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Struggling with the praxis ofsocial accounting

Stakeholders, accountability, audits andprocedures

Rob Gray and Colin DeyCSEAR, University of Dundee, Scotland, UK

Dave OwenUniversity of Sheff ield, Sheff ield, UK

Richard EvansTraidcraft Exchange, UK and

Simon ZadekNew Economics Foundation, UK

IntroductionSocial accounting, after its brief heyday in the early to mid-1970s (see, forexample, AICPA, 1977; Estes, 1976; Gray, Owen and Maunders, 1987; Gray,

Owen and Adams, 1996b), had disappeared almost entirely from both thelanguage of practice and the orthodoxy of conventional accounting by the late1970s. It returned to its previous obscurity even in accounting academe, (see, forexample, Gray et al., 1987, 1991; Parker, 1986). T he re-emergence ofenvironmental accounting in the late 1980s and early 1990s (in so far asenvironmental accounting can, perhaps, be conceived of as one part of the socialaccounting concern[1], appears to have been at least one of the reasons behinda current resurgence of interest in social accounting[2]. By the mid 1990s, notonly was there an increase in the academic attention given to the area but, moreimportantly for this paper, there was a notable re-emergence of practice in the

Accounting, Auditing &Accountability Journal,

Vol. 10 No. 3, 1997, pp. 325-364.MCB University Press,

0951-3574

We gratefully acknowledge the assistance provided by many individuals and organizations in

developing this paper. We are grateful for the financial support received from the ESRC, TheCarnegie Trust and the ACCA who have funded or are continuing to fund elements of thisresearch project. We wish to express out thanks to the staff at Traidcraft plc and TraidcraftExchange (especially Murdoch Gatwood) who have been so supportive and patient throughout the(continuing) research process. Jan Bebbington, David Collison, Emily Dick-Forde, Reza Kouhy, KenMcPhail and Noel Tagoe of The University of Dundee, and Sue Llewellyn of Edinburgh Universitywere especially helpful in helping us to try to clarify the theoretical issues raised by the paper. Wealso acknowledge the very helpful comments on earlier drafts of this paper from Nabil Baydoun,

Jan Bebbington, Jane Broadbent, Penny Ciancanelli, John Grinyer, Jim Haslam, John Innes, RichardLaughlin, Alasdair Lonie, Peter Raynard and colleagues who attended presentations at the CSEARSummer School and at the Universities of Glasgow and Dundee.

Submitted July 1996Revised December 1996

Accepted February 1997


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field. Indeed, social accounting is attracting an almost unprecedented level ofinterest at the present time. Recent social accounts issued by Traidcraft plc,Shared Earth, The New Economics Foundation and The Body Shop in the UK,and the SbN Bank in Denmark and Ben and Jerrys in the USA, for example,have all attracted widespread publicity. The Royal Society of Arts in the UK haspublishedAn Inquir y into Tomor rows Companywhich recommends thedevelopment, use and disclosure of social performance indicators. These andrelated developments[3], together with the recent formation of the Institute ofSocial and Ethical Accountability (ISEA)[4], have made the technical problemsof social accounting a matter of some urgency if social accounting now is todevelop in any systematic way and neither fizzle out through lack of directionnor be captured and trivialized by powerful organizations.

This emergence of practice has brought both an increase in the examplesfrom which researchers could learn about social accounting practice as well asan urgency to the question how does one do social accounting? How to dosocial accounting should not be a trivial question. If organizations are permittedto develop methods of social accounting without any critical assessment of theiractivities, then any emerging best practice can be expected to be partial, adhoc, immanent and legitimizing thereby falling foul of the Marxian, deepgreen and feminist critiques of social accounting (see e.g., Cooper, 1992;Maunders and Burritt, 1991; Puxty, 1991; Tinker, Lehman and Neimark, 1991).

Therefore, what might a good or even an ideal type of social accountinglook like? Once we have an idea what it might look like, we must consider how

it might be developed as an applied practice. Such questions, in turn, raise twofundamental problems:

(1) What is social accounting?

(2) What is the theoretical, political and ethical framework within whichones answers are to be framed?

Not only is there the tautological concern that assessing good socialaccounting needs a yardstick against which it might be judged, but the

justification for deriving a practice must lie in the values and emancipatorymoment which underpin the suggestions for practice.

Social accounting academics have long found themselves in this difficult andrelatively under-populated area lying between sophisticated critiques of

current practice, imagining new (and ideal) accounting systems and activelyengaging with (hopefully emancipatory) practice[5]. The need to resolve thetensions that result from this separation of the academic and the practical isan increasingly important theme in the accounting literature (see, for example,Gray, 1992; Grayet al., 1996b, 1988, 1991; Mitchell, Puxty, Sikka and Willmott,1991; Sikka, 1987; Sikka, Willmott and Lowe, 1989, 1991; Tinker et al., 1991)[6].It is for this reason that we use the termpraxisin the title of this paper. Whilethe theoretical critiques of accounting and new accountings must, in theinterests of scholarship, be fully engaged with, this is not enough. Practice must


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be encouraged and we must find ways to encourage that practice to develop ina manner which is potentially emancipatory not repressive[7].

It is these tensions that this paper seeks to address. The paper is, therefore,very perhaps overly ambitious. To theorize a social accounting, to deducelessons of best practice and to begin to derive standards for social accountingpractice while remaining cognizant of the radical critiques of socialaccounting are clearly more than a single paper could hope to achieve. At thesame time, the practice of social accounting is developing rapidly. New methodsof accounting are being derived, new institutional arrangements are beingdeveloped and practitioners are meeting new difficulties. The paper is thereforeexplicitly exploratory and excuses its thinness in places in its attempts to bring

somesystem to developing practice as a matter of some urgency. If the paper,then can act as a catalyst, research agenda and starting-point for furtherrefinement, it will have been more than successful.

This paper belongs to a continuing series in which we seek to develop ourunderstanding of the theoretical and practical issues of social accounting (see,e.g. Dey, Evans and Gray, 1995; Evans, 1991; Grayet al., 1988, 1996b; Harte andOwen, 1987; Raynard, 1995; Zadek and Evans, 1993; Zadek and Raynard, 1995).In line with those other papers, the present discussion is based on a belief in theprimacy of democracy[8]; the importance and power of accountability in thedevelopment and discharge of democracy; and is empirically grounded in theexperience arising from the production of the social accounts mentionedabove[9].

The paper itself seeks a synthesis of the different approaches to socialaccounting and then explores how the resulting theoretical structure can beemployed in the systematic production of auditable social accounts[10]. Thisexploration is undertaken through an illustration of two cases based on the UK

Traidcraft experience. This process, we believe, takes us towards a portablesocial accounting methodology that allows us (to use conventional accountingterminology) to begin a process of iteration towards a conceptual framework forsocial accounting and the derivation of generally accepted social accountingprinciples and basic social accounting standards[11].

The paper is structured as follows. The second section introduces some ofthe underlying themes on which this paper draws. Rather than analysing thesethemes, this section simply attempts to locate the discussion in the widertheoretical literature. The third section then looks at terminology and outlinessome different approaches to social accounting. The fourth and fifth sectionsexamine three of the theoretical perspectives which can be taken on theorganization-society relationships and which, thus, can be employed to guidethe form of any subsequent social account. A broad synthesis of these threeperspectives is offered in the sixth section. Sections seven and eight report theexperiences of, respectively, Traidcraft plc and Traidcraft Exchange in theirdevelopment of their own social accounts. Lessons about constructing the(social) accounting entity are drawn from the first case. The second case is usedto illustrate how three layers of information can bring us towards a more


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complete social account. This case also flags up the role of auditing. Section nineis a short report of the key elements that our experiences have led us to believeare the backbone of a systematic social accounting practice and might, thus,form a basis for the emergence of social accounting standards.

Locating the discussion: some initial theoretical reflectionsIt would be inappropriate if only for reasons of space to attempt to revisit allaspects of the social accounting debate here, (but see Gray et al.,1996b, for anintroduction to some of the issues). This section will, therefore, seek to identify in very general terms the principal theoretical themes which will underpinthe later analysis and discussion.

