top stories

Share

ACCA Research Report No. 57

Gonella, Pilling and Zadek, 1998

Executive summary

Virtuous but uncompetitive companies will not be part of our future. Socially or environmentally destructive companies must not be part of our future. The challenge is to create the conditions where social and environmental benefits go hand in hand with competitive advantage.

A new vision for business is needed.

New tools are needed to meet this challenge and to help organisations and stakeholders manage the transition to more open, inclusive, people-centred approach to success. This need has underpinned a re-emergence of interest in the field of social and ethical accounting, auditing and reporting, as both a management tool and a mechanism for enhanced stakeholder accountability.

Making Values Count explores current practice in the field, focusing particularly on the pressing need for both quality assurance and standards in an area characterised by considerable diversity. It outlines the common principles underlying contemporary practice, and also sets out the practical tools for assessing and ultimately improving quality in this emerging field. These tools may also provide some elements of future guidelines of future standards in the field.

The report provides a review of contemporary practice that explores:

(a) the conceptual and practical roots of current practice, including an extensive section on terminology;
(b) the main drivers of this practice (see Figure 1); and
(c) the common elements of 'best practice' based around eight core quality principles.

The review identifies key highlights and common themes:

• the dramatic increase in the number of initiatives in the field, and in particular the shift from innovative, unusual companies such as The Body Shop and Ben & Jerry's towards the engagement of mainstream organisations, including major multinationals such as Shell International and British Telecom;

• the particular intensity of developments in a small number of countries, notably the United Kingdom, Denmark, and Canada, although the practice is now extending rapidly elsewhere in Europe and North America, and also in other countries such as South Africa and India;

• parallel developments in the commercial and non-profit sectors, with methods such as those adopted by UK non-profits organisations more or less mirroring those used within the business community;

• a rapid increase in the depth and scope of practice, and in the main, quality, although there is a need for standards in the field, particularly for the corporate sector;

• these common underlying elements can be categorised into a framework of eight key principles of practice and quality (see Figure 2), which begins the process of encouraging convergence in the field.

Figure 2: The Eight Principles

Completeness - the unbiased inclusion, over time, of all appropriate areas of activity in the accounting process. Comparability - the extent to which it is possible to compare an organisation's performance with 5(i) that of previous periods, or (ii) external benchmarks drawn from the experience of other organisations, statutory regulations or non- statutory norms. Inclusivity - the conduct of an audit with appropriate dialogue with all its stakeholders on terms which allow them to voice their interests and concerns without fear or any other basis for restriction. Regularity and Evolution - the periodic preparation of accounts and conduct of an audit; the conduct of audits at appropriate times. Embeddedness - the appropriate incorporation of accounting processes, consultation and audit findings within the strategic, managerial practice and policy, and operational levels of the organisation. Disclosure - the appropriate and effective communication to one or more of an organisation's stakeholders of (i) the statements or reports produced by an organisation (ii) the audit process (eg stakeholder consultation records), (iii) related externally produced verification statements. External Verification - the verification of the records, process, reports or statements of an organisation by an independent third party. Continuous Improvement - recognised and verified steps taken to improve performance in relation to values and objectives of stakeholders (including management) and broader social norms.

• a profusion of different terms and stated approaches (see Figure 3). Most of the methods have focused on common underlying elements, particularly:
  • the centrality of stakeholder dialogue, driven largely by the increased power of diverse groups to influence performance, but also as a guiding principle of the method of inquiry;

  • the drive towards measuring 'intangibles', in recognition of the need to manage these increasingly important performance factors;

  • the increasingly embedded nature of the process, drawing particularly from financial and environmental auditing in building in management audits, documentation reviews, and data sampling;

  • the broadening out and systematisation of social reporting, both at a public level, and within organisations;

  • the critical importance of 'legitimacy' of the process, achieved by an increasing involvement of non-profit organisations at all stages of the process, including external verification.

The report has also made strides in exploring the links with financial accounting, auditing, and reporting. Taking as its starting point the well-established principles in the financial field, the report examines their relationship with the eight quality principles in the social and ethical field. There is considerable overlap at this level of underlying principles, as well as areas of substantive and important differences. This comparison provides insights into the areas where the methodology will develop over time.

