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Dr Magnus Macfarlane Research Fellow Corporate Citizenship Unit With acknowledgement to: Dr Malcolm McIntosh Director Corporate Citizenship Unit

Corporate Citizenship Unit Warwick Business School

University of Warwick Coventry, CV4 7AL, UK

Tel: +44 (0) 24 76 573130 Fax: +44 (0) 24 76 573177

Email:ccumm@wbs.warwick.ac.uk http://users.wbs.warwick.ac.uk/ccu

Corporate Citizenship Unit

PPIILLOOTT SSOOCCIIAALL AAUUDDIITT VVEERRIIFFIICCAATTIIOONN AANNDD EEVVAALLUUAATTIIOONN SSTTRRUUCCTTUURREE

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1. OVERVIEW OF THE CORPORATE CITIZENSHIP UNIT AND MERN.............. 3

2. OBJECTIVES OF THE VERIFICATION AND EVALUATION EXERCISE......... 4

3. METHOD FOLLOWED IN THE VERIFICATION AND EVALUATION EXERCISE ............................................................................................................................... 5

4. VERIFICATION AND EVALUATION OF THE COMPETENCE OF THE AUDITORS............................................................................................................................... 7

5. VERIFICATION AND EVALUATION OF SOCIAL AUDIT FRAMEWORK ....... 9

A) IDENTIFYING STAKEHOLDERS ...................................................................................... 9 B) DEFINING OR REVIEWING VALUES ............................................................................. 10 C) IDENTIFYING ISSUES AND INDICATORS....................................................................... 11 D) DETERMINING PROCESS SCOPE .................................................................................. 15 E) SELECTING INDICATORS ............................................................................................. 16

6. VERIFICATION AND EVALUATION OF SOCIAL PERFORMANCE REVIEW 19

A) COLLECTING INFORMATION....................................................................................... 19 B) ANALYSING INFORMATION......................................................................................... 24 C) REPORTING INFORMATION ......................................................................................... 25

7. LIMITATIONS AND ACKNOWLEDGEMENTS ..................................................... 28

APPENDIX A. ACCOUNTABILITY 1000 ......................................................................... 29

1. Overview of the Corporate Citizenship Unit and MERN

The Corporate Citizenship Unit’s (CCU) aim is to provide first class research, education, training and consultancy in the multidisciplinary field of corporate citizenship. Its directors are Dr Malcolm McIntosh and Professor Alyson Warhurst. CCU is a globally recognised centre of excellence in this area, bringing together business, government and civil society to examine the relationship between corporations, states and communities. The role, scope and purpose of business is changing rapidly as the global economy develops and management priorities and business responsibilities are under scrutiny as never before. The study of corporate citizenship is multidisciplinary and covers a wide range of a issues including community investment, human rights, corporate governance, environmental policy and practice, social and environmental reporting, social auditing, stakeholder consultation, sustainability indicators and responsible supply chain management. The incorporation of the Mining & Energy Research Network (MERN), led by Professor Alyson Warhurst, has broadened the range of CCU’s work to include projects focusing on the environmental, social and economic impacts of developments within the mining, minerals, metals and energy sectors, and their implications for public policy, community well-being and corporate strategy. Through its activities, CCU offers insight, understanding and learning about the complexities of managing corporate responsibility. § Research on the impact of business globally and locally; corporate citizenship; social

accountability; stakeholder consultation; globalisation and poverty. § Corporate Strategy and Citizenship modules taught on the Warwick MBA, MPA and

Executive Programmes; tailor-made courses and tutorials and; Social Accountability Auditing courses for professionals.

§ Quarterly Journal of Corporate Citizenship edited by Dr Malcolm McIntosh. Visions of Ethical Business containing ‘think pieces’ on corporate citizenship.

§ Annual Conference and seminar series attended by delegates from industry, government, academia and NGO groups.

§ Consortium member of Resource Centre on the Social Dimensions of Business Practice, managed by the Prince of Wales Business Leaders Forum, funded by DfID.

§ Advisory and consultancy services to government, corporations and NGOs on issues of corporate citizenship and sustainable development.

The Mining & Energy Research Network (MERN) is an international collaborative research network, involving 140 centres of excellence worldwide. Through research, training and consultancy, MERN generates analysis across the social, economic and environmental dimensions of sustainable development. For us, sustainable development is an inter-generational development process that emphasises sustained improvements in the health, well being and quality of life of people, and in ecosystem health. A major focus of our new

research is therefore on Sustainability Indicators and Tri-sector Partnerships. Activities include: § Research projects examining the emerging drivers of corporate social responsibility, the

evolution of the concept of corporate citizenship, and the equity and business practice issues and impacts pertaining to its realisation.

§ Annual Research Bulletin and a series of working papers. § International Research Workshops held in major mineral producing countries. § Individually tailored modular Training and Guided Study programmes, executive

mentoring, facilitation and consultation. The Corporate Citizenship Unit is supported by a Consortium of Business Partners: BP Amoco, AmEx, Johnson & Johnson, BT, Aggregate Industries plc and Rio Tinto plc who have made long term commitments to provide core funding for the Unit. The Mining and Energy Research Network receives sponsorship from a Club of Industry Sponsors: Rio Tinto plc, Anglo American plc, Aggregate Industries plc, North Ltd, Billiton, ICME, Rio Algom Ltd, WMC, Placer Dome Inc, BHP, Premier Oil plc; and an Institutional Club: Department for International Development, International Development Research Centre (Canada), British Geological Survey, John D. and Catherine T. MacArthur Foundation, OECD, USDA Forest Service (US Dept of Interior), UNEP, World Bank, NRC, DTI, EU, TERI (India), INER University of Antioquia, (Colombia). The full range of CCU/MERN activities, events and publications can be found on our website: http://users.wbs.warwick.ac.uk/ccu.

2. Objectives of the Verification and Evaluation Exercise

Premier Oil plc (PO) has commissioned EQ Management (EQ) to develop and implement a social audit framework (SAF) and social performance review (SPR) for the company. The SPF can be considered a pilot social audit supported by social sustainability indicators generated through the development and implementation of the SAF. While focused on all their business units, unlike a social audit, the focus of the SPF is limited to specific PO stakeholders – their employees, shareholders and community members. Overall, the present study represents a selective verification and full evaluation of the SAF and the SPR, in addition to a selective verification and full evaluation of the competence of the EQ auditors. The study has three macro-objectives that are listed below. Under each of these objectives there are a series of related micro-objectives that are presented in the main body of the report. (1) To verify selectively the stated competence of the auditors and evaluate the appropriateness of their stated competence in relation to the proposed tasks of designing the SAF and conducting the SPF. (2) To verify selectively the stated process used to design the SAF (specifically, the verification of the country consultation process will be restricted to Myanmar and UK) and evaluate the quality of this process against relevant AA 1000 process standards for social

auditing. These process standards include identifying stakeholders, reviewing values, identifying issues and indicators, determining process scope, and selecting indicators. (3) To verify selectively the stated process recommended and / or used to conduct the SPF (specifically, the verification country consultation processes will be restricted to Myanmar and the UK) and evaluate the quality of this process against relevant AA1000 process standards for social auditing that include collecting, analysing and reporting information.

3. Method followed in the Verification and Evaluation Exercise

Recent years have witnessed a proliferation of social auditing standards covering processes and issues such as stakeholder dialogue and social and ethical reporting, organisational culture, ethical trading, working conditions, community development and human rights. Some notable examples are the: CERES Principles, EMAS, Ethical Trading Initiative, Forest Stewardship Council, Global Reporting Initiative, Global Sullivan Principles, World Bank’s Operational Directive 4.01, Investors in People, ICC Business Charter for Sustainable Development, ISO 140001, and Social Accountability 8000. Although these standards address important component issues in a social audit and component processes in designing a social audit, only Accountability 1000 (AA 1000) has emerged to postulate guidelines that support the design and evaluation of the entirety of the social auditing process. Accountability 1000 (AA 1000) is a standard designed to secure the quality of social and ethical accounting and reporting. It is composed of a set of process standards and principles that can be used in designing and managing an organisation’s social and ethical accounting, auditing and reporting process, but may also be used in identifying and evaluating the quality of its process. These process standards and principles have been respectively used to systematically structure the analysis and to evaluate social audit process used by EQ for PO. AA 1000 was chosen because its associated standards and principles are transparent, widely recognised, and support the design and evaluation of the entire social auditing process. However, it is recognised that aforementioned standards like SA 8000 and the Global Reporting Initiative are embedded in and reinforce specific elements of AA 1000. Thus, where these standards confer, they supplement the detail of the AA 1000 process standards and principles to provide a fully comprehensive generic benchmark against which PO’s SAF and SPF could be evaluated. The AA 1000 process standards provide differentiated areas that structure the analyses and facilitate the evaluation of the process used to generate the SAF and conduct of the SPF. The AA 1000 process standards that have been used to structure the analysis of EQ’s process to generate the SAF include identifying stakeholders, defining and reviewing values, identifying issues and indicators, determining process scope, and selecting indicators. The AA 1000 process standards that have been used to structure the analyses of EQ’s SPF include collecting information, analysing information and reporting information. The areas used to structure the analysis of the competence of the principle auditors were derived from CCU and include project related qualifications and project related experience. Across these areas, Verification of the principal auditors involved selectively confirming the stated competence of the principle auditors while Verification of the social audit process and SPF involved selectively confirming that the stated process used by EQ was undertaken. The

sources of information used for verifying the competence of the auditors, the SAF, and the SPF, are attributed and referenced in the main body of the report and, unless specified otherwise, the material sources are the authorship of Premier Oil plc or EQ Management. All the sources of information, material or verbal, have been reviewed or obtained through specific methods and techniques that fall into one of the following generic methodological categories characterised by AA 1000:

