Social Responsibility in Business
Social Responsibility in Business
The modern organisation now needs to adapt and display a sound socially responsible approach to its operations and practices. Particular attention often has to be paid to monitoring of corporate ethics.
Traditionally, business management focused its concern on the profit objective but over the last twenty to thirty years, social accounting has become an increasing area of concern within modern organisations. Consequently, the issues of environmental, social and ethical accountability can have major implications and costs.
"It is not a matter of life and death for your business, it's more important than that."
Bill Shankly
For some businesses the bad press associated with poor social accounting practices can jeopardise the company, but for others good social accounting practices forms the "cornerstone" of the organisation. In acknowledging these facts and their implications for business, the modern organisation must adapt and display a sound social responsible approach to its operations. (Integra Environmental, 2001)
The concept of Social Accounting was developed in mid to late 1960s in respect of its current trends. It is about being answerable to the people (internal and external stakeholders) affected by the business's actions. (Elliot and Elliot, 1999)
The idea of social accounting also dates back to the "Corporate Report 1975". This report attempted to formulate the reporting systems of the entire community and not simply the organisation. In addition, the report introduced the "qualitative" and the "quantative" reporting concepts. (Dungworth, 2001)
With the growing awareness of social issues there is fair amount of pressure for organisations to conform to society standards by a number of pressure groups. All stakeholders - customers, suppliers, employees, shareholders and the local community, have the potential to influence the way in which business conducts itself. These groups form an organisation's 'license to operate'. "If a business does not retain the approval and support of the majority of its stakeholders, it jeopardises its trading position". (Wilson, 1997)
Consumer pressure is a major challenge for modern business. The rapid rise in environmental issues and publication of ethical journals such as New Consumer Magazine, are contributing pressures for consumer goods and services. Manufacturers (e.g. cosmetic manufacturers) and service providers (e.g. credit card companies) cannot afford to ignore the environmental impact of their activities. (Wilson, 1997)
A recent manifestation of consumer involvement was in summer of 1995. There was controversy in Europe when Shell planned to dump the Brent Spar oil storage into the sea and Green Peace protested and reversed the action. (Green Peace, 2001)
To further influence the consumer choice in the market, the media, certain pressure groups and a number of 'watch dog' bodies - for example, The Ethical Consumers Research Association provide information among other things on social issues that can cause serious repercussions to manufacturer of a product or service.
The supplier is another challenge for organisation to conform to society standards. If an organisation is ethically unsound a supplier may refuse to supply goods to the firm since it may jeopardise their market position. For example, if a supplier of raw material for a pharmaceutical company realises that they test their products on animals they may refuse to continue supplying since other reputable companies may not want their raw material because they figure that they are associated with them.
Firms will also be pressured by their own employees since recently more and more employees seems to be concerned with social aspects of a business rather than just pay. Many organisations are trying to encourage a greater level of innovation, training programmes, fringe benefit plans, and occupational health, (just to name a few) to keep their workforce satisfied. A recent survey carried out by the Department of Employment shows that less than 1/3 of the employees questioned will turn down a job even though its better paid to stay with the current organisation. The interviewees said, "pay is ...
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Firms will also be pressured by their own employees since recently more and more employees seems to be concerned with social aspects of a business rather than just pay. Many organisations are trying to encourage a greater level of innovation, training programmes, fringe benefit plans, and occupational health, (just to name a few) to keep their workforce satisfied. A recent survey carried out by the Department of Employment shows that less than 1/3 of the employees questioned will turn down a job even though its better paid to stay with the current organisation. The interviewees said, "pay is far from the only, or indeed the most important, factor in determining attitudes towards employment". (Wilson, 1997) Therefore, if organisations want a hardworking, committed and motivated workforce they are obliged to conform to society standards.
The business has also to reckon with pressure of investors that needs information to make reliable decisions about the company in question. Not only do they require information but also, it must be easy to interpret and free from jargon. For example an environmentally aware investor will want to be informed about product developments for companies who intend to introduce 'environmentally-friendly' products to the market and the processes of their development.
Changing in social attitudes did not only reflect in the increasing number and power of pressure groups. It also amounted to Government Legislation's in employment conditions, product safety, pollution etc. which organisations are required to comply with. (Gray et al, 1987) So companies in the UK, for example, are now required to comply with the following legislations.