In the first place, social accounting is conceived of as the universe of allpossible accountings. From a conventional accounting perspective, it is whathappens if the constraining principles of conventional accounting (i.e. anaccounting entity, a focus on economic events, financial description of thoseevents and an assumption of (predominantly financial) users; see Gray,Laughlin and Bebbington, 1996b) are relaxed. This universe is, probably,infinite and, consequently, beyond our scope here. So we initially restrict ourdiscussion to formal accountsfromaccounti ng ent it ies. (These issues arediscussed in more detail below.) We thus exclude most obviously informal(verbal and non-verbal accounts) between individuals and groups.

Similarly we restrict ourselves to a concern with the production ofsingleperiodic accounts. We should, however, stress that such single accounts do not

assume a single point of view. That is, the social accounts are assumed to be, atleast potentially, both polyvocalandmultiple(see e.g. Zadek and Evans, 1993).This restriction to a single, formal account may well open the resulting socialaccounting to criticisms from feminist and perhaps post-modern critiques.

That is, our approach to the social account may be masculine-gendered andmodern. We have not addressed this formally, but the later discussion does, wesuggest, acknowledge these charges and may go some way towards meeting thecriticisms.

Furthermore, there are both political and social issues embedded in the socialaccounting which we have not explicitly explored. For example, almost anysystem of social accounting of which one can conceive will involve transfers ofpower, either through the democratization of organizations and of capital orthrough the capture and manipulation of social issues by organizations and bycapital. Similarly, there is a wide range of concerns over such matters as the roleof accounts in reifying, constructing, reinforcing and trivializing organizationsand relationships, both within and between those organizations (see e.g.Francis, 1990; Hines, 1988, 1989, 1991b, 1992; Lavoie, 1987; Meyer, 1986). Howsuccessfully such critiques can be levelled at this project and perhapsundermine it are matters dealt with only tangentially in this paper.

Next, social accounting is conceived of here as being both hermeneutic andemancipatory. It is hermeneutic in the sense of a hermeneutic dialecticprocess (Laughlin and Broadbent, 1996) which seeks out a means that might


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lead us towards reflexive mutual understanding between the organizationand its stakeholders. These understandings will relate to both organizationalactivity and the accountability(ies) see later attaching to those activities.In this sense, the social accounting practice must be continuing and evolving.It is emancipatory in that its aim is to redress power asymmetries betweenorganizations and their stakeholders through the reporting of information.

This emancipatory moment lies beyond the accountability itself and, rather,underpins the project and provides its motivation. The project seeks toenhance the democratic virtues of transparency and accountability. It seeksthis through (admittedly under-specified) assumptions that an informed

demos is thereby empowered in its decision making and action to seek morebenign organizational activity. Similarly, the production of social accounts isassumed to have an information inductance effect on the part oforganizational managers that will encourage more ethically desirable formsof activity.

However, the specific focus employed here is rather less dependent on theoptimism (and utility) which would justify a social accounting by reference tooutcomes flowing from that accounting information, but is rather moreconcerned with deontological and intrinsic motivations. That is, the fulcrum ofsocial accounting employed here is the discharge of organizationalaccountability. Accountability is conceived of as relating to the rights toinformation of a participatory democratic society which, for the sake of this

project, is conceived of as neo-pluralist in structure[12]. Such choices have twoimplications: first, the choice of a neo-pluralist democratic accountabilitydefines a problem space within which all parties can debate. It is reminiscentof though in no sense synonymous with Habermas ideal speech situation.

That is, Western practice and Western critique can all engage in this spacebecause the conception does not necessarily deny the legitimacy oforganizational practice, but brings to it critiques drawn from pristine liberaleconomic democracy, Marxism, deep green and feminist positions. While socialaccounting exists in a space critiqued by each of these positions whether thecritique from practice or the radical critique from academe there remains ahermeneutic engagement, which a priori we find valuable, even essential[13].

The second implication of our choice is that, in a strict interpretation of

accountability, action and decisions as a consequence of the dischargedaccountability are not necessarily part of the story. A participatory demos maywell have rights to information, but once informed may choose not to act on thatinformation. The assumptions of action and decision lie prior to the concernwith accountability itself.

With this outline of the prior concerns which attempt to link this project withthe wider theoretical literature, we can turn now to the body of the paper andexplore the issue of terminology and definition, before moving into anexploration of the conceptual frameworks for an applied social accounting.


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Social? Ethical? Accounting? Auditing?A wide variety of terms have been employed in social accounting. Historically,the terms social audit, social responsibility accounting and corporatesocial reporting have, from time to time, been popular (see e.g. Mathews, 1993),while more recently social accounts have appeared under the titles, inter alia,social audits (the early Traidcraft reports, for example), ethical statements(SbN Bank), values report and social statement (Body Shop). Furtheranalogues can be found ethical audits is a term favoured by someindividuals[14]. The confusion generated by the diversity of terms is partlyillusory, but also partly real. All the discussion and the practice hold a numberof central ideas in common but, through the use of a diverse terminology,

feature these central ideas with different degrees of exactitude. Indeed, thedifferent conceptions permit undefined terms to encourage agreement and also,perhaps, to avoid historical baggage attached to terms which some parties mayprefer to avoid[15].

Nevertheless, we stay withsocial account ingas the generic term because it isthe longest established and the simplest term (and construct) with which towork. Furthermore, as we shall see, we find its resonances of conventionalaccounting especially useful when defining the elements of a social accountingprocess[16].

All social accounting (regardless of its actual title) relates to the presentationof information about organizational[17] activity. The resulting account(whatever the form it takes) is presented to someone even if it is only the

organization itself (see below). The social account, as with any other account,presupposes some definedaccount ing ent it y(there has to be something aboutwhich to account), although, as we shall see, the relationship is reflexive.Equally, there is an implication of complexity and size in the relationshipbetween the accounting entity and those to whom the account is presented. Thislast point arises because we tend to find that formalaccounts are onlynecessary in complex situations in which personal communication, trust andintimacy (what Rawls calls closeness) are threatened or have disappeared.(For more detail see e.g. Lehman, 1995.) In personal and usually relativelysimple situations involving only a small number of parties and/or activities, aninformalaccount will suffice. The precise point at which an informalaccounting in or by (for example) families breaks down and leads to the needfor a formal account in or by (for example) multinational companies is quiteunclear but deserving of further research. Finally, implicit in the notion of anaccount there is some intended or actual recipient to whom the account is(informally, perhaps) addressed. In the neo-pluralist accountability frameworkemployed here, thestakeholdersare those with rights to the account and it is forthem that the account is prepared. Whether or not they use it, and if so for what,and whether or not other parties see and/or use the account, are largelyirrelevant[18]. So, beyond the identification, prioritization and needs ofstakeholders (see below), it is possible to leave any conception of the recipientsdecision making about or choice of action implicit in the discussion.


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These three elements theaccount ing ent it y, theaccountand the intendedrecipient(or group of recipients)of the account are not sufficient in themselvesto define social accounting. Figure 1 provides a collection of possible accountingprocesses which involve these three elements. The possible groupings of socialaccounts are initially defined by reference to who prepares and who receives theaccount.

We are going to restrict ourselves to the formal account and, furthermore, tothe formal account which is prepared by(or on behalf of see below) theaccounting ent ityand (externally)reportedor disclosedto parties other than thedirectors/controllers of the reporting organization (although this does notpreclude such parties from receiving and, indeed, using such an account).

(This restriction places us in the shaded box in Figure 1.) The reasons for theserestrictions we believe, are not trivial. The restriction to the formal accountarises from the complexity of the organizations about which the questions ofsocial accounting most obviously arise[19]. The restriction to externallydisclosed reports is driven by the commitment to accountability of whichmore later (see e.g. Medawar, 1976). The matter of who prepares the report isreally a matter of pragmatic[20] and economic concern. For example, while thefirst Traidcraft report (social audit 1992/93) was prepared with considerableexternal input from NEF, it was ultimately published by and thus owned by the reporting entity. This ownership is important because the organizationmust thus stand by the contents of the report it was, after all, the duty of theorganization to be accountable that had driven the account in the first place. Butthere are other pragmatic reasons most especially that:

Figure 1.Examples of differentapproaches to social

accounting.

Report compiled byReport for theconsumption of Internal participants External participants

Internal participants Social accounts; Quango reports, e.g.: Programme evaluation; Health andsafety; Attitudes audit; Equal opportunities; Performance indicators; EPA; Compliance audit; Environmental consultants; Environmental audit and Waste and energy auditsaccounting

External participants Social accounts; Social Audit Ltd;

Social reports: Counter Information narrative; Services; quantitative; New Consumer qualitative; Consumers Association; financial; Friends of the Earth;

Compliance audit; Greenpeace; Mission statements; Journalists; Environmental report; Ethical investment/EIRIS; Employee reports External social audits

Source:Adapted from Gray, 1991, p.3.