(i) Inspection consists of examining records, documents etc. This provides audit evidence of varying degrees of reliability depending on their nature and source and the effectiveness of internal controls over their processing. There are three major categories of documentary audit evidence, listed in ascending order of reliability. Those (1) Created and held by the organisation (2) Created by third parties and held by the organisation (3) Created and provided to the auditors by third parties. (ii) Observation consists of looking at a process or procedure being performed by others, for example the observation by auditors of the running of a focus group discussion by the organisation’s staff. (iii) Enquiry consists of seeking information of knowledgeable persons inside or outside the organisation. Enquiries may range from formal written enquiries addressed to third parties to informal oral enquiries addressed to persons inside the organisation. Response to enquiries may provide the auditors with information not previously possessed or with corroborative audit evidence. Enquiries may focus on understanding stakeholder perceptions of the organisation’s social and ethical performance, and / or the accounting, auditing and reporting process. (iv) Confirmation consists of making enquiries to corroborate information contained in the organisation’s accounting records. Auditors may, for example, seek direct confirmation from individual stakeholders about some of their comments. Evaluation of the principal auditors involved assessing their competence in relation to the proposed tasks of designing the SAF and conducting the SPF. The verifier and colleagues at CCU subjectively evaluated this. Evaluation of the process used to generate the audit framework and conduct the SPF involved assessing the quality of the component processes e.g. the degree to which the processes for generating the audit framework and conducting the SPF were satisfactory. The quality attributed to the processes used to generate the SAF and to conduct the SPF is based on a number of key criteria or principles derived from AA1000. The relevance and weighting of these varies in relation to the process being evaluated: (i) Inclusivity is the overriding criterion and concerns the reflection at all stages of the social and ethical accounting, auditing and reporting process over time of the aspirations and needs of all stakeholder groups – those groups who affect or are affected by the organisation and its activities. Stakeholder views are obtained through an engagement process that allows them to be expressed without fear or restriction. (ii) Completeness concerns the unbiased inclusion in the accounting processes over time of all appropriate areas of activity relating to the organisation’s social and ethical performance. In addition, there is clear externally audited disclosure of what is included and what is excluded and the reason for any such exclusion. The organisation should ensure that adverse impacts of its activities are not downplayed, and that uncertain impacts are not prematurely documented and reported as certain. (iii) Quality Assurance concerns the audit of an organisation’s process by an independent and competent third party. The audit is concerned with building credibility in the process with all stakeholder groups, and hence developing meaningful stakeholder engagement. The audit

process(es) may include a variety of methods, but must always consider the accuracy / validity of the organisation’s reporting and its supporting information systems, the organisation’s compliance with legislation and other standards, and the inclusivity and completeness of the process. (iv) Accessibility concerns the effective communication of its social and ethical accounting, auditing and reporting process and performance to the organisation’s stakeholders through social and ethical reports, including written and verbal communications, and externally prepared audit reports. Accessibility implies that each stakeholder group can easily and cheaply access the material communicated. (v) Comparability concerns the ability to compare information on the organisation’s performance with previous periods, performance targets, or external benchmarks drawn from other organisations, statutory regulation and non-statutory norms. External benchmarks are selected for their accuracy, relevance and legitimacy to the organisation and different stakeholder groups. If the indicators chosen (to measure performance) are unique to the organisation, comparability of performance with other organisations may not be possible or necessary. (vi) Reliability concerns the characteristics that allow the organis ation and its stakeholders to depend on the information provided by the social and ethical accounting and reporting to be free from significant error or bias. To ensure reliability, information should be presented neutrally and in accordance with the reality of the information and not just its legal form. (vii) Relevance concerns the usefulness of information to the organisation and its stakeholders as a means of building knowledge and forming opinions, and as assistance to decision making. Engagement with stakeholders is an essential part of identifying the relevance of information. (viii) Understandability concerns the comprehensibility of information to the organisation and its stakeholders, including issues of language, style and format. Technical and scientific terms should be explained within organisation’s reporting.

4. Verification and Evaluation of the Competence of the Auditors

Objective Verification

To check the qualifications and skills of the auditors

Inspection: Samantha Towle’s Curriculum Vitae (15/2/2001), Deborah Smith’s Curriculum Vitae (15/2/2001). EQ Management’s Proposal to Premier Oil (22/12/1999). Confirmation: Communication with Chris Morley, Student Records, Birmingham University. Postgraduate Student Registry, Lancaster University Beena Madhavan, New Economics Foundation (AccountAbility)

Appropriateness Samantha Towle is an EARA registered Environmental Auditor and an ISEA trained Social Auditor. In addition, she has a Masters degree in European Environmental Policy and Regulation from Lancaster University that included courses on environmental auditing and environmental regulation. Deborah Smith has successfully completed an ISEA professional course and SA 8000- lead assessor course in Social Auditing. She also has a Bachelors degree in International Studies and Economics and a Postgraduate diploma in Marketing. The verifier believes that the auditing qualifications of both of the principal audit consultants

provide a solid theoretical understanding of the specific issues around, and approaches to, social auditing. Their auditing qualifications are supported and complimented by graduate and postgraduate higher educational training that should provide a solid theoretical understanding of the field of environmental and social management in addition to grounding in social research methods. Together, these qualifications should provide an appropriate and concrete theoretical predisposition to the task of developing a social audit process and conducting a social performance review for PO.

Objective Verification To check the experience of the auditors

Inspection: Samantha Towle’s Curriculum Vitae (15/2/2001), Deborah Smith’s Curriculum Vitae (15/2/2001). EQ Management’s Proposal to Premier Oil (22/12/1999). Confirmation: Communication with Ed Mayo, New Economics Foundation (AccountAbilility). Communication with Nicky Amos, Body Shop. Communication with David O’Reilly, BAT.

Appropriateness With EQ Management, Samantha Towle has been consultant to Café Direct Ltd, Futon Company, New Look plc, Department of Social Security, The Body Shop (Australia), Ricardo Consulting Engineers Ltd and the New Economics Foundation. Collectively, at these organisations, she has conducted social and environmental audits and a variety of social auditing related tasks including social and environmental management reviews, stakeholder mapping, environmental policy development, social audit scoping studies, social impact assessments, environmental training, social accounting and reporting. Her previous appointments include Head of Environmental Auditing at the Body Shop and Environmental Consultant at Environmental Resources Management. With EQ Management, Deborah Smith has been consultant to DfID, Waitrose, University of Central England, and the New Economics Foundation as well as a variety of other public sector organisations in training, education and business support fields. Collectively, at these organisations, she has conducted social and environmental audits and a variety of social auditing related tasks including reviewing, promoting, and providing training in corporate social responsibility policies, advising on cross sector partnership building strategies, risk assessment and risk management, corporate fundraising, promoting employee awareness and stakeholder consultation. Her previous appointments include Fair Trade Development Manager at the Body Shop International, Sales and Account Manager at the National Exhibition Centre and Business Development Manager for Lopex Communications. An evaluation of the appropriateness of their career experience should be based on a dual assessment of the relevance of that experience in addition to its quality and quantity. With respect to the former, it is clearly evident that both assessors have undertaken roles in the past that relate and contribute extensively to their present ability to develop social auditing for PO. Not only have both the EQ auditors undertaken social audits for high profile companies but they have also undertaken various tasks for clients, like stakeholder consultation and social and environmental policy reviews, which are critical compositional elements of the social audit process. The temporal scope of their appointments and project experience is considered satisfactorily extensive. While it is not possible to review the quality of the entirety of their combined appointments and projects, selective verification, through enquiry and confirmation, has yielded consistently positive responses from employers and contractors. Based on aspects of relevance, quality and scope, both Samantha Towel and Deborah Smith suggest a high level of experiential appropriateness to the task of developing a social audit and conducting a SPF for PO.

5. Verification and Evaluation of Social Audit Framework

a) Identifying Stakeholders

The organisation identifies its stakeholders and characterises its relationship with each group of them. This is a key part of ensuring the inclusivity of the process of social and ethical accounting, auditing and reporting.

Objective Verification To check whether a complete list of key stakeholder groups has been prepared

Inspection: Social Audit Scoping Study By EQ Management (20/1/2000). Interim Report on the Social Audit Programme (July 2000). Hand written notes of interviews with managers (held by ST and DS of EQ). Enquiry and confirmation: John Jackson, Burma Campaign UK; Sally Thompson, Burmese Border Consortium; Tyler Giannini, Earthrights International.

Quality of Process EQ conducted a scoping study in the latter part of 1999 in order, among other things, to identify PO’s stakeholder groups and draw up a stakeholder map. The approach involved interviewing key members of the senior management team, selected according to their role in managing relations with core stakeholder groups. They should be credited for respectively corroborating and extending their initial theoretical and documentary-based identification of key stakeholder groups and sub-groups through consultation with senior managers across the company. The list of stakeholder groups prepared by EQ includes employees, NGOs, community programme partners, local community members in areas of PO’s operations, shareholders, the environment, contractors and suppliers, business partners, and government. Although it is hoped that future social audit cycles will consider the addition of customers and competitors to the list, it satisfactorily captures what are considered to be the key stakeholders in PO’s operations.

Objective Verification To check that key dimensions of the relationship to each stakeholder group has been described.

Inspection: Social Audit Scoping Study By EQ Management (20/1/2000). Interview checklist for key Head Office Managers (24/1/2000). A list of the full range of questions that may be asked during scoping interviews with management. Hand written notes of interviews with managers (held by ST and DS of EQ).

