance. Research on social disclosure indicates that The first dimension is stakeholder power, measures of stakeholder power, strategic which explains responsiveness of the entity posture and economic performance are to the intensity of stakeholder demands. The significantly related to corporate social second dimension is active and passive disclosure (Ullmann 1976; Ullmann 1979; strategic posture. The final dimension of the Roberts 1992). Also, evidence indicates that framework is based on economic social responsibility transactions are performance, as previous research indicates disclosed when organizations’ financial that economic performance (financial data statements indicate favourable financial and the entity’s financial position in the performance (Cochran and Wood 1984; market) is intertwined with social Mills and Gardner 1984). Keim (1978), in responsibility and disclosure. line with Belkaoui (1976) and Watts and Zimmerman (1978), argues that social This article examines corporate social responsibility activities are consistent with disclosure three years before and three years corporate wealth maximization motives; and after privatization of Sydney Airport in 2002 are an applicable fact in privatization studies (1999- 2005), based on archival content (Epstein and Freedman 1994). analysis of annual reports. Figure 1 illustrates the modified Ullmann framework Other research on the economic applied here to the airport business and consequences of corporate social disclosure indicates the variables that have been emphasizes that companies disclosing examined further below. social responsibility activities have an impact on the financial market, the economic performance of the companies and 6 Figure 1: Variables relating Corporate Social Reporting by Airport Businesses Corporate