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externally prepared reports typically experience problems in gainingaccess to the appropriate levels of data; and

the economics of the regular production of social accounts will effectivelypreclude any systematic mechanism other than self-reporting by theorganization involved (see e.g. Gray et al., 1987, 1996b; Medawar, 1976).Furthermore, the analogue of relating social accounting to conventionalfinancial accounting[21] naturally leads us to assume the preparation ofthe report by the accounting entity.

These restrictions, while placing us in the shaded box in Figure 1, still do not, ofthemselves, produce a full definition of the social account. As Figure 1 might

suggest, a wide range of fairly basic examples as well as the more developedexamples to which we have already referred would still be encompassed byour terms. Indeed, most large companies produce a range of social andenvironmental information which, if collated, might pass as a social account(see e.g. Gray, forthcoming).

Consequently, it might be helpful if a further schema, refining slightly theelements of Figure 1, were to be presented at this point. The following providesa classification of approaches to social accounting based on the complexity andsystem of the approaches and, more pertinently, their likely desirability to aconventional business organization[22]:

(1) Company preferred:

existing corporate reporting of both voluntary and mandatory data; existing corporate public relations and advertising/education data;

collation of the above into a single social accounting document the silent account;

one-off experiments with approaches to social accounting.

(2) Systematic corporate social accounts:

stakeholder reporting;

describing the characteristics of the stakeholder relationship(s);

accountability reporting;

reporting of the voices of the stakeholders.

(3) External social audits:

single issue reporting (e.g. consumers, environmentalists etc.);

systematic social audits;

one-off reporting (e.g. investigative journalism).

The terms will be discussed and developed as the paper progresses. It is thesecond group the systematic social accounts that is of concern to us in thispaper.


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To refine our definition further we need to address the matter of theory and,in particular, the place and interpretation of accountability in the derivation of asocial account.

Accountability and stakeholder perspectivesOur experience with social accounting plus our reading of the literature lead usto conclude that there are three dominant ways of theorizing[23] the(accountability) relationship between an accounting entity and its outsideworld[24]. We want to conceive of these theoretical perspectives as a series of(overlapping) layers which can be synthesized and built up into a richconception of the organization-society interaction. These three perspectives are

a stakeholderperspective, anaccountabilityperspective, and, what we shall callapolyvocal citizenshipperspective (PCP)[25]. These three conceptions build upfrom the harder, more functional organization-centred stakeholder,perspective, through the slightly softer, society-centred accountability,perspective to (perhaps) the softest, stakeholder-centred polyvocal citizenshipperspective. (We will discuss the first two below, and then examine PCP in moredetail in the next section.)

Stakeholder perspectiveThe stakeholder approach to analysis is well-established in the management(and accounting) literature (see e.g. Donaldson, 1988; Nasi, 1995; Roberts, 1992;Ullmann, 1985). Its essence is the definition of all those groups or parties[26]

who are influenced by and/or who influence the organization (or accountingentity). From this point on, stakeholder theory struggles to maintain anythingother than an organization-centred legitimacy because while the groups may bedefined with a fair degree of objectivity, who (other than the organization) is leftto define the priorities among the stakeholders and the information that shouldbe disclosed to each one? Stakeholder theory, therefore, is concerned typicallywith how the organization managesits stakeholders. Thus, informationdisclosed to the stakeholders may be assumed more properly by theorganization to be part of a legitimacy and/or social construction process.Stakeholder theory is relatively silent on how the organization does if at all monitor and respond to theneedsof the stakeholders. It will do so, generallyspeaking, when it is in the organizations traditional interests (profit-seeking,for example) to do so. Therefore a social account based on the stakeholderperspective has social value only if we assume the beneficence of theorganization and further assume that the stakeholders needs can be subsumedmorally with those of the organization[27]. If we assume this, then marketforces will generally produce the sort of social accounting which is in theorganizations best interests. We might reasonably assume that it is thisthinking which produces the sort of voluntary social and environmentaldisclosure we currently see.

Despite its serious limitations, stakeholder theory doeshelp us. It defines theinfluencing/influenced groups for us and explicitly defines what accountability


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the organization itself is willing to recognize and discharge[28]. To deny theorganization any role in a definition of a social account seems inappropriate andlargely indefensible. This, therefore provides our first layer the stakeholderanalysis in which the organization defines the accountability. To this we nowadd the accountability perspective societys views.

Accountabil ity perspectiveAccountability and its role in social accounting has been discussed widely. It isconcerned with the relationships between groups, individuals, organizationsand the rightsto information that such relationships entail. Simply stated,accountability is the duty to provide an account of the actions for which one is

held responsible. (For more detail see, e.g. Gray et al., 1986, 1987, 1988, 1991,1996b). The nature of the relationships and the attendant rights toinformation are contextually determined by the society in which therelationship occurs.

It is definitionally true that some sort of relationship will exist between anorganization and each of its stakeholders. As we saw above with stakeholdertheory, part of these relationships may be economic in nature and the termsdetermined by the parties as reflecting their relative power in therelationships. The information flowing through the relationship will bedetermined by the power of the parties to demand it (a power which, where itexists, could arise from either the intrinsic abilities and power of the groupsconcerned or from the legislative processes of the society) and/or the

willingness/desire of the organization to provide it. Society as a whole reflects(what might be thought of as) a concern that all such relationships and theirattendant information rights should not be left entirely to the parties. The mostobvious manifestation of this is statute law (e.g. companies acts, equalopportunities legislation) and standards established by statutory bodies (e.g. anenvironmental protection agency, health and safety at work inspectorate).Additionally, other mechanisms (such as, voluntary codes of practice) will fromtime enter the public domain as an agreed or, at least, negotiated part of thestakeholder relationship. These empirical, beyond-law determinants ofaccountability have been referred as quasi-law, (see e.g. Grayet al., 1987, 1988,1991, 1996b). The extant law plus this quasi-law will therefore represent thefirst (and major) element in the construction of societys views on theaccountability of organizations (see e.g. Stone, 1975).

It is, of course, naive to assume a simple one-to-one mapping of a societysbeliefs about the nature of relationships and the attendant information rightsand extant law even with the addition of quasi-law. On the one hand, rightsto information must reflect asymmetries of power and essential lags between asocietys views and the enactment of law (see especially Dowling and Pfeffer,1975; Epstein and Votaw, 1978; Stone, 1975). On the other hand, such rights toinformation can be argued to comprise both positive (legal) and normative(moral) rights (see e.g. Likierman, 1986; Likierman and Creasey, 1985).Empirical determination of the moral rights is clearly contestable. These moral


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rights must, in some manner, be added to the positive rights to reflect currentviews of accountability. Some of these rights will be accepted by organizations through, for example, mission and/or ethical statements and, to this extentat least, there will be a convenient overlap between the information rightsdetermined by stakeholder theory and those determined by accountabilitytheory[29]. But there are moral rights that will not be so accepted. Here onemust resort, within an accountability framework, to other expressions ofsocietys values. Malachowski (1990) for example argues for a recognition ofmedia concern as an approximation of new emerging issues of societysconcern. Broadly, this may be a plausible basis. For illustration, health andsafety concern over accidents rose as a major issue in the UK in the 1980s while

environmental issues clearly claimed a place in societys conception of theorganization-society relationship in the early 1990s (see e.g. Gray et al., 1995b).Less obvious issues which are not governed by extant law for example fairtrade and impact on developing countries are more clearly a matter fornegotiation.

The second strand of social disclosure would derive therefore from theestablished accountability relationships and seek to provide information towhich the stakeholders have a right[30].

There is a danger, however, that a social accounting founded on acombination of stakeholder and accountability perspectives would be too inertand only slowly responsive to changing stakeholder needs. More particularly,themodernbasis of these perspectives leave them open to challenge from

perspectives arising out of critiques informed by more fluid and, perhaps, morepost-modern conceptions. It is concerns such as these that have encouragedmany of the newer social accounts to adopt thepolyvocal citizenshipperspective.It is to this that we now turn.