Quality of Process Accountability 1000 suggests that the dimensions of the relationship with stakeholder groups will include, but are not limited to the length of the relationship, the nature of the relationship, the history of relationship, and the perceptions of the relationship and expectations from it. EQ has not been as systematic in their description of the relationship to their key stakeholders. For example, the length of the relationship with certain stakeholders is not always documented. Nevertheless, in the verifiers opinion they satisfactorily describe what can be considered to be the critical dimensions of their relationship to each key stakeholder group. Coverage is consistently given to the nature or history of the relationship with each stakeholder group, the identification of stakeholder sub-groups in every area of PO’s operations and the perceptions and expectations of those stakeholder groups with respect to PO’s social responsibilities generally and the social audit process specifically.

b) Defining or Reviewing Values

The organisation defines or reviews its current mission and values. The organisation’s current mission and values provide a framework for the process. They are a basis for understanding the aims and activities of the organisation, and provide a base against which the organisation’s performance is assessed.

Objective Verification To check that the organisation has defined or reviewed its current mission and values.

Inspection: Social Audit Scoping Study by EQ Management (20/1/2000). Summary of Premier Oil Values (13/2/2000). Letter to employees enclosing ‘Making a Difference’ document (22/12/2000). Corporate Responsibility and Community Relations (15/3/2000). Notes of project management meetings between Premier and EQ held (2/12/1999, 4/1/2000). The Future is Responsible Business (1999). Premier Oil website. Enquiry: Personal communication with Deborah Smith, EQ Management and Dr Richard Jones, Premier Oil.

Quality of Process In the latter part of 1999 EQ conducted a scoping study in order, among other things, to undertake a formal review of PO’s current missions and values. This builds upon substantive informal internal reviews and statements of values undertaken and written internally by PO’s Manager of Corporate Responsibilities & Communications, Dr Richard Jones. The approach taken by EQ involved interviewing key members of the senior management team, selected according to their role in managing relations with a range of key stakeholder groups, and reviewing company documentation, including existing social and ethical policies and management systems. The results of the consultation to identify stakeholder issues further contributed to the review of mission and values.

Objective Verification To check that the review of values has been formalized in a statement available to all stakeholders.

Inspection: Notes of project management meetings between PO and EQ Management held (2/12/1999, 4/1/2000). Social Audit Scoping Study by EQ Management (20/1/2000). Summary of Premier Oil Values (13/2/2000). Letter to employees enclosing ‘Making a Difference’ document (22/12/2000). Corporate Responsibility and Community Relations (15/3/2000). Premier Oil’s website. The Future is Responsible Business (1999). Enquiry: Personal communication with Deborah Smith and Richard Jones.

Quality of Process PO has produced a number of policy documents including the ‘Rules of Engagement’, ‘Global Business Principles’, ‘Corporate Responsibility and Community Relations’ and the ‘Human Rights Policy’ as well as detailed Human Resource and Health, Safety and Environment policies and procedures. As a small oil company, PO, and in particular, Dr Richard Jones, should be commended for developing a comparatively enlightened array of policy documents that display a rigorous understanding of the current issues of corporate social responsibility and a commitment to meeting the challenges that they set. Nevertheless, the verifier would confer with EQ’s comment that ‘their style, timing of release and target audiences have been somewhat fragmented to date and need to be more cohesive in presentation, style and format, use consistent terminology, and a clear and consistent set of core principles’ (2000:24). Until recently, the various values, policies and principles set out in these documents had not been formally reviewed or amalgamated into one, all embracing,

publicly available, document. Together, EQ and PO have now successfully addressed these issues through the publication of ‘The Future is Responsible Business’, the ‘Social Performance Report’ and through PO’s website. These sources are available to all stakeholders and set out a clear summary of PO’s post-review mission and values. c) Identifying Issues and Indicators

The organisation identifies issues through engagement with its stakeholders regarding its activities and social and ethical performance. The organisation identifies social and ethical indicators through engagement with its stakeholders.

Objective Verification To check that the organisation identify issues and indicators relevant to each key stakeholder group.

Inspection: Social Audit Scoping Study by EQ Management (20/1/2000). Socia l Audit Programme Interim Report (21/7/2000).

Quality of Process EQ’s first approach to identifying issues and indicators is documented in their Social Audit Scoping study (20/1/2000). It involved interviewing key members of the senior management team who were selected according to their role in managing relations with core stakeholder groups. It also involved reviewing company documentation including existing social and ethical policies and management systems. The scoping study addresses a limited number of issues relevant to each key stakeholder group and relevant non-financial performance indicators already used by PO. This approach can be considered to be a precursor to subsequent consultation directly with the different stakeholder groups to identify further issues and indicators. PO has committed to the full inclusion of stakeholder groups, issues, indicators and targets in subsequent social audit cycles. However, given the logistical burden attached to the initial development and conduct of a full social audit process, EQ and PO agreed to develop a pilot social audit in the first instance. As a result, consultation to identify further issues and indicators was restricted to NGO, shareholder, employee and community stakeholders. EQ’s approach to ident ifying issues and indicators among these stakeholders is documented in their Interim Report (21/7/2000) and involved visits to Myanmar, Indonesia, Pakistan and London. Professor Alyson Warhurst assisted EQ in the identification of stakeholder issues and indicators and henceforth, in areas where they have worked collaboratively, they shall be referred to collectively as ‘the consultants’.

Objective Verification To check that this assessment includes a process of engagement with Myanmar related stakeholders that accurately and fully obtain stakeholder views in an atmosphere without fear or restriction.

Inspection: Notes of project management meetings between Premier and EQ (2/12/1999, 4/1/ 2000, 3/2/2000). Aims of first visit to Business Units (7/2/00), Staff Focus Group Questionnaire (13/2/00), Staff Focus Group Structure (13/2/00), INGO focus group questions (13/2/00), Questions for Managers (13/2/00). Myanmar Country Report, including flip charts from 4 staff focus groups, hand written notes of interviews with managers, INGOs and visits to 2 pipeline villages, staff focus group questionnaires, lessons from Myanmar (19/5/00). Enquiry and Confirmation: Myanmar based community members, employees and NGO representatives were interviewed during the field-based verification of the SPF. Realising that there might be

concern that the disclosure of potentially sensitive views would jeopardise their relationship with PO, informants were told of the verifier’s independence from PO and of the anonymity of any information they disclosed. In order to mitigate against any outstanding mistrust informants were invited to write or e-mail the verifier anonymously in the United Kingdom with any concerns about the way that the consultation had been conducted but felt uncomfortable talking about on a face to face basis. Observation: Consultation with Myanmar community members in the vicinity of PO operations was subject to participant observation by the verifier. Throughout the period of three-day engagement with members of the four villages visited, the verifier was present as an independent observer of Compass Research. When considered appropriate, the verifier maintained a discreet or transitory presence so as not to inhibit consultees and so jeopardise attempts to collect information of a sensitive nature.

Quality of Process Engagement with PO’s employees in Myanmar was based on a methodologically flawed selection process as it relied on the discretion of a PO employee rather than an impartial party. In addition, pipeline and offshore employees were not included in the consultation. EQ attribute this to difficult logistics, and the fact that many pipeline staff are sub-contractors (2000:7). The logistical constraints they faced are appreciated but, given the inevitable presence of operation-specific employee issues, this should not have precluded the assertion of greater efforts to consult them. In addition, sub-contractors, while indirectly employed, are nonetheless employee stakeholders and should be considered as such in consultation exercises. The verifier notes that their full inclusion is planned for the next social audit cycle. The identification of NGO issues and indicators involved a focus group with the directors of four international NGOs operating in Myanmar. The INGO director consulted for verification purposes considered this a satisfactory and productive exercise. However, the director consulted also noted that while the calibre of the representatives of the focus groups was excellent, the group was, with the exception of one director, exclusively composed of expatriates. The director felt that the group might have benefited from the presence of a greater number of NGO nationals and field-based representatives who might have identified more relevant or insightful issues specific to PO’s operating environment and indicator appropriateness. EQ acknowledge (2000:14) that at all of PO’s operations, first-round consultations with communities were, “constrained by a number of issues, including language, cultural issues, and personal security….”, as a result, “we will not have been able to gain the fullest or frankest picture possible of conditions and viewpoints” (2000:15). Nevertheless, the verifier feels obliged to highlight a number of specific concerns in relation to the initial consultation with Burmese community members. First, there was no formal sampling of the consultees who were all, by chance or design, direct or indirect beneficiaries of local SCF USA programmes sponsored by PO. Second, EQ relied on SCF USA’s Programme Managers to act as translators, which compromises the integrity of the information collected. Third, EQ spent less than one full day consulting local community members, clearly insufficient time to identify a representative range of indicators and issues when there are in excess of ten villages impacted by POs operations.

Overall, the verifier’s concerns over the methodological rigour of the community consultation exercise are ameliorated by the subsequent approach to consultation adopted in the SPF (SPR). This relied on independent Burmese researchers, utilising broader and more representative sampling techniques over a more protracted period and provides PO / EQ with the belated opportunity to revise indicators based on the inclusion of legitimate issues and informants emerging from the SPR. Indeed, it should be noted that in their ‘Rationale for the Choice of Indicators’ (5/3/2001), the consultants state that “these [indicators] are all pilot and can be adjusted or varied to address evolving stakeholder concerns”. To mitigate outstanding concerns over the methodology of EQ’s first round consultation it is imperative that these issues and informants are fully incorporated into the modification of community indicators / targets in subsequent social audit cycles.

Objective Verification To check that this assessment includes a process of engagement with UK related stakeholders that accurately and fully obtain their views in an atmosphere without fear or restriction.