Health and Safety at Work Act 1974 which sets down regulations for employers providing a safe working environment for their employees. The scope of the Act also extends to the premises to protect the public whose safety may be put at risk by activities of people at work.
The Trade Description Act 1968 and 1972 states that products must correspond to claims made for them in advertisements. For example a firm can be taken to courts if they claim that the product contains an ingredient when in fact it is not present. Correspondingly, the Trades description Act, 1968 prohibits false or misleading description of goods. For example a tie that is described as made of silk cannot be made of polyester. (Hall et al, 1994)
Within the role of social accounting, companies are required by law to disclose a considerable amount of information. For instance fair business practices - this states that it is compulsory for businesses with more than 250 employees must state the policy regarding employment, training, career development and promotion of disabled persons. (Glautier et al, 2001)
It is also important to disclose matter regarding human resources. For example, if the firm employs more than 100 employees the Director's Report must state the average number of employees and the remuneration during the year. In addition, they must comment on the health and safety arrangements in force for protecting the health and safety of employees and subsidiaries alike. The Director's Report must also include information about charitable and political gifts. (Glautier et al, 2001)
Moreover, it is the management's responsibility to report to stakeholders on matter involving pollution and environmental damaged caused by their commercial activities. This area of social accounting involves the reporting of contingent liabilities for environmental damage that may even be retrospective of which the company might have paid punitive damages. The company is also responsible for clearing any 'mess' cause in its production processes, for example toxic waste.
The results of a survey carried out by Gray in 1989 showed that "trend of mandated disclosure is upward, reflecting an increase response to legislation. No such conclusion could be drawn from the voluntary disclosures, although over 60% of the companies surveyed made voluntary disclosures of some sort"
Stakeholders of a business may wish organisations to measure their socially responsible performance, however the organisation may be faced with difficulties. They must first identify and agree on the definition of areas to measure that are capable of being measured. Even this identification process can cause problems and be outside the accountant expertise and require high levels of scientific knowledge. (Owen, 1992) Even with this scientific knowledge they will need to ask, 'does one size fit all'?
For example, a firm that does not engage in animal testing for instance, the Body Shop, may want to access their social responsibility performance in terms of adapting a 'no animal testing' policy but they may chose not to volunteer enough information about their employing and promotion of disabled people which a stakeholder may find as important information to access their social performance.
Conversely, too many measures for the assessment may be both confusing and expensive for the company to absorb costs on passing it on. It may also be difficult to execute such measures if they are not clear, and adequate reporting systems in place. This involves understanding the technology used to obtain data and the systems of recording and controlling the accurate data for external auditors who accesses its reliability. (Owen, 1992) Additionally, it is difficult to actually measure performance as responsibility changes over time and from place to place. (Gray et al, 1987)
Social responsibility has become a hallmark and more complexed for organisations operating on a global basis. As companies have been increasingly involved in international trade and investment, their participation in dialogue with stakeholders has become an important element.
Many multinational companies would agree with the ethical theories presented in documents on social responsibility, and have developed corporate codes of conduct that prohibit things like child labour, prison labour, discrimination and promote basic human rights, but the implementation of standards at an international level can be problematic.
For example Nike employs subcontractors in Asia to assemble shoes. Last spring thousands of Indonesian workers were not receiving the required minimum wage of $2.50-a-day. Critics described Nike of having double standards since they are not being sociable responsible in Asian countries. (www.worldwatch.org)
In the modern organisation adapting a socialist principle, the accountant has an important role in the 'policing and assessment' process. These include the setting the standards of social issues, the integrating of policies in all aspects of the business activities and the constant monitoring of the company's procedures and practices and their effect on the environment. For example, this may concern the regulating of compliance with social reporting regulations whether these are government legislation or those set by the organisation.
Moreover, the accountant must also be sensitive to and respond to the needs of the society. This means that the accountant should systematically check that the all the public references about social issues made about the company are picked up and dealt with accordingly.
While it is also the duty to ensure long-term commercial survival of the organisation their 'policing' duties involve ethical responsibilities in such a way that they should not turn a blind eyes on certain issues. For example, environmentally destructive activities but deal with these in an ethical manner.
Above all, the accountant is his 'policing' capacity must seize the initiative and take a positive action to make social responsibility an opportunity for commercial possibilities rather than a burden on the organisation.
Examples of social measures would include the level of investment in new technology. A company who practices sound social responsibility will invest in a technology that is considered 'clean' and effective in use for example, significant amount of fossil fuels for its operations to produce a product which have no significant economic value or further considerable damage to the environment.