New conceptions of the organization-society dialogue: a challengeMany of the more recent social accounts, especially those influenced by NEFand Traidcraft, have adopted an approach to social accounting which has notpreviously been discussed in the social mainstream accounting literature (butsee e.g. Raynard, 1995; Zadek and Evans, 1993; Zadek and Raynard, 1995). Thispolyvocal citizenship perspective (PCP) draws broadly on Habermasiandiscourse ethics and directly from Guba and Lincolns (1989)Fourth GenerationEvaluation[31] and then applies the ideas in a social accounting setting. In itsnovelty, its explicitly hermeneutic concern and its emphasis on privileging thevoices of stakeholders, the PCP offers an alternative conception of socialaccounting[32].

The approach is built around stakeholder dialogueand its essence lies inproviding each of the stakeholders with a voice in the organization. Focusgroups are held with each stakeholder group, from which key issues areidentified, and a wider constituency of the stakeholder group is consulted tocollate their views on these and other issues. The social account comprisespredominantly (but not exclusively) a reporting of the voices of the


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stakeholders. PCP thereby constitutes a different way of seeing theorganization. Thus, if we were to take this to extremes (and thus attempt totypify the PCP approach as a post-modern straw man), the terms of theorganization-society/group relationship are established, not by the organizationor the society, but by the stakeholders themselves. More precisely, though, PCPis a form of symbolic interactionism (Guba and Lincoln, 1989) in which (toborrow the words of Innes, Nixon and Tagoe, 1996, p. 6), the organizationalstakeholders are seen as constituting and sustaining their own reality andthat of the organization both socially and symbolically. The PCP socialaccount aims to give voice to these actors so that their systems of interpretationand meanings and processes of structuring and organizing are revealed[33].

The PCP, in drawing from Guba and Lincoln, is clearly working at theboundary of the modern and the post-modern[34]. The most important elementof this is the way in which the organization is conceived. Again, taking this toextremes, the PCP might be typified as assuming that the organization has noexistence prior to or independent of the stakeholders. That is, the stakeholdersin a social constructivist sensecreatethe organization. Such a view is central toGuba and Lincolns analysis which ontologically denies the existence of anobjective reality and assumes that epistemologically understanding (in this caserepresented by the social account) emerges from the interaction betweenobserver and observed (Guba and Lincoln, 1989, p. 44). Therefore, while thestakeholders are privileged in the construction of the organization and thesocial account, the approach is hermeneutic and iterative with refined and

developed understandings emerging over several cycles of the social accountingprocess[35].The NEF/Traidcraft approach does not stop here, though. First, at least in

the early attempts at (what were referred to as) social audits, the socialauditor was cast in the role of Guba and Lincolns evaluatorwhose job it is toencourage and engage with the dialogue process towards a responsiveconstr uctivi st evaluati on, (in our case, a social account rather than anevaluation as such). Thus, there is no role for an external objective audit orattestation because, quite simply, such externality and objectivity cannotexist in the model. Second, the NEF/Traidcraft approach placed the corevalues of the organization at the heart of the dialogue (and thus at the heart ofthe account). These core values which may emerge from the social accountingprocess or may be enshrined in mission statements or statements of ethics orprinciples become that thing which the social accounting process isevaluating and negotiating and, hopefully, changing[36] as a consequence ofthe stakeholder dialogue. Consequently, the resulting social account will containdata reflective of the core values of the organization and which, inevitably,must overlap with the information we would expect to flow into a social accountfrom the stakeholder and accountability perspectives itemized above.

Hopefully it is apparent from the brief outline above that the NEF/Traidcraftversion of PCP (more usually called the stakeholder dialogue approach) isconcerned with praxis. In its concern to evolve an active practice, it has clearly


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moved away from thesolipsism(see e.g. Laughlin and Broadbent, 1996) of thepure Guba and Lincoln approach and similarly edged away from the post-modern conceptions of organizational interactions, towards something whichbegins to look more like a Habermas ideal speech situation (Habermas, 1978).

Thus, in the context of social accounting, it seems that in the PCP socialauditing process three things are happening simultaneously:

(1) the stakeholders are being encouraged to voice the terms of theaccountability relationship, both as they see it currently and how theywould wish it to be. That is, the stakeholders are defining the terms ofaccountability;

(2) the stakeholders are active in defining the accounting entity itself;(3) the voices of the stakeholders provide an essential element of the basis

for the social account of the organization.

Each of these matters needs to be further explored.

Synthesizing the perspectives?The first of the above points that the stakeholders define their own terms ofaccountability fits well with the discussion so far. Allowing through the voicesof the stakeholders provides a systematic solution to the hitherto unaddressedproblem of how to deal with the inevitable limits that an empiricalaccountability imposes on the social account[37]. So, in terms of this paper, PCPprovides our third (and final) layer of the accountability relationships whichcomprise the social account: organization-, society- and stakeholder-determinedterms of accountability.

The second point how one is to conceive of and practically determine thedefinition of the accounting entity is a subtle and important matter that is alltoo easily ignored in the stakeholder and accountability perspectives. We willexamine this point more fully in a later section.

The third of the points that it is the stakeholders who (in effect) provide thesocial account produces both a significant synergy anda significant conflictwith other forms of social accounting (as restricted above). The synergy arisesfrom the type of information that PCP generates. This information includessuch matters as employees levels of satisfaction and motivation, customerslevels of satisfaction, environmentalists anxieties about the organization. This

sort of information, while it might be thought of loosely as accountabilityinformation, is, indeed, both an expression of the stakeholders voices andmanagement information of the sort that any organization needs if it is tomanage its stakeholders as suggested by stakeholder theory. In this way,information generated by PCP is both an important addition to the potentialdischarge of accountability andinformation which management can use underthe stakeholder perspective[38].

On the other hand, the conflict arises between PCP and more conventionalapproaches for several reasons:


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(1) Under conventional forms of social accounting, the organizationprovides the social account, whereas in PCP the stakeholders provide it,(although the account is actually published and distributed by theorganization itself). This latter point places the PCP within the moreconventional interpretations of social accounting (see e.g. Gray et al.,1996b) as a hybrid of self-reporting (the shaded quadrant in Figure 1)and the independent social reporting pioneered by units such as SocialAudit Ltd (see the bottom right-hand quadrant of Figure 1).

(2) Under the extreme version of PCP the account exists onlyas a socialconstruction of the organization the organization and its relationships

do not exist without that construction. The stakeholder-accountabilityapproaches assume an underlying reality which is reconstructedby thesocial account. That is, the latter suggests that the relationships andrights exist prior to the social accounting. Under PCP the relationshipsand rights do not so exist and are constructed through the account.

(3) While the conventional forms of social accounting have been accused ofbeing conservative (see e.g. Tinkeret al., 1991), they do have potential forchange and evolution (see e.g. Gallhofer and Haslam, 1995; Grayet al.,1996a; Lehman, 1995; Power, 1994). They offer this potential by referenceto a wider set of societal values that, it is normally assumed, willchallenge the organizations existence. On the face of it, PCP appears todo the same but may well have more conservative albeit democratic

tendencies. That is, as a consequence of its genesis in the work of Gubaand Lincoln, it may we emphasizemay be less likely to assume, seekout and expose conflict between organizational legitimacy andstakeholder views. This is, however, a practical, rather than a theoreticalproblem and relates to the final potential source of conflict with moreconventional versions of social accounting.

(4) There is a potential difficulty in that stakeholders, while their right to avoice is not, to our mind, contestable, may not be informed in a mannerwhich permits the expression of their voice to challenge the essentialproblems of organizational legitimacy. Unlike the external socialaudits which raise and extend the boundaries of accountability (seeexample, Gray et al., 1988; Harte and Owen, 1987) the voices may be

heard only internally and offer comment only in the terms already set forthem by the organizational hegemony[39].

But these are problems only of degree all forms of social accounting aresusceptible to these problems (see, e.g. Puxty, 1986, 1991). Rather, PCP may, inoffering greater synergy with other forms of social accounting, go some waytowards muting the criticisms of the social accounting project.

Can the conventional stewardship-accountability approaches to socialaccounting be synthesized with the PCP approach? The answer is probably thatthey cannot be fu l lysynthesized but only because they draw from a


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fundamentally different ontology. While all three approaches to socialaccounting can be thought of as essentially social constructionist, it is the wayin which PCP constructs the organization that raises the essential conflict. Yet itis apparent that both are motivated by similar principal concerns that is todevelop social accounting and thereby extend accountability and democracy.