Inspection: Notes of project management meetings between Premier and EQ (2/12/1999, 4/1/ 2000, 3/2/2000). Aims of First Visit to Business Units (7/2/00). Staff Focus Group Questionnaire (13/2/00). Staff Focus Group Structure (13/2/00). INGO focus group questions (13/2/00). Questions for Managers (13/2/00). London Country Report, flip charts from 2 staff focus groups, hand written notes of interviews with managers, staff focus group questionnaires, invitation to shareholders to attend focus group (10/5/00). Notes of AGM (17/5/00). Discussions with Burmese Border Consortium (28/4/00). Discussions with John Jackson (7/2/00). Email from Burmese Border Consortium (29/4/00). Enquiry and Confirmation: Communication with John Jackson, Burmese Action Group. Communication with Sally Thompson, Burmese Border Consortium; Tyler Giannini and Katharine Redford, Earthrights International; Communication with Michael Clarke, Foreign and Commonwealth Office. Communication with Cameron James, BSMG. Communication with Lisa Parsons, Mark Akers, Michael Pert, and Alison Henry of Premier Oil.

Quality of Process Consultation with UK employees involved two focus groups attended by a total of fifteen staff (one self-employed, eleven employed staff and three contractors) by open invitation. Verification and evaluation checks suggest that the consultation was entirely satisfactory. EQ also intended to consult shareholders through focus groups, with open invitations being issued at PO’s AGM. However, just one shareholder attended. EQ’s shareholder consultation therefore this constitutes an interview between EQ and a “highly informed” shareholder (2000:6). While the views expressed by this shareholder are valid they are clearly not representative of the views of all PO shareholders. As a result, while the approach to shareholder consultation was creditable, and attendance at the AGM allowed EQ to identify many shareholder issues, this cannot qualify as a satisfactory consultation exercise. Therefore, while the logistical constraints faced by EQ and PO are appreciated; the verifier is concerned that greater effort could have been made to understand the absence of shareholders from the focus group meetings and to encourage their participation through alternative research mechanisms such as a pilot survey. In relation to UK based NGOs and NGOs based outside Myanmar and Indonesia, EQ held discussions with representatives of Amnesty International, Burma Campaign UK, and the

Burmese Border Consortium. EQ state that they also tried to engage with EarthRights International (EI) and EI state that they were willing to be engaged by EQ. However, EQ did not consult EI at this stage of the audit development for reasons that the verifier cannot definitively determine in the time available. These NGOs were selected on the basis of “their particular relevance to the key social issues and criticisms that PO faces, and because an informal dialogue existed between PO and some of the aforementioned NGOs” (2000:3). With regard to the quality of the engagement, it should be noted that Burma Campaign UK and the Burmese Border Consortium expressed some misgivings. However, having not been present during the discussion with these NGOs, and in the absence of any detailed documentary evidence regarding EQ’s engagement with the aforementioned NGOs, it is not possible to definitively evaluate this.

Objective Evaluation Sources To evaluate the process of engagement with Indonesian and Pakistan based stakeholders.

Inspection: Notes of project management meetings between Premier and EQ (2/12/1999, 4/1/ 2000, 3/2/2000). Aims of first visit to Business Units (7/2/00). Staff focus group questionnaire (13/2/00). Staff focus group structure (13/2/00). International NGO focus group questions (13/2/00). Questions for managers (13/2/00). Indonesian country report, 3 staff focus group flip charts, hand written notes of management interviews and visit to Matak Island, staff focus group questionnaires. Brief to Brian Everett to consult with INGOs (21/6/00). Results of consultation with Indonesian INGOs (11/7/00). Pakistan country report, 3 staff focus group flip charts, hand written notes of management interviews, staff focus group questionnaires (21/6/00).

Quality of Process Employee consultation in Indonesia involved a mixture of one to one interviews and group meetings with the PO Management team and four focus groups with PO staff (three at head office and one offshore). EQ sampled PO employees between managers as a distinct group and then sub-groups of employees based on their grade level and location (e.g. onshore and offshore) to gain the widest perspective. In Pakistan, employee consultation involved interviews with the management team, two focus groups (nine people) with national staff and informal discussion with the General Manager of Shell Pakistan. Indonesia contains a myriad of formal and informal NGOs, many of which are connected with government and vary in their degree of legitimacy and independence. Given the complexity of the NGO environment and the logistical difficulties of convening a meeting of representative NGOs at short notice, EQ decided that Brian Everett from Indonesia Business Links should carry out the consultation of Indonesian NGOs on behalf of PO. The brief to Brian Everett was to only consult international NGOs. Although six international NGOs were invited, just two (PACT and WVI) were represented on the day due to holidays or work pressures. There is no reason to doubt that the process of consulting Indonesian and Pakistani NGO and employee stakeholders were conducted in anything other than an appropriate way. However, having not been present during the consultation, and in the absence of a more detailed account of the methodological approach adopted by EQ or Brian Everett, it is impossible to definitively evaluate the quality of this process. It should also be noted that input from community stakeholders in Pakistan ‘relied on reports already generated in this regard’ (2000:4). It is considered beyond the scope of the present study to obtain and evaluate the methodological rigour of each of these varied community consultation reports and, therefore, the quality of the Pakistani community consultation.

In Indonesia, interviews were conducted with PO’s Community Programme Partners who are represented by a female teacher and a development worker. Discussions were also held with a small number of community members of Payalaman village, near to PO’s base camp for its offshore platform. They included three teachers at the local school, the village leader and the parents of children attending the school. While it has been noted that PO’s presence on Matak Island is very limited, with only seven employees who stay regularly at the base camp, the consultation of community members is nevertheless found wanting. The first concern is that the consultation involved the active participation of a PO employer as a translator who might have unwittingly inhibited the expression of negative perspectives. The second concern is that there was no legitimate or formal method for selecting the consultees. The third concern is that the selected consultees were beneficiaries of the PO’s community programme and neither included youth who demonstrated at the base camp for employment opportunities or fishermen whose fishing grounds were allegedly disrupted by the construction of the Natuna platform. The final concern is that the number of consultees selected for the inquiry cannot be considered representative of the four villages within 5km of the base camp, and even less so of the 10 000 inhabitants of the eleven villages of Matak island (2000: Appendix 2:1). The verifier’s concerns over the quality of the community consultation exercise are not ameliorated by the subsequent approach to community consultation adopted by ERM Indonesia. While this relied on independent unaccompanied Indonesian researchers, utilising a more representative sample, it was equally restrictive on time and relied on PO employees to arrange meetings with individual consultees. d) Determining Process Scope

The organisation determines, based on engagement with its stakeholders, the scope of the current process in terms of the stakeholders, geographical locations, operating units and issues to be included, and identifies how it plans to account for any excluded stakeholders, operations, locations or issues in future cycles. It identifies the timing of the current cycle. The organisation also identifies the audit method, the audit scope and the auditor to provide a high level of quality assurance to all its stakeholders.

Objective Verification To check that the selection criteria for shortlisted locations, stakeholders & units are documented & communicated, along with a list of excluded locations, stakeholders & units, and plans for their future inclusion.

Inspection: Overview of proposed social audit process for Premier Oil (22/12/99). Social Audit Scoping Study (20/1/2000). Notes of internal, international meeting held in Singapore (14/9/2000). Notes of project management meetings between Premier and EQ (2/12/1999, 4/1/2000). Draft Social Performance Report (12/4/2001). Social Performance Report (26/4/2001).

Quality of Process EQ and PO decided to include all of their international business units and locations but restricted the scope of much of the SAF, and all of the SPR, to three stakeholder groups – employees, communities and shareholders. The social performance report provides sufficient documentation of the stakeholders included in the SPR alongside the rationale for their inclusion. A list of those stakeholders excluded from the SPR, and PO’s plans for their future inclusion, is also documented in the report (2001:3). However, the report does not document

and communicate the criteria used to preferentially select the aforementioned stakeholders for inclusion in the SAF or SPR over other key stakeholders. PO have committed themselves to the inclusion of all key stakeholders in subsequent social audit cycles, but in the event of the unforeseen omission of stakeholders in the next social audit cycle, it is essential that a full and frank account of the reasons for that omission is provided.

Objective Verification To check that all issues likely to have a material impact on the organisation’s stakeholders are accounted for and the relevance of the issues to particular stakeholder groups are documented to allow internal and external auditing.

Inspection: Social Audit Scoping Study (20/1/2000).

Quality of Process EQ’s Scoping Study (2000:15) notes that with the social audit ‘there is the small risk of embarrassing their business partners or governments in some way – this can best be averted by avoiding political and campaigning issues’. Conversely, they go on to say that, ‘there must be a system in place to ensure that issues are not simply omitted because they are contentious’ (2000:19). The verifier does not feel that EQ or PO has, within the defined scope of the social audit process, consciously or wilfully avoided any issues that might have a material impact on the organisation’s stakeholders. Nevertheless, some methodological shortcomings have been noted with initial stakeholder consultation that may have limited the identification of stakeholder issues and indicators. These arose prior to the SPR and in the context of a SAF that provides a relatively unique learning model. In the verifier’s opinion, this framework is sufficiently adaptive to ensure that most of the issues neglected in the initial consultation will have been identified in the SPR, documented in the social performance report and incorporated into revised indicators and targets for future social audit cycles. The only exceptions are those issues associated with Indonesian community members, subject to inadequate consultation in the development of both the SAF and SPR. As long as EQ and PO acknowledge and amend these shortcomings, any initially neglected issues are very likely to be identified in subsequent social audit cycles. e) Selecting Indicators

The selection of indicators reflect the organisation’s performance in relation to: its values and objectives, the values of society at large and the values and aspirations of its stakeholders, as determined through a process of consultation with each group of them and wider societal norms and expectations.

Objective Verification To check that the rationale and processes of selecting indicators are documented to

Inspection: Rationale for the Choice of Indicators (5/3/2001). Premier Oil Social Sustainability Indicators Framework (5/12/2000) and Revised Premier Oil Social Sustainability Indicators Framework (5/1/2001). Social Audit Scoping Study (20/1/2000). Interim Report Social Audit Programme (July 2000).

support internal and external auditing.

