Suddenly everyone’s talking about it: new how-to-do-it guides, a clutch of new institutes and a commitment from BT are just some of the signs of interest in social accountability. So what is social accounting, auditing and reporting and does it matter?
The term “social audit” could almost have been chosen deliberately to strike fear in the hearts of red-blooded company executives, conjuring up visions of unkempt Greenpeace protesters swarming over the business finding fault. On closer inspection those executives would find much they recognise and might even dismiss it as a sheep in wolf’s clothing. That would be a mistake; better to think of it as (to mix metaphors) a sheep with a sting in its tail.
Social auditing’s somewhat cranky reputation partly results from it being mainly ‘ethical’ trading companies that so far have published a social audit: Traidcraft, Shared Earth and the Body Shop International; likewise in the United States, where Ben & Jerry’s is the best known company to have published a social report. However BT’s commitment in December 1996 to undergo the process marks a significant shift to the mainstream, as does Allied Dunbar’s social audit of the staff charity fund, conducted partly to assess the feasibility of extending the process.
What is social auditing?
The concept is neither very new nor very complicated, being simply a way of measuring the comprehensive performance of an organisation. These are the elements: set clear strategic objectives, concentrate on the essentials, carefully measure performance on a range of indicators, stay close to the customer to check the validity of your assumptions, take their views into account, adjust operations, continually strive for improvement. Omit the word “social” and most business managers would recognise the process.
But it is the “social” that makes it different and challenging. Traditionally companies have collected financial information to help manage the business and this is audited and reported to the shareholders. More recently managers have started using a range of non-financial data as well, better to control and direct, sometimes presented as a balanced business score-card. Social recording, auditing and reporting broadens the process to include all those with a significant interest in the business, stakeholders, extends the assessment to cover significant issues to them other than just finance, and engages them in an open dialogue.
A practical example
How does it work? The starting points are what that organisation says it wants to achieve and what all those with a significant interest in the business say they want. Actual performance is then assessed against those aims and expectations, with data collected and stakeholders asked their views. After external and independent checking, the results are published. Over a number of years, social recording, auditing and reporting provides a good framework for greater accountability.
Ben & Jerry’s has been publishing an annual social performance report since 1988. In 1995 they added an audit by inviting Simon Zadek from the New Economics Foundation in Britain to verify the results. While Ben & Jerry’s is clear that its report is not comprehensive, it does offer a good practical example.
The first section covers staff, starting with four “intentions” such as “to create and maintain a healthy work community” and “to pay liveable wages”. Actual performance is then reported, with data over three years for example on employment numbers, gender and race balance, pay, accident rates, training expenditure and staff attitudes as revealed in surveys and focus groups.
The second section covers franchisees, again starting with the company’s intentions and demonstrating performance with data and attitude surveys. And so on for customers, suppliers, recipients of philanthropy, the environment and stockholders. The auditors report completes the account.
Historical development
Renewed interest in dialogue with stakeholders may in part be a reaction to the emphasis during the so-called Thatcher/Reagan years on management efficiency, cutting costs, being competitive and freeing business to make money. Social recording, auditing and reporting takes organisations back to their ultimate objectives. The first recorded mention of the term was in 1940 by Professor Theodore Kreps at Stanford University. But it was not until the 1960s that widespread attention was given to social reporting. In the UK for example, George Goyder’s The Responsible Company was published at the start of the decade. But early social auditing was not seen as a helpful internal tool, rather as hostile external checking for campaigning purposes.
In the early 1990s work with the Sbn Bank in Denmark and Traidcraft and New Economics Foundation in the United Kingdom confirmed social auditing as a practical tool. The need for professional rigour has now led practitioners to set up the Institute of Social and Ethical Accountability.
In fact most mainstream companies are already using some of the techniques, with regular attitude surveys internally and externally. Many publish partial accounts of their community engagement and, more rigorously, their environmental impact. The statutory Annual Report must already include non-financial data, including:
– charitable and political donations;
– policy on employment of disabled people;
– action taken to involve employees, including employee share ownership schemes;
– data on staff numbers and pay, with extra details on directors and the adequacy of pension schemes;
– policy and practice on payment of suppliers;
– taxation paid and government grants received;
– various ‘ethical’ information on directors’ share ownership, related party transactions and minority interests.
In practice, not a whole lot more is required to present a rounded picture of social impact.
Limitations
However social recording, auditing and reporting is not a miracle cure. It does not reconcile conflicts between stakeholders. There is no social ‘bottom line’ as there is financial and increasingly environmental. It cannot answer the ultimate existential question “what is a company for?”. In the long run all the stakeholders’ interests may indeed be reconciled, but social reports are made in today’s reality where employees often pay the price of customers’ demands and shareholders’ returns.
As with environmental reporting, it cannot internalise costs for which the company is not legally liable, such as increased crime and poverty from higher unemployment and plant closures. Indeed most social audit models seem to ignore government as a stakeholder, despite the public exchequer usually being the company’s second biggest revenue beneficiary after employees.
Finally the production and publication of ‘social’ information does not change behaviour of itself – it cannot help the company to perform better unless practice and procedure are changed as a result. Publicity may help, but ultimately management must act.
Benefits
Whatever the limitations, social auditing can enhance the strategic planning process and so improve management. It encourages continuous improvement and fosters a common sense of purpose among stakeholders. The sting in the sheep’s tail is that this happens in public, unlike the European Foundation for Quality Management approach, and most companies are still wary of putting in the public domain information that will be used against them.
Like it or not, companies will continue to be held to account by interests wider than their shareholders alone. They will need to take account of those interests and to give account of their actions. The age of accountability is coming: social recording, auditing and reporting helps companies cope.
Contact the New Economics Foundation on 0171 377 5696; Institute of Social and Ethical AccountAbility on 0171 377 5866 Ben & Jerry’s Homemade on 00 1 802 651 9600
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