The two approaches, although ontologically incompatible are not necessarilymutually exclusive but rather it seems to us that they represent alternativeperspectives on the organization and are, therefore, mutually reinforcing. Thereis little question in our minds that the PCP brings an important additionaldimension to the processes of social accounting. It adds the (hitherto silent),voices of the stakeholders to the specification and construction of accountability

and, as we will see in the next section, helps crystallize the way in which theaccounting entity is conceptualized. These, in our judgement, are importantdevelopments in the conceptualization and application of accountability. But,for predominantly practical (even pragmatic) reasons, we believe the systematicdevelopment of social accounting requires that the organization be thereporting body. As such, it is the business of the reporting organization toconstruct the social account; and such a social account, to be complete, must, weinfer, recognize the voices of the stakeholders. Under the continuing assumptionthat the organization constructs the account, then the organization needs toreport:

that the stakeholders have (or have not) been given a voice; and

what those voices had to say about the terms of the organizationsaccountability.

This does not require that the organization reports the full detail of those voices,(as we see in, e.g.The Body Shop Values Report, 1996). Should the organizationchoose to report the detailed findings from the consultations with stakeholders,that then goes beyond theessentialrequirements of an accountability report. Inthis way, although we stay grounded in the somewhat more realist ontology ofthe stakeholder-accountability perspective we open up that perspective in a waywhich can recognize challenges to that ontology.

Whatever the remaining theoretical conflicts, for reasons of practicabilityand political expedience, some synthesis needs to be found[40]. The furtherissues that arise in this reconciliation will become clearer, we suggest, when weexamine, first, the construction of the accounting entity and, second, theinformation which must be contained in the channels of accountability. Thesefollow in subsequent sections.

To try to ground the discussion thus far, we turn now to two examples ofsocial accounting produced by Traidcraft plc and Traidcraft Exchange. We willdiscuss the Traidcraft plc case to illustrate the issues arising when we seek todefine the accounting entity and their implications for the accountabilityinformation produced. We then discuss Traidcraft Exchange as an illustrationof how the three layers of social accounting information can be used to worktogether.


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The Traidcraft plc caseThis section provides a very brief outline of one experience of identifying theorganizational stakeholders and defining-negotiating the accounting entity.More detail on the Traidcraft plc experience can be found in Dey et al. (1995);Evans (1991); Zadek and Evans (1993), and the published social accounts fromthe company[41].

Traidcraft plc (sometimes referred to as the plc, hereafter), a small values-based UK company working with the New Economics Foundation, producedits first comprehensive social audit in the UK in 1993[42]. This was the firstexample of a systematic self-generated and reported social account by a UKcompany and was a remarkable phenomenon for that alone. But the plc wentfurther, publishing a booklet explaining their underlying thinking (Zadek andEvans, 1993) and committed the company to developing regular systematicsocial accounts of the company in future years.

Traidcraft plc has a called up share capital of 1.8 million and an annualturnover of nearly 7 million. The companys share capital consists of widely-held but non-voting B shares, a single guardian share which prevents thetakeover or control of the company against the principles of the company, and abody of voting A shares which are held by the Traidcraft Foundation

Trustees. Traidcraft plcs description of itself is given in Appendix 1 which is anextract from the 1994-95 social audit document[43].

The company has about 150 employees and has reported modest profits inmost of the last few years. While the company operates in a financial climateand must be economically viable, the relationships it has with its employees anddirectors (all of whom accept relatively low salaries), its representatives, agentsand shareholders all ensure that the company is not subject to the full blast ofthe rigours of the late-twentieth century market economy.

The company exists to encourage fair trade between the so-calleddeveloped and developing countries. Most especially, profit and cash-flow aremeans to that end and not, as in conventional economic and accounting theory,vice versa. It was not inappropriate therefore that the company should examinethe extent to which it was living by its principles especially as the companyhas always prided itself on its sensitivity to criticism from constituents.

The 1993 social audit was a joint effort by Traidcraft and NEF with amember of NEF working in the company on the development of the principlesof the audit and the collation of the appropriate data (see Zadek and Evans,1993). The audit was subject to a degree of independent attestation from anadvisory board established by NEF, and the report was published in late1993[44]. The 1993 experience had highlighted two major factors:

(1) There was confusion of roles over accounting and auditing.

(2) It was apparent that producing a systematic and transparent account ofthe companys activities was more difficult technically and spiritually than had been anticipated.


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The 1994 and 1995 social audits were conducted with less involvement fromNEF but were still subject to the audit process from the audit advisory board.

Traidcraft plc, at the time of writing, have just completed their 1996 socialaccounts.

In the development of the 1995 social account (as it is now called), the plc andthe audit advisory board met a real practical difficulty in conceiving of theorganization and its social audit[45]. A systematic heuristic was needed toallow an explicit specification of the elements of the organization-society-constituents relationship that was practical enough to be applicable to afunctioning company andwhich could be articulated in a way that recognizesthe societal and political assumptions of the approach in a way sufficiently

specific to resonate with the theoretical literature on organizations andaccountability[46].

Defining the accounting ent ityPrior to the inception of the project of which this paper is a part, there was noestablished method for defining a social accounting system. Equally, there islittle likelihood that it is possible to derive any one, unique, social account of anyorganization[47]. One of the many characteristics that makes Traidcrafts socialaccounting unique is its semiotic nature in the sense that the whole processis designed to elicit a shared meaning or expression of the entity known asTraidcraft. While power assymetries are inevitable, all parties who are activein the Traidcraft plc enterprise are given a voice. By this means, a shared

account of the organization begins to emerge. This is not to deny that otherinterpretations of the account are possible (or even desirable) but rather tosuggest that the widely shared expression of the account is essentially anexpression of communitarian accountability (see e.g. Pallot, 1987, 1991). Theprocess is one in which all active parties, including the widely drawn socialaudit advisory board, the researcher-advisors of the New EconomicFoundations (NEF) and the present researchers construct the organization.

The organization and its accountabil ityTraidcraft is conceived of as an organization with a transparent permeablemembrane, the organizational boundary of which is constantly negotiated(Llewellyn, 1994). It is then conceived of as lying at the centre of a nexus ofsocial relationships which are articulated in a manner akin to a stakeholdermodel located in a neo-pluralist conception of society. The key here is the notionof relationship. The best social accounts are those which, presumably, seembest to express the essence of those relationships. This conceptual model isillustrated with a significant degree of simplification in Figure 2[48].

The relationships are, inevitably, of unequal importance and strength. Theyare, to a large degree, prioritized by Traidcrafts own mission statement[49].

The strength or, indeed, the closeness (Gray, 1992) of the relationships is alsopart of the defined organization. The closer relationships with employees,the producer communities and even the representatives/agents are negotiated


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so that these groups actually become part of Traidcraft. That is, theorganizational boundary membrane is especially thin at these points and ismanaged to accommodate all, or part of, these additional parties. This could beshown in a development of Figure 2 (see Figure 3 which is a basic attempt at amove towards this) in which, for example, the dominance of the relationshipcould be shown by the thickness of the line suggesting that relationship and anew fuzzy Traidcraft organizational boundary shown by the shaded area(some of this is shown in Figure 3).

Figure 2.A simple depiction of

Traidcraftsrelationships

Generaltransport

Widerenvironment

Othersuppliers

Employees

Producerenvironment

Producers

Producercommunities

Aid andother

agencies/NGOs

Governments

Other values(legality, needs,sustainability)

Customers

Reps

Shareholders

Localsuppliers

Localtransport

Localenvironment

Local

community

Localemployees

Christiancommunity and

values

Traidcraft plc


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The accountability of Traidcraft is an imposed accountability only in the case ofany government reporting, any especial demands from the voting shareholdersand the existing financial accountability of all UK companies. All otheraccountability is assumed because of the moral rights of the accountee partiesand/or because of the value-based nature of the organization and its desire to beaccountable (Zadek and Evans, 1993). This principle is then extended viaconsultation with the stakeholders to give them an explicit voice one elementof which tells the organization (and the auditors) whether their initialperception of the relative strengths and closeness of the organizational

Figure 3.Prioritizing the

stakeholderrelationships

Generaltransport

Widerenvironment

Othersuppliers

Employees

Producerenvironment

Producers

Producercommunities

Aid andother

agencies/NGOs

Governments

Other values(legality, needs,sustainability)

Customers

Reps

Shareholders

Localsuppliers

Localtransport

Localenvironment

Local

community

Localemployees

Traidcraft plc

Christiancommunity and

values


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relationships are adequately represented in the conception of the organizationalboundary.