Quality of Process The selection of indicators is clearly a dynamic process and the documentation of the rationale for their selection by the consultants, contained in three separate reports compiled at different stages of the social audit process, reflect this. Collectively, this documentation gives a complete impression of how the process of indicator selection has evolved. More recent ly, a holistic summary of the indicator selection process was produced by the consultants in a short document entitled ‘Rationale for the Choice of Indicators’ (5/3/2001). The content of this document is entirely satisfactory for auditing purposes.

Objective Verification To check that the choice of indicators reflects a three-tier approach covering its values, the values of its stakeholders, and wider societal values.

Inspection: Rationale for the Choice of Indicators (5/3/2001). Premier Oil Social Sustainability Indicators Framework (5/12/2000) and Revised Premier Oil Social Sustainability Indicators Framework (5/1/2001). Social Audit Scoping Study (20/1/2000). Interim Report on the Social Audit Programme (July 2000). Community Consultation Questions (10/12/2000). Institutional and Private Shareholder Questionnaire (10/12/2000). HR Managers and Employee Questionnaires (10/12/2000).

Quality of Process The ‘Rationale for the Choice of Indicators’ (5/3/2001) document suggests that the consultants were highly cognoscente of the need to reflect the values of the company, stakeholders and wider societal values in their indicator selection. The consultants approached the task of reflecting these three-tiers through the synthesis of internal, expert and stakeholder derived issues and indicators. This is based on the reasonable, though conceptually debatable, assumption that the values expressed in expert principles and by expert institutions such as MERN and the Global Reporting Initiative are representative of wider societal values, by virtue of their grounding in empirical research. Following a review of values promulgated by external experts and PO and their stakeholders, the verifier is satisfied that these three-tiers of values have been reflected in the consultant’s choice of indicators. However, it must be noted that this conclusion is based on the tentative assumption that the values expressed by consultees in the first round of consultation represent those of their wider stakeholder group (please refer to the verifier’s concerns regarding first-round consultation detailed earlier).

Objective Verification To check that within these tiers, the organisation selects indicators that reflect both its processes and the outcome of its activities.

Inspection: Rationale for the Choice of Indicators (5/3/2001). Premier Oil Social Sustainability Indicators Framework (5/12/2000). Revised Premier Oil Social Sustainability Indicators Framework (5/1/2001). Social Audit Scoping Study (20/1/2000). Interim Report on the Social Audit Programme (July 2000). Community Consultation Questions (10/12/2000). Institutional and Private Shareholder Questionnaire (10/12/2000). HR Managers and Employee Questionnaires (10/12/2000).

Quality of Process The consultants deserve particular credit for their selection of outcome and process indicators. They will reflect the social performance of the company both in terms of social outcome and company impact and in terms of social processes and company policies that underpin that outcome and impact. The mixture of these two types of indicators is balanced and appropriate and has been achieved through the vertical and horizontal integration of the indicator types across a sophisticated hierarchical framework of stakeholder orientated indicators. The comprehensive integration of the indicators in this way establishes the foundations for the

production of a number of complimentary data sets. If the analysis of these data sets is capitalised on in a rigorous and transparent way, illuminating and detailed insights into the interconnectivity of social processes and outcomes should be captured.

Objective Verification To check that indicators provide sufficient coverage of defined process scope, stakeholders, operations and issues.

Inspection: Rationale for the Choice of Indicators (5/3/2001). Premier Oil Social Sustainability Indicators Framework (5/12/2000) and Revised Premier Oil Social Sustainability Indicators Framework (5/1/2001). Social Audit Scoping Study (20/1/2000). Interim Report on the Socia l Audit Programme (July 2000). Community Consultation Questions (10/12/2000). Institutional and Private Shareholder Questionnaire (10/12/2000). Human Resource Managers and Employee Questionnaires (10/12/2000).

Quality of Process Within the defined scope of the SPR, the consultants have selected indicators that provide sufficient coverage of PO’s stakeholders and operations. The task of selecting indicators that provide sufficient coverage of the issues is challenged by the multifarious and dynamic nature of those issues. The overriding dilemma is that of wanting to select indicators that address geographically, socially and temporally specific issues while simultaneously needing to select indicators that provide information that is comparable across operations and stakeholders over time. PO’s indicators are unexceptional in their reflection of the necessary compromises to specificity that the latter need entails. By supplementing generic indicators with ever more temporal or unit specific indicators this dilemma can be mitigated at a high logistical cost. However, the verifier is entirely confident that in selecting indicators that are stakeholder specific and reporting on issues at three different levels of the company, the consultants have achieved a very successful balance between the dual concerns of specificity and comparability without inducing logistical paralysis for the company. The title attributed to one of the four sections of the level three community indicators is ‘The Demonstrable use of Social Impact Assessment (SIA) tools’. However, the indicators attributed to this section (e.g. “Are your human rights being infringed?”) do not address the use of SIA tools. The SIA process, and its associated methodological tools, has evolved from the need to predict and mitigate impacts prior to commissioning. As a result, a more appropriate title for this section might be the ‘Demonstrable monitoring of social impacts’ or the ‘Sustained commitment to social impact monitoring’.

6. Verification and Evaluation of Social Performance Review

a) Collecting Information

The organisation collects information about its performance in respect of the identified indicators. This information may come from the organisation’s management information systems and from stakeholder engagement. The organisation engages with stakeholders in the design of the collection methods, which allow them to accurately and fully express their aspirations and needs.

Objective Verification The rationale and processes of data collection are documented to enable internal and external auditing of their appropriateness

Inspection: Social Assessment at Matak Island (ERM Indonesia 5/3/2001). Kanbauk Final Report (Compass Research 27/2/2001). Draft Social Performance Report (14/4/2001). Social Performance Report (26/4/2001).

Quality of Process Compass Research and ERM Indonesia have documented the rationale and processes of data collection that they undertook on behalf of EQ and PO for the consultation with community stakeholders in Myanmar and Indonesia respectively. EQ has also documented the rationale and processes of data collection that they undertook for the consultation with employee and shareholder stakeholders. The source of these documents is specified in the verification box above. The rationale and processes of data collection for all but one stakeholder group have been documented to a level that enables satisfactory auditing of their appropriateness. The exception is the rationale and processes of data collection documented by the ERM Indonesia (5/3/2001) for Indonesian community stakeholders. This provides enough detail to enable auditing of their approach to sampling but not enough detail to enable auditing of their approach to encouraging the full participation of their consultees or of their ability to foster an atmosphere conducive to open inquiry. It is suggested that in future cycles, the brief provided by PO or EQ to sub-contracted community consultants contains specific methodological reporting criteria.

Objective Verification To check that, in addition to stakeholder preference, methods for collecting information are appropriate to the capacity and size of the organisation, the scope and location of the engagement and nature of the issues.

Pilot Employee Survey Form (Appendix 1-SSI) Human Resources Managers Questionnaire (Appendix 2-SSI) Social Accounts Survey (Appendix 3-SSI) Consultative survey for local communities (Appendix 5 –SSI) Shareholder questionnaires (Appendices 6 & 6A –SSI) Questions/format for NGO/INGO workshop (Appendix 7-SSI) Questions for community focus groups (Appendix 8 – SSI). Brief for NGO’s to undertake local community consultation in Indonesia & Myanmar (Appendix 9 – SSI). Government Consultation Questionnaire form (Appendix 10-SSI).

Quality of Process From their first round of consultation, EQ discovered that the method of data collection preferred by community stakeholders for the SPF and subsequent social audit cycles was semi-structured interviewing. Based on a general consensus in the research community and the verifier’s own research experience, the decision to use this method in the SPF was entirely appropriate. First, it is within the resource and logistical capacity of the company to contract qualified and independent specialist to facilitate the use of such a method. Second, rural communities are invariably more accustomed to oral rather than written forms of communication and consultation. Third, levels of literacy among members of rural communities in the developing world are often low, restricting independent participation in alternative methods such as surveys. Fourth, the unbounded nature of the semi-structured interview allows consultees to express themselves about issues beyond those identified a-priori. Finally, the nature of community issues tends to be qualitative, descriptive and dynamic and better captured by less systematic and more versatile methods like semi-structured interviewing. From their first round of consultation, EQ discovered that the method of data collection preferred by employee and shareholder stakeholders for the SPF and subsequent social audit cycles was the questionnaire survey. Based on a general consensus in the research community and the verifier’s own research experience, the decision to use this method in the SPF was entirely appropriate. First, employee and shareholder issues tend to be less dynamic and variable than community issues and better adapted to more systematic and quantitative methods of collection and analysis. Second, questionnaires are relatively quick and temporally flexible which is an important factor when the time available to employees and shareholders to participate in the social audit is highly restricted. Third, unlike community members, employees and shareholders have relatively good access to the internet, allowing questionnaires to be quickly and efficiently distributed and collected internationally. Fourth, in dealing with ethnically or politically sensitive issues, the anonymity of questionnaires can be advantageous. Finally, employees and shareholders in the business environment tend to be more accustomed to, and comfortable with, written rather than verbal modes of enquiry.

Objective Verification To check that the organisation used robust and representative sampling techniques for its Myanmar community data collection processes.

Inspection: Interview Guidelines - Farmers (Compass Research 15/02/01). Interview Guidelines - Non-Beneficiaries (Compass Research 15/02/01). Interview Guidelines – Parents (Compass Research 15/02/01). Interview Guidelines – Management Committee (Compass Research 15/02/01). Guidelines on Focus Group Structure (Compass Research 15/02/01). Observation: Consultation with community members was subject to participant observation by the verifier. Throughout the period of three-day engagement with members of the four villages visited, the verifier was present as an independent observer of Compass Research. When considered appropriate, the verifier maintained a discreet or transitory presence so as not to inhibit or jeopardise the collection of information of a sensitive nature.