This is to say that the product or service is another aspect in which the environmental issue of social responsibility can be measured. As a matter of good practice the company should produce products that meet high efficiency requirements and the materials used should have environmentally friendly properties, which are recyclable, renewable and low noise and air pollution levels.
The obtaining of materials and goods from a socially sound conscious supplier chain is another aspect of this measure. The company should raise supplier awareness of socially responsible issues and encourage policies in environmental protection, good heath and safety measures, fair business practices etc.
The number of court cases that a company faces and the level of complaints and criticisms by pressure groups and other affected stakeholders is also a measurement of social responsibility performance. These should be minimal or at least addressed in the appropriate manner as good public relations affects the reputation of the company on social affairs.
The modern organisations and accountants are faced with a number of ethical issues. In the businesses the management can be faced with the 'conflict of interest'. This is concerned with the benefits to the firm and the interests, but these must not be a personal benefit. If the person in question notices a possibility of 'conflict' he must declare it to fellow managers who can assess whether it is conflicting or not in their opinion.
Receiving or giving gifts can be another ethical issue faced by organisations. If a gift is received or given it should not be seen as a bribe to promote business but an approach, which is honest and open.
In any business organisation there will be secrets that when revealed to a third party it can have commercial value thus, managers must sustain confidentiality. Therefore, secrecy must be maintained but surely "a wider social element of the individuals duty to society?" (Elliott &Elliot, 1999) This is where a member can inform an outside agency about unethical behaviour of business - this is known as whistle blowing.
A main ethical issue for business recently is the concept of 'production and processes'. It begins at the manufacturing process straight up to the selling of the product. An example of unethical manner recently is the case of Nestle selling baby food by giving misleading information to parents in African countries. As result of this misleading information, parents bought the product and it lead to a high percentage of babies been under-nourished.
The way in which the organisation treats its employees is an additional ethical concern for businesses. An organisations need to be seen as fair employers - this involves the promotion of disabled people, employment of ethnic minorities and older people, employing child labour etc. (Elliott & Elliott, 1999)
Similarly, accountants are face with a number of issues. These include: judgement, stewardship and rule orientation - just to name a few. In judgement "ethics requires the application of fine judgement, a common attribute to accountants". (Elliott & Elliott, 1999) Stewardship simply means that the accountants have the role of looking after the business on behalf of the stakeholders. Therefore the accountant should try to refrain from creative accounting that will mislead stakeholders. Rule orientation simply requires the accountant to follow the rules set down by the organisation and accounting standard boards. If the accountant was to disobey the rules set down he/she will not only be unethical but also breaching his/her contract.
Increasing awareness and legislation in social responsibility and ethical issues will continue to affect business organisations. However in looking to the future the modern organisations must continue to take actions wherever social accountable matters arise in adapting and displaying sound social responsible approaches to it activities. It does not only contribute to public relations but a strategic intervention that in addition to disclosing social performance, serves to steer the company in a transformation which indeed makes good business sense.
BIBLIOGRAPHY
Books
Chambers, Ian (Ed.). (1994). Business Studies. Lancashire: Causeway Press
Davies, Peter (Ed.). (1997). Current Issues in Business Ethics, Professional Ethics. London: Routledge
Elliot, B and Elliot, J. (1999) Financial Accounting and Reporting 4th Ed. London: Pearson.
Glautier, M.W.E. and Underdown, B. (2001) Accounting Theory and Practice 7th Ed. London: Pearson.
Gray, Rob; Owen, Dave and Maunders, Keith. (1987). Corporate Social Reporting. London: Prentice Hall.
Owen, D. (1992). Green Reporting: Accountancy and the Challenge of the Nineties. London: Chapman & Hall.
Other sources
Dungworth, Steve. Lecture. Social Accounting.
Corporate and Social Responsibility. www.un.org . Accessed 28/11/01
Is Corporate Responsibility a PR Invention?. www.managementfirst .com/professional_organizations. Accessed 28/11/01
Social Accountability. www.integraenvironmental.org. Accessed 27/11/01
Social Accounting. www.beup.za. Accessed 27/11/01
The Dumping of the Oil Rig. www.greenpeace.org. Accessed 3/12/01
The Shoe Story. www.worldwatch.org. Accesses 6/12/01
N.C. Browne
Company Performance & Evaluation