The organizational boundary the accounting entity is thus defined bythe organizations, societys and the stakeholders negotiations of closeness.

Those stakeholders who come into the entity are then part of the entity andneed, consequently, to be included in the account. In this way, what the accountis of, and who the account is toare clarified[50]. Additionally, some initialprioritization of stakeholder relationships isexplicitlyundertaken.

Traidcraf ts relationships and the definit ion of the accounting enti tyThe 19 broadly prioritized relationships (shown in Figures 2 and 3) now have to

be defined in somewhat greater detail. To provide a full social account, each ofthe 19 social relationships need to be accounted for: for completeness, thestakeholder, accountability and PCP information needs to be collated,synthesized and reported. However, at the time the Traidcraft social accountswere being prepared these were still unclear. This issue is explicated in the

Traidcraft Exchange case below. (Appendix 2 contains an outline of some of theprocesses that were undertaken in the plc experience with one of its majorstakeholders.)

Discussion of defining the entityThe foregoing has tried to give an indication of the process that was used tobegin to define the accounting entity and to prioritize its stakeholders.

Hopefully, it is apparent that this was an iterative process driven by aconvergence between a conventional stakeholder conception, the accountabilityperspective and the softer PCP conceptions. The articulation of the entity isthen used to determine the relationships and the consequent information thatthe social account should attempt to convey. Undoubtedly, the process was agreat deal simpler than it would have been for a more explicitly profit-centredorganization. Traidcraft plc is explicitly values-centred, is by nature atransparent organization (with considerable interactions and shared valueswith many of its stakeholders) and has formally articulated these principles invery extensive mission statements.

Furthermore, ideally, the conception of the entity would be explicitlydiscussed with all stakeholders to ensure that it has semiotic validity. It seemsinevitable, however, that such organizational conceptions will be (oftenimplicitly) negotiated and the organization itself, as the dominant stakeholder,is likely to have a disproportionate influence on the final determination of theentity and, consequently, on the terms of reference offered to the stakeholders inwhich to express their voices. It is difficult to know at this stage how serious alimitation on social accounting this will prove to be.

The Traidcraft Exchange caseThis section reports a later experiment with the plcs sister organization theTraidcraft Exchange in which a systematic social account was sought


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employing the three layers of accountability information discussed above. Theresults of this have been published in the Exchange social accounts for 1995-1996.

Traidcraft Exchange (referred to as TX hereafter) is a small charitablecompany (limited by guarantee) involved in a range of activities concernedprimarily with encouraging fair trade. TX has an annual income of a little under1 million (derived through fundraising, grants and contracts) and a staff of 15-20 people, some of whom are shared with the plc. It is, thus, a very smallorganization. In 1995, TX decided to try to produce its own social account. Thiswould be novel in a number of ways:

(1) The organization is so small that while data therefore would be easier tocapture, it would not be practicable to try and systematize the processthrough a social bookkeeping system.

(2) The definition of the accounting entity would be even more problematicin that the edges of TX and the plc blur at times and, while this did notseem to be material for the plc, the relative size made it more importantfor TX; and voluntary organizations frequently have much less formalorganizational interactions and the membrane was therefore likely tobe thinner, fuzzier and more likely to float back and forth.

(3) The experience of the plc showed that despite the dominance of the PCPapproach, the final social accounts had to contain other data which didnot emerge from the voices. These, it seemed in discussions, increasedthe importance of completeness that is central to constructing thesocial account.

(4) It was judged to be a good time to try and discover whether it waspossible to derive a portable social accounting process. To this end itwas decided that the social accounting process should not rely on NEF,should be undertaken by a member of TX with no previous experience ofsocial accounting (although consultancy advice was available from theauthors) and, perhaps most dramatically, thestatutory financial auditorswould be requested to publish an audit opinion on the social accounts.

This final point the statutory financial auditors expressing an opinion became the touchstone for much else that followed. From discussions with the

auditors[51] it became clear that the whole process would have to bedocumented, social accounting principles derived and stated and the accountingstandards of information disclosure would have to be applied. A version of thestandard long-form audit report possibly with heavy qualifications wouldbe appended to the social accounts. Convincing the firm of accountants to takeon this responsibility was not simple and they required a great deal ofcomfort from TX. This, in turn, had a remarkably tightening-up effect onthe whole process and certainly introduced a higher degree of independenceinto the process.


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The auditors had to be convinced by the definition of the stakeholders. Thiswas achieved by following the same procedure described above for the plc. TXused its (very detailed) mission statement to categorize and prioritize itsstakeholders to the satisfaction of the auditors[52]. Then three levels ofinformation were collected about each relationship with each stakeholder. Thestakeholder information in the sense of an organization seeking to manage itsstakeholders was not strictly appropriate because of TXs highly transparentculture and the existence of the detailed mission statement which acts as aneffective contract between the organization and its constituents. Informationdescriptive of the relationships was, however, essential and this was referred toas the stakeholder data. The legal (identified by reference to statute law) and

moral rights (as expressed in the TX mission statement) were then identifiedand information designed to discharge the resultant accountability was collatedfor each. Finally, arrangements were made, where possible through (relativelyindependent) third parties to seek out and collect the voices of the stakeholders.

Throughout the process an audit trail was maintained whenever possible andspecific notes were kept of all decisions, value judgements and missinginformation that (inevitably) arose during the process.

The resultant social account then comprised: a section outlining the processused; the auditors report; and the social account itself, covering the six groupsof stakeholders which was finally agreed as covering most of the materialstakeholders[53]. Each stakeholder section provided the three layers ofinformation: the descriptions of the relationship, the accountability information

and the voices of the stakeholders. Although not all information was collectedfor all aspects of each of the stakeholder groups completeness, it seems, willalways be a problem the result was a relatively transparent and replicableaccount. It seriously engaged the auditors and it looks highly likely that themethod could be applied to any organization.

The TX social accounting process, then, has two distinctive elements:

(1) the relatively programmed approach to the collection and reporting ofinformation; and

(2) the true and fair report from the statutory financial auditors.

The relatively programmed approach has clearly forced the active participantsin the social accounting process towards a more specific explication of theprocesses and judgements made. That is, although the TX experience, drawingheavily from the plc experience, was an explicitly programmed process, it wasnot simply mechanical. Too many of the data and relationships were soft andrequired judgement by the social accountant. Such judgement was equallyrequired by the auditors. The auditors involvement forced a much more explicitprocess on the accounting process and threw into relief the absence of anyaccounting standards or GAAP for social accounting. Whilegenerally acceptedauditing principles were found to be helpful in the attestation process, it was anabsence of anything with which to define the account that caused problems.(This is a subject for the final section of the paper.) We could usefully express


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the view that, in our opinions, there never could be nor, indeed, should be acompletely unqualified audit report on a social account. As a process designedprimarily to enhance transparency and accountability, judgement will beessential and one should not expect an independent view to reach or evenagree with such social judgements. As long as this is clear, the qualification ofa true and fair report seems a desirable attribute[54], though it is less easy tobe prescriptive about the form that a PCP/evaluators audit report should take.

In the next section we attempt to synthesize the present experience in orderto move towards some social accounting standards.

Towards social accounting standards

It is clear that Traidcraft plc and Exchange are very unusual organizations intheir orientation, values-based transparent cultures and in their size. It wouldbe inappropriate therefore, to generalize their experience as applicable to allorganizations. However, subsequent experience with different organizations(many of which are less willing to allow themselves and their inner secrets to bediscussed with the same openness and freedom as Traidcraft has permitted)[55]suggests that the basic experience derived from the Traidcraft cases providesan especially useful basis on which to move towards identification of some keyelements in the social accounting process. That is what this (final) section willattempt to do but succinctly, leaving more detailed discussion of theoreticalcoherence of key social accounting principles to future papers.

There is not, nor is there ever likely to be, a single type of social account. The

range of approaches and experiments increases all the time. We consider thishealthy and desirable not least because many different organizations indifferent social contexts will have different conceptions of the elementsdiscussed here. (The range discussed in Zadek and Raynard (1995) and theemerging NGO community-based social accounts with their own specialconcerns speak eloquently of this.) Furthermore, as Tinker et al. (1991) haveshown, no account of organization-society interactions can be static throughtime issues, concerns and accountabilities change. This is inevitable.