Quality of Process Compass Research employed a combination of random, snowball, and purposive sampling techniques. Collectively, the sampling techniques were used to reduce sampling bias through triangulation. Purposive sampling was used to examine issues relating to key stakeholder groups within the local community such as farmers and community representatives and to increase the diversity of the sample. Random sampling was used to reduce bias and further

increase the diversity of the sample, while snowball sampling was used to examine particular issues in detail. For security reasons, outside Compass Research’s control, community members displaced from the project area during construction of the pipeline were excluded from the scope of this consultation exercise. It is imperative that PO upholds their commitment to make every effort to facilitate their inclusion in future audit cycles. This important issue aside, the verifier is completely satisfied that the selected sample was broad enough to allow for the inclusion of all other major stakeholder categories, including Karen community members residing in militarily restricted areas within impact proximity of PO’s base camp.

Objective Evaluation Sources To evaluate whether the organisation used robust and representative sampling techniques for its Indonesian community data collection processes.

Inspection: Social Assessment of Matak Island (ERM Indonesia 5/3/2001). Enquiry: Personal communication with Deborah Smith.

Quality of Process In order to try and obtain a cross-section of opinion from community members, ERM Indonesia purported to use purposive sampling to select dignitaries, women and youth of the four villages closest to PO’s base camp for consultation. However, following inspection of the documentation, the verifier is not satisfied that the sampling technique was applied rigorously or captured a broad or representative spread of community stakeholders. Although ERM Indonesia specified the inclusion of women, youth and village dignitaries in their brief, they negated the impartiality of their sample by relying on PO representatives to select and arrange meetings with consultees within these categories. Moreover, ERM spent just one day consulting community members and therefore only managed to interview twelve consultees, two of whom were PO employees and one of whom was a Conoco employee. None of the consultees included youth involved in a demonstration at the base camp last year to demand employment by the three oil companies using the camp or fishermen whose fishing grounds had been affected by the construction of the Natuna platform. By virtue of their representative status in the villages, the other consultees appear to be good key informants, however such a restrictive sample undermines any claim to complete or representative findings. Indeed, ERM Indonesia (5/3/2001:4.4) acknowledge that: ‘Obviously the results are biased by the fact that most of the interviewees have, in one way or another, an economical relation with the oil companies. If people from Tarempa had been interviewed a different picture might be drawn’. Given this inherent bias, it is important that PO and EQ now commit to a specific review of Indonesian community indicators based on the findings of any subsequent consultations with Indonesian community stakeholders. These consultations should also be supported by more rigorous sampling criteria in the brief to consultants subcontracted to undertake the consultation exercises.

Objective Verification To evaluate whether the organisation used robust and representative sampling techniques for its employee and shareholder data

Inspection: Draft Social Performance Review (14/4/2001). Analysis of Employee and Shareholder Responses (10/4/2001). Shareholder and Employee Survey Responses (15/3/2001). Enquiry: Communication with Deborah Smith, EQ Management. Communication with Lisa Parsons, Premier Oil. Communication with Belgit Ranna, University of Central England. Confirmation: In Myanmar, following the SPF, employees were

collection processes. consulted face to face. This involved informal one to one interviews with a wide variety of personnel with whom the verifier came into contact including drivers, process engineers, caterers, communications officers, senior and middle managers and personal assistants. It was realised that employees might be concerned that the disclosure of potentially sensitive views would jeopardise their relationship with PO. In order to prevent the repression of information, informants were assured of the verifier’s independence from PO and of the anonymity of any information disclosed. In order to mitigate against any outstanding mistrust informants were invited to write or email anonymously to the verifier in the United Kingdom with any outstanding concerns about the SPF that they felt uncomfortable expressing on a face to face basis.

Quality of Process EQ decided that all of PO’s employees would be selected and sent questionnaire surveys. In theory, sampling cannot be more robust or representative than the full inclusion of the sampling frame in the survey. However, it should be noted that a very small number of Myanmar employees at Kanbauk said that they had not received the questionnaire survey. This is probably attributable to the rotation of the employees and the verifier does not see this as a source of adverse concern. With respect to the sampling of shareholders, EQ and PO instructed Computer Share Services, who hold the full numerical listing of shareholders for Premier, to randomly select (computer generated) 1 in every 17 of the 17000 individual shareholders and 1 in every 5 of the 138 institutional shareholders. In both cases the sample size and method of sampling is regarded to be representative and robust.

Objective Verification To check that the collection of data from Myanmar community stakeholders was done in a way that accurately and fully obtains their views in an atmosphere without fear or restriction.

Inspection: Interview Guidelines - Farmers (Compass Research 15/02/01). Interview Guidelines - Non-Beneficiaries (Compass Research 15/02/01). Interview Guidelines – Parents (Compass Research 15/02/01). Interview Guidelines – Management Committee (Compass Research 15/02/01). General Guidelines on the structure of focus groups (Compass Research 15/02/01). Kanbauk Final Report (Compass Research 27/2/2001). Observation: In Myanmar, consultation with community members was subject to participant observation by the verifier. Throughout the period of three-day engagement with members of the four villages visited, the verifier was present as an independent observer of Compass Research. When considered appropriate, the verifier maintained a discreet or transitory presence so as not to inhibit or jeopardise the collection of information of a sensitive nature.

Quality of Process The focus group discussions were conducted by an experienced and proficient female facilitator, who was able to converse with members of the local community in their local dialect. She always stated the purpose of the research, her independence from PO, and engendered an atmosphere of openness and inclusivity in her focus group discussions. She was able to consistently attain the active participation and balanced contribution of all consultees. Her request for people to express themselves on any issues beyond those unearthed by the indicator questions raised important additional insights. It is essential that this diligent practice be continued in future audit cycles through its inclusion in the brief to local community consultation sub-contractors.

Representatives of SCF USA and Compass Research felt that Myanmar’s political environment would not significantly restrict the ability of community members to express themselves on issues relating to PO at the local level. In addition, it was the verifier’s impression that community members were either impartial to the political impact of PO’s presence in Myanmar or that the issue was overshadowed by other local interests and concerns. Nevertheless, given the acknowledged repression of critical political comment in Myanmar, the verifier is concerned that community members wanting to address negative issues relating to PO’s national political impact, and / or the ramifications that this might have at the local level, will feel restricted. In the present political environment this unavoidably compromises the ability of PO’s community stakeholders to be fully expressive, although its effect can and must continue to be minimised through concerted efforts to adopt flexible and innovative research methods and techniques.

Objective Evaluation Sources To evaluate whether the data collection from Indonesian community stakeholders was done in a way that accurately and fully obtains their views in an atmosphere without fear or restriction.

Inspection: Social Assessment of Matak Island (ERM Indonesia 5/3/2001). Draft Social Performance Report (14/4/2001). Social Performance Report (26/4/2001).

Quality of Process There is no reason, within the limitations of the sampling approach noted earlier, to doubt that the process of data collection from Indonesian community stakeholders was conducted in anything other than an accurate, open and non-coercive way. However, having not been present during the consultation, and in the absence of a more detailed account of the ethical and methodological approach adopted by ERM Indonesia, it is impossible to evaluate the quality of this process.

Objective Verification To check that the collection of data from employees and shareholders was done in a way that accurately and fully obtains their views in an atmosphere without fear or restriction.

Inspection: Analysis of Employee and Shareholder Responses (10/4/2001). Shareholder Survey Responses (15/3/2001), Employee Survey Responses (15/3/2001). Enquiry and Confirmation: In Myanmar, following the SPF, employees were consulted face to face. This involved informal one to one interviews with a wide variety of personnel with whom the verifier came into contact including drivers, process engineers, caterers, communications officers, senior and middle managers and personal assistants. It was realised that employees might be concerned that the disclosure of potentially sensitive views would jeopardise their relationship with PO. In order to prevent the repression of information, informants were assured of the verifier’s independence from PO and of the anonymity of any information disclosed. In order to mitigate against any outstanding mistrust informants were invited to write anonymously to the verifier in the United Kingdom with any outstanding concerns about the SPF that they felt uncomfortable expressing on a face to face basis.

Quality of Process The verifier did not unearth any serious concerns in relation to the ability of employees to complete questionnaires fully and accurately in a fearless or unrestricted atmosphere. However, a number of minor issues emerged that should be addressed in future audit cycles. First, there is a need for more thorough proof-reading of the questionnaires prior to distribution. Despite EQ’s recognition that the division between expatriate and national employees “appears to be a particularly important distinction for consultation purposes” (2000:11), some of the initial Myanmar questionnaires contained a typographical error to the tick boxes so instead of reading ‘National’ and ‘Expatriate’, they read ‘National’ and ‘National’. This was subsequently corrected. Second, there is a need to avoid unnecessarily complex or managerial wording in the questionnaires, which can be a source of misunderstanding for junior staff. Third, given that English is not their first language, it is suggested that future audit cycles provide Burmese staff with translated questionnaires. Finally, the anonymity of the employee consultees should be completely protected by giving them the option to complete the questionnaire in a printed format. In Myanmar, two of PO’s employees informed the verifier that they had not voiced issues of concern for fear that their handwriting would be recognised by senior managers. Representatives of SCF USA and Compass Research felt that Myanmar’s political environment would not restrict, to any significant degree, the ability of employees to express themselves freely over issues relating to PO as an employer. In addition, it is the verifier’s opinion that the relative anonymity of questionnaires helps to prevent the harbouring of sensitive information. Nevertheless, given the acknowledged repression of critical political opinion in Myanmar, the verifier is concerned that some employees could feel restricted in their ability to address PO’s national political impact. This issue compromises the ability of employees to be completely uninhibited in their expression. In future cycles every effort must be made to use techniques that further mitigate this restriction. Given that shareholders were sampled randomly and their identity was protected, it was not possible to verify or evaluate the degree to which the collection of data from them was obtained in an atmosphere without fear or restriction. Nevertheless, following inspection of the shareholder questionnaires and responses, there seems no reason to consider that their views were obtained in either a coercive or inhibiting way. With regard to the degree to which the collection of data from shareholders accurately and fully obtains their views, the verifier highlights the importance of providing scope in the questionnaires for comments and issues beyond those prompted by the indicators. This is evidenced by the fact that the narrative responses given to the questionnaires often did not relate to the questions asked and that some shareholders felt obliged to write covering letters. This is particularly pertinent given the significant under-representation of shareholders during the first round of consultation. It is suggested that in future cycles, the shareholder questionnaires allow for the inclusion of a text box for additional comments. b) Analysing Information

From the information collected, the organisation: (a) evaluates its performance against values, objectives and targets previously set (b) uses this evaluation and engagement with stakeholders to develop or revise objectives and targets for the future, with a focus on improving performance.

