Seen to be right
Ethical issues are no longer the province of the fringe, says Roger Adams.
Ethical issues are no longer the province of the fringe, says Roger Adams.
What do mighty blue chips like Shell, BT, Diageo and Body Shop have Adams. in common with relative minnows like Ben & Jerry’s, Traidcraft and Shared Earth?
And why has KPMG acquired Body Shop’s ethical audit team and launched a Sustainability Advisory Service at the same time as PricewaterhouseCoopers is launching a ‘reputational risk’ service for its clients?
One answer lies in the statement made by KPMG’s UK senior partner Mike Rake at the time of Body Shop acquisition. ‘In recent years,’ he said, ‘it has become increasingly evident that a wide range of leading companies recognise that financial performance is not the only yardstick by which their sustainability should be measured … KPMG seeks to be an innovator in this field and by forming this strategic alliance with the recognised leader in sustainability reporting we shall be able to provide a unique service to our clients.’ According to KPMG’s estimates the new activity will be worth some #20m in fees within three years.
The notion that companies have responsibilities to groups other than their immediate shareholders or lenders is not new, but the late 1990s seem to have marked the point at which the fringe has become the norm – where what was once deeply suspicious and threatening has become something keenly sought after by the most unlikely of suitors.
Of course, market forces have something to do with this transition. In his public presentations, John Elkington, executive director of SustainAbility, refers to the ‘CNN world’ in which we live as a ‘goldfish bowl’ existence where no one and, more relevantly, no company is able to shield its activities from the public gaze and from society’s criticism. Questionable corporate social and ethical behaviour can be almost instantaneously spotlighted by campaign groups worldwide. For example, the issue might be environmental (McDonalds) or human rights (Shell), scientific (Monsanto), indigenous people (ABB) or child labour (Nike). The result, however, is the same – possibly unwarranted but always unwanted high-profile negative publicity.
The power of the stakeholder society has never been stronger.
Making values count is the title of report commissioned by ACCA and written by social accounting experts from the New Economics Foundation and the Institute for Social and Ethical Accountability. The report seeks to set out a framework for social and ethical reporting that is as rigorous as that developed for financial reporting. This framework is based around a set of core principles that form a conceptual framework for social reporting.
What would a typical social report contain? There are no standards as yet, but a clue is provided in a document called SA 8000. SA 8000 stands for Social Accountability 8000. It is a standard, not unlike the ISO 9000 (quality management) and ISO 14000 (environmental management) series of standards, which ensures the ethical sourcing for production of goods and services. SA 8000 sets out basic standards and procedures regarding health and safety, the use of child labour, forced labour, trade union rights, remuneration and working hours, together with the management systems to deliver them. SA 8000 is an initiative from the Council on Economic Priorities Accreditation Agency (CEPAA).
SGS International, an international certification provider, summarises the scope of SA 8000 as follows: SA 8000 is a voluntary standard which specifies minimum requirements and includes definitions in the following areas:
– child labour: minimum age; young workers’ school attendance
– forced labour: not permitted
– health & safety: health & safety in the working environment; prevention of accidents and injury; H&S training; clean & sanitary support facilities; access to potable water
– freedom of association and right to collective bargaining: right respected by management
– disciplinary procedures: corporal punishment, mental/physical coercion and verbal abuse not permitted
– working hours: in accordance with applicable laws; not more than 60 hours per week; overtime voluntary; at least one day off in seven
– compensation: legal/industry minimum; basic needs plus discretionary income; benefits; deductions; avoidance
– management systems: publicly available policy committed to compliance with applicable laws and other requirements; management review; company representatives; planning and implementation of controls; supplier controls; concerns and corrective actions; outside communications; access for verification; records.
Bringing this down to the level of everyday reporting, the soon-to-be-launched sustainability reporting guidelines prepared by the Global Reporting Initiative suggest that regular social disclosures might cover:
– at the corporate level, disclosures relating to ethical standards, bribery and corruption, human rights and political activities
– at the employee level, information on workforce diversity (gender, race, age), freedom of association, child labour, turnover rate (recruitment and retention), absenteeism, compensation and benefits (standards and equity), wages, salaries, benefits, flexibility in work arrangements and assistance for displaced workers
– at the community level (local and global), information on: community involvement, skills transfer, technology transfer, site selection, complaints (noise/odour), community reinvestment, activities in developing countries, philanthropy, taxes
– at the supplier level, procurement standards, partnership screens and standards, outsourcing.
And the common link between Shell, BT, Diageo and Body Shop? It is that they have all issued (or are about to issue) social reports containing data similar to that described above. The beneficiaries of such disclosure?
Well, obviously the companies concerned feel that they gain from so-called ‘first mover’ effect and therefore insure against reputational risk. And the stakeholders? Ethical investment advisers will no doubt be happy, as will non-governmental organisations concerned to ensure that multinationals take greater account of their broader social responsibilities.
The recent announcement that ACCA and the Institute for Social and Ethical Accountability are to launch a jointly sponsored award for corporate social reporting recognises this new transition in corporate accountability and marks another step in the move towards what some (including New Labour) have termed ‘the stakeholder society’. The implications for the training and education of accountants are significant. No longer will it be sufficient to focus solely on wealth maximisation and economic value added for shareholders.
Accountants will have to understand the total impact that their employers and clients have upon society as a whole – a new era of public reporting is about to dawn.
Roger Adams is head of technical affairs at ACCA
REPORT, GUIDELINES AND CONFERENCE
Making values count: contemporary experience in social and ethical accounting, auditing and reporting is available from the ACCA Sales Department, PO Box 66, Glasgow G41 1BS (ISBN 1 85908 195 9) for #15.
The Sustainability Reporting Guidelines have been prepared by the Global Reporting Initiative, a multi-party coalition including ACCA, the Canadian Institute of Chartered Accountants, the United Nations Environment Program, the World Business Council for Sustainable Development and companies such as BP, ITT and Novo Nordisk. The guidelines will be issued for comment as an exposure draft at the Joint International Conference Toward a Common Framework for Company Sustainability Reporting to be held at Imperial College, London, UK 4 – 5 March 1999. For details of this conference see the ACCA website at www.acca.org.uk.