However, an alternative approach which responds to the increasing requestsfor guidance on how to do a social account with a statement like any way youwant is not helpful and does not necessarily advance the cause ofaccountability reporting in any productive way. The recent formation of the

Institute for Social and Ethical Accountability (ISEA) was predicated on theneed to guide organizations seeking to develop social accounting and to try todeduce best practice in the field where this is possible. This is not a simple task nor one which can be accomplished quickly. This paper is an early attempt tobegin the process of articulating some of the key matters which bodies such asISEA will need to address.

What, then, do we believe are the key elements in an approach to an idealtype of social account that seem to have emerged from the experiencesdiscussed above?


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The following is an attempt to synthesize the messages that appear toemerge from the foregoing discussion and from the experiences of socialaccounting to date:

(1) Conceptual prerequisites for an account ing:

an accounting entity;

an accounting/account.

(2) Definit ions der ived for:

social accounting;

the recognition and boundaries of the accounting entity viastakeholder analysis;

the nature of the account and its completeness.

(3) Assumed:

a neo-pluralist context;

that a stakeholder relationship conception of an organization reflectsa neo-pluralist assumption;

desirability of democracy;

accountability as a democratic mechanism;

organizational self-reporting (as opposed to social audits);

information should possess the characteristics of completeness,reliability, verifiability, consistency, comparability, understandability;

the account socially re-constructs an organization which pre-existsthe account;

the reconstruction should be a reflexive and complex series of viewsfrom all stakeholders.

(4) Deduced:

groups and individuals have rights to information;

these are resolved informally in smaller non-complex situations;

formal accounts are needed for accountability in complex situations;

organizations need to produce accountability accounts; rights to information determined by the organization, society, the

stakeholders;

the three layers of information plus the descriptors of therelationships must be a complete account of information providedto assess the extent of the incompleteness;

independent judgement preferably without experience in socialaccounting is essential to assess completeness and reliability.


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(5) Asserted

social accounting is a dynamic and developing process: nothing hereshould limit further development and experimentation;

the social accounting is a continuous process of iteration andnegotiation.

In time, each of these elements will either prove to be sound and be expandedon or will be rejected and replaced. At the present time, they appear to be keyuseful factors that social accounting needs to consider.

The conceptual framework above accommodates a fairly high degree of

synthesis between the TX accounting-style approach, which incorporates thestakeholder dialogue voices; and the NEF-Traidcraft approach, in which thevoices are paramount and the stakeholder and accountability information areincorporated: nevertheless there still remains a tension about the emphasisgiven to these two sides of the story.

This tension is perhaps best expressed in the role attributed to the auditor oreven the social auditor. Two alternative approaches have been mentionedabove. The first was the use of a completely independent auditor (in the case of

TX, the statutory financial auditor) who has no involvement with theconstruction of the account and simply expresses a (perhaps detailed) opinionon the accounts truth and fairness. The second approach to auditing wasthe far more active involvement of an organization like NEF which helps to

construct the social account, oversees the collection of data and responses fromstakeholders and relies, in its turn, on an audit advisory body to suggest somedegree of impartiality in the assessment of the account. We remain split on thisissue, but hope indeed anticipate some further synthesis of thinking on thismatter as experience develops. Our current thinking suggests that we may,indeed, have two probably similar and complementary constructs. The firstsuch construct that with which this paper is primarily concerned is a formalsocial account whose primary purpose is to construct a social image of theorganization. The second construct is the social audit (which may or may notproduce a social account) whose principal purpose is to encourage a negotiationfor change between the organization and its stakeholders. The precise dividingline, if indeed there is one, needs further definition.

A final matter which still needs detailed specification is the way in which thestakeholders voices are heard and collated. These voices are not making asingle statement. They are making statements about:

things about which the accounting organization wishes to know;

information which each stakeholder would like to receive; and

their views (e.g. complaints) on the organization and its activities plusthe activities and issues the stakeholders would like the organization toaddress.


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The first of these seems to relate to the stakeholder perspective and be usefulfor organizational management. The second seems to relate to accountabilityand the stakeholders determining the terms of accountability that they wouldwish. In both of these cases, it seems likely that the data could be collected by,inter alia, questionnaires. Confidentiality does not appear to be so importanthere. The third type of information does, however, require to be collected andcollated and reported? by an entirely independent unit which thestakeholder can trust (Otherwise are, for example, employees going to saythings which might incur the wrath of management?) This is an emerging issueon which more work is required.

The social accounting agenda has opened out as never before. Certainly, for

the first time in more than 20 years there is an active and dynamic process withwhich researchers and teachers need to engage. Academic engagement with theenvironmental accounting and reporting process has been fairly successful.Drawing from that, academe now needs to help bodies like ISEA set a newfoundation for the formal accountability of organizations. It is an important,exciting and very urgent challenge.

Notes

1. The issue of sustainability makes this a contestable suggestion. That is, if social (andenvironmental) accounting are reconceived within the concept of sustainability, then broad(deep-green) conceptions of the environment will provide an over-arching framework forthe conceptions of social accounting (to deal with justice issues) and environmentalaccounting (to deal with resource and physical environmental issues). The project

suggested by such a reconception is still in a very early stage of development. It is perhapsalso worth emphasizing that if sustainability is to become the central policy principleguiding future economic development and accounting can play any role in this socialaccounting may well be able to act for eco-justice as environmental accounting is acting foreco-efficiency. See, for example, Owen (forthcoming).

2. Convincing histories which explain the rise of environmental accounting and, morerecently, of social accounting, have yet to be written.

3. British Telecom, one of Britains largest companies, has publicly stated its commitment toproduce and publish a social account. Other large companies are actively exploring thesepossibilities themselves but in a less public manner.

4. Contact any of the authors for more information about the Institute. Address forcorrespondence: Professor R.H. Gray, The Centre for Social and EnvironmentalAccounting Research, Department of Accountancy and Business Finance, University ofDundee, Dundee, Scotland, DD1 4HN.

5. There is a frequently voiced concern that academic accounting fails to engage sufficientlywith the practice of accounting. This concern, which we accept as being broadly legitimate,is not, however, the product of a single voice. Practitioners express concerns that theyneither understand nor can see the applicability of much accounting research (see e.g.Grinyer, 1996; Tomkins, Grinyer, McAuley, Osborne and Walker, 1996). Accountingpolicymakers themselves often academics bemoan the lack of useful guidance offeredby the research community, (see e.g. Baxter, 1988; Beresford and Johnson, 1995; Lee, 1989;Sterling, 1973; Whittington, 1995). Radical researchers accuse academics of failing tochallenge practice and to exercise their political and ethical duty to seek to change practice,(see e.g. Sikka, 1987; Sikka, Willmott and Puxty, 1995). Indeed, many radical researchers,in their criticisms of practice, could be thought to be suggesting that much practice is


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fundamentally flawed and, consequently, that seeking to engage with an agenda alreadycontrolled by practice and corporate capitalism is largely a waste of time. This lastcriticism, while well-founded, offers little scope for praxis.

6. The relationship between research and practice is clearly not an ideal one. The relationshipis, however, a complex one, (see e.g. Gray, 1996; Hopwood, 1983), in which different sectionsof the practice and academic communities hold significantly different objectives for thepractice of accounting and make significantly different judgements about theresponsibility of practitioner and academic to seek change. But part of this complexityarises from matters of practicability and pragmatism. As a backdrop to this paper, imaginethat all accounting practices were abolished overnight and the academic community wasasked to start with a clean sheet and redesign a full accounting practice from scratch.

There is virtually nothing in the literature which addresses systematically how one mightconstruct a utopian accounting. The suspicion must be that: accounting academicsthemselves would find such a challenge unrealistic; such analysis might fail to satisfythe current output measurement system and hierarchical pecking order which governacademe these days; and any such attempt would be heavily influenced by current practiceanyway. So, in a very general sense, we can see academe as an implicitly negotiatedbalance between current practice, pragmatic opportunities and more desirable butpracticable areas of change.