Objective Verification To check that the organisation has evaluated its performance against its objectives and targets

Inspection: Draft Social Performance Report (12/4/2001). Social Performance Report (26/4/2001). Analysis of Employee and Shareholder Responses (10/4/2001)

Quality of Process The SPF represents the first social auditing cycle for PO. As a result it was not possible for EQ to evaluate the performance of the company against previously set targets and values since these are the products of the SPF. However, in as much as the indicators and the policy statement of the company represent the objectives and targets of the organisation, then the SPF satisfactorily evaluates its performance against them.

Objective Verification To check that organisation uses this to revise future objectives and targets including its processes of auditing

Inspection: Draft Social Performance Report (12/4/2001) Social Performance Report (26/4/2001). Analysis of Employee and Shareholder Responses (10/4/2001)

Quality of Process The indicators were developed as part of the SAF for the purpose of identifying and reporting on stakeholder issues and providing guidelines for the achievement of annual targets. Level one indicators and targets are relatively generic and encompass a broad range of issues, while level two and three indicators and targets are more issue focused and can be adjusted and refined with reference to the stakeholder feedback and consultant recommendations which emerge from each social audit cycle. The consultants should be highly commended for clearly setting out these targets in the social performance report, along with details of the applicable time and people responsible for the achievement of them. The targets satisfactorily address the issues generated by stakeholders and recommendations suggested by EQ in the report. While not specified in the social performance report due to conflicting time frames, PO has assured the verifier that the recommendations and issues highlighted by the present report will also be used to revise aspects of its social auditing process. c) Reporting Information

The organisation prepares a social and ethical report relating to the process undertaken in a specified period. The report clearly, and minimising bias, explains the process and demonstrates how the organisation’s performance relates to its values, objectives and targets. It includes information about its performance measured against its key social and ethical performance targets. If available, the organisation provides comparative information for previous periods to help stakeholders understand the current performance in the context of prior trends and external benchmarks.

Objective Verification

To check that the content of the report reflects the principles of AA 1000 and is inclusive, complete, material, comparable, reliable, relevant and understandable.

Inspection: Draft Social Performance Report (14/4/2001). Social Performance Report (26/4/2001). Shareholder Survey Responses (15/3/2001), Employee Survey Responses (15/3/2001). Social Assessment at Matak Island (ERM Indonesia 5/3/2001). Kanbauk Final Report (Compass Research 27/2/2001). Analysis of Employee and Shareholder Responses (10/4/2001). Corporate Responsibility and Community Relations (15/3/2000).

Quality of Process At all stages of the verification and evaluation of the SAF and SPR the verifier has recognised AA 1000’s foremost principles of inclusivity, completeness and materiality. In general, the pilot SAF and SPR measure well against these principles. Where areas have been judged less than satisfactory, they are not regarded as completely negating a specific process or the information related to that process and presented in the social performance report. Nevertheless, some of the less satisfactory areas of the SAF and SPR noted in this statement will affect the nature of the information presented in the social performance report and PO’s readership must be cognisant of this in assessing PO’s social performance. The performance information is summarised appropriately and EQ are prudent in their expression of judgmental responses to the stakeholder feedback. The information is also understandable and, most importantly, representative of the feedback provided by PO’s selected stakeholders through questionnaire, focus group and interview. In general, the presentation of this information in the social performance report is satisfactorily objective and neutral. However, the exclusively positive nature of the enlarged and highlighted comments accompanying the report’s photographs exhibit an explicit selection bias and this practice should be avoided in future social performance reports. The neutrality of presenting an employee consultation graph in the community consultation section of the report is also questionable (see page 31). Finally, although the comparability of much of the performance information with previous periods / targets is limited (as it is the first social audit cycle), information generated through the utilisation of indicators derived from international standards will be comparable to external benchmarks.

Objective Verification To check that report includes a statement of the organisations: (a) mission and values. (b) processes for dealing with social / ethical issues. (c) methodology for, and scope of, process, including reasons for the exclusion of any activities, locations,

Inspection: Draft Social Performance Review (12/4/2001). Social Performance Report (26/4/2001)

stakeholders or issues (d) Plans for future cycles of the process.

Quality of Process The social performance report provides complete coverage of all the key areas specified above. The report’s introduction clearly sets out a collective summation of the company’s post-review mission and values. This is supported by an outline of their processes for dealing with social and ethical issues, both in terms of identifying those issues and in terms of recommendations and responsibilities for mitigating and managing those issues. The stakeholder consultation sections and the methodology section respectively summarise the methodology underlying these processes and the overall process of the social audit. A section is also dedicated to clarifying the roles and scope of the social audit. Together with the listed targets, these sections detail plans for future social audit cycles. Overall, the coverage given to these sections of the report is excellent. The quality of the coverage provided in these sections is also very high but would have been improved through the inclusion of a much more explicit scoping rationale.

Objective Verification To check that the report contains performance information on: (a) The organisation’s performance against its mission & values. (b) Stakeholder identified indicators for the current cycle. (c) Issues and indicators outside the power of influence of the organisation, or where operating in partnership to affect the indicators.

Inspection: Draft Social Performance Report (12/4/2001). Social Performance Report (26/4/2001)

Quality of Process The report contains social performance information on stakeholder and expert derived indicators, objectives and targets in addition to the auditing process itself. These indicators, objectives and targets reflect PO’s mission and values and the refore implicitly report on their related performance, although no formal analytical comparison is made. The report also discloses social performance information on issues and indicators outside PO’s immediate power of influence and where they are operating in partnership to affect the indicators or issues. For example, one of the objectives of the community stakeholder consultation is to obtain feedback on PO’s ‘Sustained commitment to corporate social investment’ (2001:13) which largely relate to PO’s partnership programmes in Indonesia and Myanmar. It is suggested, for the purposes of organisational parity, consensus and efficiency, that PO consider reporting on indicators already used by the organisation (e.g. by human resources) or by partnership groups outside the organisation (e.g. by SCF USA for their education programmes) in addition to the present social audit indicators.

7. Limitations and Acknowledgements

The major limitation associated with this exercise is that the completeness and reliability of the verification and evaluation is dependent on the completeness and reliability of the information gained by, or presented to, the verifier. Where possible, information has been triangulated in order to maximise its completeness and reliability. Nevertheless, short of an unlimited enquiry, it is impossible to guarantee the completeness and reliability of the information. Therefore, the verifier planned and carried out the verification exercise to obtain reasonable, rather than absolute, assurance of the completeness and reliability of the information associated with the SAF and SPR. This limitation is particularly relevant to the verification of the SAF because the processes associated with its design were largely conducted prior to the verifier’s engagement. Therefore, information associated with the SAF was subject to less reliable ex-post verification mechanisms such as secondary source inspection. Although this verification and evaluation process was greater in time and scope than usual exercises of this type, the need to report back in a reasonable period of time limited the scope of what could be achieved. Time constraints ruled out the possibility of verifying those components of the SAF and SPR relating to Indonesian and Pakistani stakeholders. Where possible, these components of the SAF and SPR have been evaluated. However, in some cases direct observation of, or more detailed accounts of, the ethical and methodological approach adopted by the consulting body were demanded and it was therefore not possible to comment on the quality of the process. Time constraints also meant that verification and evaluation of the auditors is limited to its principal auditors, Samantha Towle and Deborah Smith and to a selection of their key stated skills and qualifications, prioritised in relation to their relevance to the project tasks. It should be acknowledged that Professor Alyson Warhurst holds a chair at Warwick Business School and has been playing an advisory role to PO over the last two years. Therefore, other than for the purposes of enquiry and confirmation defined earlier, the verifier has conducted the verification and evaluation of the principle auditors, the SAF and the SPR completely independently of her. As with verification of the competence of the principle auditors, verification of the SAF and SPR was selective and bounded by criteria derived from AA 1000’s process standards. It should be acknowledged that these process standards do not provide a ‘blueprint’ for reviewing social audits, but a benchmark that represents expert views grounded in evolving experience and consensus. Some of AA 1000’s process standards like ‘embedding the system’ and ‘obtaining feedback on the report’ are omitted from the exercise because these processes will be finalised after the verification and evaluation exercise. Finally, the verifier would like to acknowledge PO and EQ’s agreement that the SAF and SPR should not only be verified but also evaluated by the Corporate Citizenship Unit. In addition, it is acknowledged that evaluation of the SAF and SPR has not been based on relative criteria involving comparisons with other social audit processes, in which case the SAF and SPR would have been subject to less stringent criteria. This is relatively unique and indicative of the transparency PO wants to engender in the process. It is the verifier’s opinion that by agreeing to such practice the company has set the standard for many of its competitors, among whom social audit evaluation could be more widely encouraged and adopted.

Appendix

Appendix A. Accountability 1000

The following has been abridged by Dr M Macfarlane from Accountability 1000 guidelines and should not be publicly reproduced without their authorisation.