The report also publishes for the first time the Quality Scoring Framework for rating and benchmarking specific initiatives. Based on the eight quality principles, the framework uses 56 criteria to benchmark initiatives against a five-stage development ladder (see Figure 4). The QSF can be used for self-evaluation, training, and planning, or as a tool for stakeholders to assess and benchmark an organisation's progress. The 'scorecard'; a web diagram (see Figure 5) reveals the specific strengths and weaknesses of an initiative.

Fig 3: Approaches
Stated or 'Named' Approach	Description	Examples of Organisations Using these Approaches
Capital Valuation	Regularly disclosed process to understand, measure, report upon and manage various forms of capital (which could include intellectual, human, social, environmental, organisational, structural and financial capital).	Skandia
Corporate Community Involvement Reporting	Description, illustration and measurement of community involvement policies and activities through occasional reports. This approach may also include benchmarking against other company performances.	Diageo (Grand Met), British Petroleum
Ethical Accounting	Regularly disclosed process, based upon shared values which stakeholders develop through public sector ongoing dialogue, aimed at designing future actions.	Sbn Bank, Scandinavian Public Sector
Ethical Auditing	Regular, externally verified process to understand, measure, report on and International improve organisation's social, environmental and animal testing performance through stakeholder dialogue. The resulting report incorporates three separate social (see 'social audit' below), environmental and animal testing reports.	The Body Shop
Social Auditing	Regular, externally verified process to understand, measure, report on and improve upon an organisation's social performance through stakeholder dialogue.	VanCity Credit Union, Black Country Housing Association
Social Balance	A regular reconstruction and aggregation of financial data across stakeholder groups which specifies financial costs associated with 'social activities'.	Coop Italia, UNIPOL
Statement of Principles and Values	Statement which develops, evolves and describes an organisation's principles in meeting its financial, social and environmental responsibilities.	Shell International
'Sustainability'	Evolving report process which identifies Reporting ways forward and reports upon progress against sustainability principles.	Interface

The report sets out a vision of the future possibilities in this field that combines continued progress towards a common approach that allows replication, benchmarking, and focused training of would-be professionals; and continued experimentation and innovation that enhances the basic approach. These two related tracks are to some extent in tension with each other. However, there is no reason why this should pose a problem if the shared aim is to establish a basic approach around which differentiation and innovation becomes possible and productive.

The report provides a clear agenda for action for ensuring that the future practice of social and ethical accounting, auditing, and reporting delivers improved transparency and accountability - and ultimately social, environmental, and economic performance - for businesses and other organisations.

 

An Agenda for Action

The Need for Further Development

Common terminology.
The further development of this base terminology, including key links to language used in financial and environmental accounting and auditing would provide a stable framework of reference.

Extending the method.
The need for continued innovation through practice and debate is critical. Two areas warrant particular attention, the measurement of human and social capital and its relationship to intangible asset valuation and management, and a framework for 'sustainability accounting, auditing and reporting' that goes beyond the simple compilation of information.

Assessing usefulness.
The usefulness of practice should not be taken for granted, particularly while different methods exist. On-going research should explore and document the practical experience of users to determine what elements are most useful, to whom, and why. Such research should examine the perspective of different stakeholder groups and across different industry sectors, countries, and cultures.

Rewarding excellence.
Whilst rewards should in any case come through greater organisational effectiveness, it is also a sound route to identify and celebrate best practice through an annual award of some kind. Several related award systems already exist, notably ACCA and the UNEP/SustainAbility annual awards. The intention of a new award by the Institute of Social and Ethical AccountAbility is to focus particularly on the quality of the process, as well as the report and underlying procedures.

Building standards.
There is already much useful work going on in the development of core standards. The Quality Scoring Framework and its underlying principles are a contribution to this process. Key institutions, including company users, providers, and other key stakeholders, must work together in developing and agreeing on a core methodology that can represent a basic standard. This standard will need to be relevant at an international level, and there will need to be professional institutions to develop training and other quality assurance processes linked to this standard.

Public policy and practice.
Most of the developments described in this report have been 'voluntary', falling outside the statutory realm. There are numerous productive roles for public policy and practice in this field. Government may consider amending requirements for social reporting, possibly with a European dimension in mind. Government departments and quasi-autonomous organisations may adopt social and ethical accounting, auditing, and reporting as a means of reporting on and improving their performance against social and ethical as well as financial goals, as well as building social reporting requirements into their procurement processes. Finally, government can consider the extent to which fiscal incentives can be used to encourage greater transparency and accountability through the use of social and ethical accounting, auditing, and reporting.

 

Back to top