7. This is the sense in whichpraxisis used here.

8. As we will discuss below, the democracy referred to here is participatory democracy in aneo-pluralist conception (see e.g. Gray, 1989; Held, 1987; Macpherson, 1973, 1977). Weshould stress that we are aware of the potential cultural specificity of this basis and,therefore, our discussion relates principally to European and Anglo-American countries,plus those nations strongly influenced by those cultures. We will stress below that we seeaccounting and social accounting as culturally specific and contextually determined.

9. All the authors have been involved, to varying degrees, in the production of the UK socialaccounts, in the RSA enquiry and in the development of the ISEA.

10. There are other important developments in social accounting which are not addressedhere. The most significant relates, in the UK at least (but see also Zadek and Raynard,1995), to producing social accounts for community enterprises or third sector. Here, theexigencies and motivations are somewhat different from the commercial sector.Nevertheless, the social accounting models are developing with a useful degree of overlapwith the commercial sector. See for example Pearce (1993) and Pearces new book (1996) onsocial accounting practice and social bookkeeping systems which is published by the NewEconomics Foundation. The exclusion of these works from our discussion is simplyexpedient and cautious. We see very strong sympathies and synergies between these twoareas of social accounting development and ultimately would like to see social accountingas universal for all organizations.

11. We are explicitly conscious of the ambitiousness of this. Two thousand years ofconventional accounting have failed to produce a (universally accepted) conceptualframework. It is somewhat unlikely that a single paper (or even series of papers) willsucceed in this endeavour for the more complex case of social accounting. However, it isappropriate to note that social accounting, unlike conventional accounting, does not yethave a wide legislative basis from which to build, and that the derivation of a socialaccounting from the foundations of conventional accounting thinking may be misguided.

These issues have not been explored in this paper.

12. For further detail see, for example, Gray (1989); Gray et al. (1996a), Held (1987);Macpherson (1973; 1977); .

13 These views and assumptions are informed, in the very broadest terms by the works of,inter alia, Dewey, Habermas, Rawls and Rorty. In the accounting literature, we would refer


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the reader to the works of Arrington (1990), Laughlin and Broadbent (1996) and Lehman(1995). For a different conception of related issues, see e.g. Gallhofer and Haslam (1993).

14. See Zadek and Raynard (1995) who present a range of recent examples of social accountingwhich, while broadly similar in orientation, employ quite different terminology.

15. For example, personal experience suggests that the radical socialist overtones of socialaccounting in the 1970s (see e.g. Gray et al., 1996a), the radical activism of the socialaudits of the 1980s (see for example, Geddes, 1991; Harte and Owen, 1987) and thewidespread British distaste for matters social (e.g. regarding the Social Chapter) have ledto a significant distrust of anything with social in the title among major pockets ofBritish political and industrial power. Similarly, the language of accounting does notalways appeal to social accounting practitioners. Experience suggests that the analoguewith, especially, independent audit (see below) has negative connotations for manybusiness people because of their less than overwhelming enthusiasm for the accountingprofession and their negative experiences with the (far from) independent audit process.

16. Implicit in this reasoning is a recognition than while a considerable amount of conventionalaccounting is problematic, many of its central functions and tenets are well-established,highly theorized and practicable. (If, that is, one has accepted the need for any form offormal accounting at all.) We are seeking here to employ the best from conventionalaccounting and throw away the rest which would comprise, almost certainly, much of thedetail of conventional financial accounting.

17. Organizational is used here as a generic term. While we wish to restrict our engagementhere, predominantly to, large organizations, we do not necessarily wish to exclude, forexample, families and individuals. The term organization in a systems context can betaken to embrace all units. (For more detail, see Gray et al., 1996a.)

18. This point, as we saw earlier, is taken as axiomatic in the present conception ofaccountability.

19. This paper will not be examining the pros and cons of social accounting. This has beenextensively covered elsewhere. See Grayet al. (1996b) for a summary.

20. The use of the term pragmatism in this paper is the normal usage of the term and isrelated in only the most tenuous way to the work of, for example, Dewey and hiscolleagues.

21. And, indeed, to the development of independent reporting under the European EMASenvironmental reporting scheme.

22. Not because we consider business views on desirability as the dominant criterion, butrather to highlight where the conflict from social accounting is more likely to arise.

23. It should be apparent that the issue ofwhyan organization is undertaking socialaccounting is not discussed here. In addition to the problems that inferring motivationbrings, we are working generally in a normative vein in which it is assumed that themotiveshouldbe the discharge of accountability. It is the nature of that accountability thatis the issue.

24. We should emphasize that additional theories can be found and, in particular, thosetheories informed by Marxian thinking would largely challenge our approach here. We donot wish to dispute the Marxian approach, but in attempting to develop a systematicmechanism for social accounting by the entity itself, a conception which challenged theentitys very right of existence is unlikely to seem fruitful to the organization concerned.We are, therefore, choosing to work in a neo-pluralist conception of the organization-society interface (see e.g. Held, 1987; Gray et al., 1991; 1996a) with all the attendantproblems that attracts from a critical perspective (see e.g. Tinker et al., 1991 but see alsoLehman, 1995). For the sake of completeness we should mention that the broad accountingliterature does contain very many other theoretical perspectives in which an organization-society relationship is often implied. The economic-based theories (see e.g. Gray, Kouhy


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and Lavers, 1995b) such as agency theory, decision-usefulness and information economicstheory, assume a narrower conception of the relationship, the motives of the parties and thesociety involved. They respond more to economic power than to rights and wider notionsof justice and accountability (see e.g. Lehman, 1995). Other theories, for example,legitimacy theory and political economy theory, seem to be more appropriate for theanalysis of existing practices than as normative bases from which to deduce properaccountability relationships (see, again, Gray et al., 1995b).

25. As far as we are aware, this approach has yet to enter management thinking at least inthe form in which it is employed here in any systematic way. Hence the (somewhatclumsy) coined phrase.

26. This focus on groups will be continued throughout the paper and helps explain ourattachment to neo-pluralist thinking.

27. We would like to acknowledge the work of David Woodward in this field. His papers andthe conversations we have held have been most helpful in guiding us towards a clearer ideaof the elements of active stakeholder thinking. See also Nasi (1995).

28. This point is also made by Tricker (1983) in his arguments that realaccountability ispositiveaccountability that is, if an accountee cannot enforce an accountability disclosurethen there is no real accountability relationship.

29. Indeed, an important part of the social accounting approach taken by Traidcraft and theNew Economics Foundation of which, more below is the establishment of theorganizations core values, how the organization performs against those core values andthe views of the stakeholders on those values and the performance.

30. Good information is typically assumed to have a number of qualitative characteristicssuch as reliability, completeness and so on, (see e.g. ASSC, 1975). To satisfy thesecharacteristics (to which we return to in the closing section of the paper) it seemspractically necessary to also provide data which can be thought of as describing the termsof the relationship between the organization and its stakeholders. This descriptive data on,for example, numbers and types of employees, sources and types of suppliers, nature of theorganizations interactions with the natural environment and so on, seems to be anecessary element of the information disclosure to provide context for the accountabilityinformation so reported.

31. See Laughlin and Broadbent (1996) for an especially clear critique of Guba and Lincoln inwhich that work is contrasted with the insights of Habermas (1978) and a Habermasiandevelopment and synthesis is attempted.

32. While this alternative conception may come in various forms (see, e.g. Zadek and Raynard,1995) and has a significant overlap with aspects of the (characterization of) the stakeholderand accountability perspectives offered above (as we shall see), its differences areimportant.

33. The problem of how to give silent stakeholders typically the unborn/futuregenerations, the environment and, if one is to avoid anthropocentrism, non-human life avoice is still unresolved.

34. We are grateful to Ken McPhail for his help on this issue. Ken argues that the value of thepost-modern project lies, not in the existence of a post-modern epistemology so much asin the tension and critique of modernism offered by that project. Therefore we might seethat, to varying degrees, the projects of Habermas, Foucauld and Guba and Lincoln workat the point of this tension.

35. What we see, therefore, is a more fluid construction of an accounting entity whichexplicitly recognizes parties other than the managers of the organization in theconstruction of the organization. In this, it is somewhat akin to Llewellyns (1994)construction of the post-modern accounting entity. Second, in the privileging of thestakeholders voices, we have a reversal of the traditional stakeholder theory which, as we


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have seen, privileges the organizations voice. Finally, we see that the process ishermeneutic, dynamic and iterative.

36. Guba and Lincolns requirement that evaluation leads to action is also cent

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