Financial Daily from THE HINDU group of publications
Thursday, Jan 08, 2004
The facade of social reporting
Almost all of the people interviewed thought that the externally reported social performance measures had relatively little influence on managerial decision-making. Their general view was summed up by one interviewee: "In the past, external social reporting in this company was an event unto itself, and it was important to get all this information out there in voluminous detail. Yet in reality this had very little to do with the business at all."
But the externally reported social performance measures' lack of influence was more than compensated for by the effect of each organisation's social values on the decision-making process. Examples of social values that were influential included the use of recycled materials, ethical investments and educational liaison activities with schools.
One basic question is why organisations are interested in reporting social performance at all, internally or externally. In each of the four cases the interviewees were asked why they thought their organisation was concerned about its own social performance. Their replies can be summarised as follows:
Each company wanted to be an ethical organisation that was respected for its environmental and social performance.
Such an image was considered to be good for business. Although this could entail high costs for the company in the short run, all the interviewees thought that the long-term effect of a good image would boost profits, because it would help to retain existing customers and attract new ones.
Social reporting obviously has an ethical aspect, but self-interest is a major factor. All four organisations took advantage of their good social reputations in their marketing campaigns. Most of the interviewees considered that their organisations' social image was extremely important for several stakeholder groups. The groups they identified were similar in all four organisations: namely, communities, customers, employees, environment, shareholders and suppliers (although interviewees in one firm also identified neighbours and tenants as stakeholders). But the priority given to different stakeholder groups varied between the four, even though three of them were in the same sector. This ranking difference was important, because most interviewees accepted that there would sometimes be conflicts and trade-offs between different groups in relation to social performance.
All four organisations conducted surveys of at least some of their stakeholder groups. The most common surveys were of employees, customers and shareholders. They tried also to hold some form of dialogue with groups such as communities and suppliers.
Perhaps surprisingly, the externally reported social performance measures were not necessarily those that were used internally. With the exception of one case, there were few links between the externally and internally reported measures. Generally, the latter were underdeveloped by comparison, but they did exist in relation to:
Links between the reported measures (both internally and externally) and the evaluation system for managers were almost nonexistent. Three organisations did say they were planning to develop links between the externally reported measures and their internal reporting. One problem was that a separate unit in each firm would prepare the external social report and this unit was very much divorced from the rest of the organisation.
In short, the fact that there was extensive external social reporting did not mean that there was a formal system for the internal monitoring or management of social performance. But, despite lacking such a system, the case-study firms were concerned about their social performance. In all four a very thorough recruitment and induction process, coupled with the social values, meant that informal employee group control and self-control influenced social performance. Each organisation had its explicit values. But the findings suggest that management accountants should consider the following recommendations:
The four case studies suggest that the social values and culture of an organisation are critical factors affecting its social performance often through informal group control and self-control. External social reporting is important, but so is management information on social performance. Ultimately, it is the strategic and operating decisions of managers and other employees that determine the social performance of an organisation.
(Edited excerpts from Financial Management, www.cimaglobal.com)
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