Principles The Overriding Principle Inclusivity concerns the reflection at all stages of the social and ethical accounting, auditing and reporting process over time of the aspirations and needs of all stakeholder groups – those groups who affect or are affected by the organisation and its activities. Stakeholder views are obtained through an engagement process that allows them to be expressed without fear or restriction. Inclusivity requires the consideration of ‘voiceless’ stakeholders including future generations and the environment. Principles relating to the Scope and Nature of the Organisation’s Process Completeness concerns the unbiased inclusion in the accounting processes over time of all appropriate areas of activity relating to the organisation’s social and ethical performance. In addition, there is clear externally audited disclosure of what is included and what is excluded and the reason for any such exclusion. The organisation should be prudent in ensuring that adverse impacts of its activities are not downplayed, and that uncertain impacts are not prematurely documented and reported as certain. Materiality concerns the need to include significant information that is likely to affect one or more stakeholder groups and their assessment of the organisation’s social and ethical performance. The complexity of defining materiality for social and ethical issues demands inclusive processes of stakeholder engagement (and stakeholder needs) to assess the significance of information. Regularity and Timeliness concerns the need for regular, systematic and timely action of the social and ethical accounting, auditing and reporting process to support the decision making of the organisation and its stakeholders. The process is a repeated one, but does not have to be an annual exercise, or if annual it need not follow existing reporting cycles. Principles relating to the Meaningfulness of Information Quality Assurance concerns the audit of an organisation’s process by an independent and competent third party or parties. The audit is concerned with building credibility (and providing assurance) in the process with all stakeholder groups, and hence developing meaningful stakeholder engagement. The audit process(es) may include a variety of methods, but must always consider the accuracy / validity of the organisation’s reporting and its

supporting information systems, the organisation’s compliance with legislation and other standards, and the inclusivity and completeness of the process. Accessibility concerns appropriate and effective communication to the organisation’s stakeholders of its social and ethical accounting, auditing and reporting process and its performance. The organisation communicates through social and ethical reports, including written and verbal communications, and externally prepared audit reports. Accessibility implies that each stakeholder group can easily and cheaply access the material communicated. Comparability concerns the ability to compare information on the organisation’s performance with previous periods, performance targets, or external benchmarks drawn from other organisations, statutory regulation and non-statutory norms. External benchmarks are selected for their accuracy, relevance and legitimacy to the organisation and to different stakeholder groups. If the indicators chosen (to measure performance) by an organisation and its stakeholders are unique to the organisation, comparability of performance with other organisations may not be possible or necessary. Reliability concerns the characteristics that allows the organisation and its stakeholders to depend on the information provided by the social and ethical accounting and reporting to be free from significant error or bias. To ensure reliability, information should be presented in accordance with the reality of the information and not just its legal form. In addition, information should be presented neutrally, and the organisation should be prudent in the inclusion of information and the description of the organisation’s position. Technical and scientific terms should be explained within organisation’s reporting. Relevance – concerns the usefulness of information to the organisation and its stakeholders as a means of building knowledge and forming opinions, and as assistance to decision-making. Engagement with stakeholders is an essential part of identifying the relevance of information. Understandability – concerns the comprehensibility of information to the organisation and its stakeholders, including issues of language, style and format. Technical and scientific terms should be explained within the report. Principles relating to the Management of the Process on an Ongoing Basis. Embeddedness or systems integration, concerns making the social and ethical accounting, auditing and reporting process part of the organisation’s operations, systems and policy making, and not treated as a one-off exercise to produce a social and ethical report. Together with the principle of continuous improvement, embeddedness is concerned with the knowledge and learning of the organisation, in terms of individuals within the organisation and the organisation’s system. Continuous Improvement concerns recognised and externally audited steps taken to improve performance in response to the results of the social and ethical accounting, auditing and reporting process. It is a process that assesses progress, reports performance, and sets targets for the future. The principle of continuous improvement also refers to the need for continual development of the accounting, auditing and reporting process itself within the organisation. Process Standards

a) Identifying Stakeholders The organisation identifies its stakeholders and characterises its relationship with each group of them. This is a key part of ensuring the inclusivity of the process of social and ethical accounting, auditing and reporting. The organisation prepares a complete list of its stakeholder groups. The organisation’s stakeholder groups may include, but are not limited to: owners, trustees, employees, customers, suppliers, competitors, government, NGOs and pressure groups, and local and international communities. For each stakeholder group, the organisation describes its relationship with the group, and its aims and policies regarding the relationship. The dimensions of the relationship will include, but are not limited to the: (a) Length of relationship (b) Nature of relationship e.g. type of organisation, number of members of stakeholder group, frequency of contact (c) History of relationship (d) Organisation’s / stakeholders perceptions of relationship and expectations from it. b) Defining or Reviewing Values The organisation defines or reviews its current mission and values. The organisation’s current mission and values provide a framework for the process. They are a basis for understanding the aims and activities of the organisation, and provide a base against which the organisation’s performance is assessed. The organisation defines or reviews its current mission and values, and formalises them in a statement available to all stakeholders. In a first cycle of the process, the organisation reviews its existing objectives and targets for social and ethical performance, and examines the consistency of its targets with its mission and values. In all cycles the organisation’s objectives and targets are reviewed as part of the accounting and reporting stages of the process. c) Identifying Issues and Indicators The organisation identifies issues through engagement with its stakeholders regarding its activities and social and ethical performance. The organisation identifies social and ethical indicators through engagement with its stakeholders. The identification of issues and indicators relevant to each stakeholder group assists the analysis and understanding of the organisation’s activities and performance. The issues are examined to assess the likely impact of the organisation’s activities on the organisation and its stakeholders. This assessment includes a process of engagement with stakeholders. The engagement accurately and fully obtains stakeholder views in an atmosphere without fear or restriction. d) Determining Process Scope The organisation determines, based on engagement with its stakeholders, the scope of the current process in terms of the stakeholders, geographical locations, operating units

and issues to be included, and identifies how it plans to account for any excluded stakeholders, operations, locations or issues in future cycles. It identifies the timing of the current cycle. The organisation also identifies the audit method, the audit scope and the auditor to provide a high level of quality assurance to all its stakeholders. The organisation is accountable to all its stakeholder groups, and for its activities in all-geographic locations and operating units. However, for reasons of time or financial constraints, the organisation may choose not to include all stakeholders, locations or operations in any cycle of the process. If a shortlist of stakeholder groups, locations or operations is identified for a cycle, the selection criteria are documented, and communicated together with a list of excluded stakeholders, locations and units, and plans for future inclusion in the process. If the exclusion of a particular location or operation is likely to have a material impact on the understanding of the operations and locations included, the relationship between the information included and excluded is documented and communicated in the social and ethical report. In order to provide a complete and inclusive account it is necessary to account for all issues that are likely to have a material impact on the organisation’s stakeholders. The rationale and processes of selecting issues for the process, and the relevance of the issues to particular stakeholder groups are documented to allow internal and external auditing. In addition, to demonstrate inclusivity and completeness of issues identified, the social and ethical report may include stakeholder comments on the selection of issues. e) Selecting Indicators The selection of indicators reflect the organisation’s performance in relation to: its values and objectives, the values and aspirations of its stakeholders, as determined through a process of consultation with each group of them and wider societal norms and expectations. The organisation’s choice of indicators to measure its social and ethical performance is based on the principles of inclusivity, completeness, materiality and information quality (comparability, relevance and understandability). The rationale and processes of identifying indicators are documented to support internal and external auditing. The choice of indicators should reflect a three-tier approach covering its values, the values of its stakeholders, and wider societal values. a) The first tier of values reflected in the indicators is based on the organisation’s statement of mission and values, and the standards, codes and guidelines to which the organisation subscribes. b) The choice of indicators also reflects stakeholders’ views of the organisation’s performance against its values and respect of the specific needs and aspirations of stakeholders. Stakeholder views are obtained through an inclusive process of stakeholder engagement. Following the initial definition of indicators, the organisation will refine these and reconcile conflicting opinions through further engagement with stakeholders. c) The third tier of values reflected in the indicators is based on benchmarks established in societies that are part of the process scope. These may be evident in the legal statute or from

the evidence of stakeholders. The organisation includes indicators for its performance against its legal requirements for performance and disclosure. Within these tiers, the organisation selects indicators that reflect both its processes and the outcome of its activities. Outcomes may include the output of an activity, and/or its impact. Indicators selected should be sufficient to provide coverage of the defined scope of the process including stakeholders, geographies, operations and issues. For the second and third tiers of values, the organisation may choose not to pursue the measurement of all the indicators identified by stakeholders. Indicators may be suggested for issues outside the direct or indirect power of influence of the organisation; the number and nature of the indicators may exceed resource boundaries; and the number of indicators may weaken the clarity of communication. Where the organisation limits the number of indicators suggested by stakeholders, it engages stakeho lders in a process of prioritisation. Verification and Evaluation of Social Performance Review Collecting Information The organisation collects information about its performance in respect of the identified indicators. This information may come both from the organisation’s management information systems and engagement with stakeholders. The organisation engages with stakeholders in the design of the collection methods, which allow stakeholders to accurately and fully express their aspirations and needs. A variety of methods of engagement may be used by organisations. These may include, but are not limited to: (a) one-to-one interviews (b) group interviews (c) focus groups (d) workshops and seminars (e) public meetings (f) questionnaires. In addition to stakeholder preference, the methods adopted may vary depending on the nature and size of the organisation and the scope of the engagement, the nature of the issues covered and the geographic location. The choice of method will also be affected by the capacity of the organisation and its stakeholders. The organisation may use sampling techniques for its data collection processes. The samples are robust, and ensure that a representative spread of each stakeholder category within the process scope is included. In defining samples, the organisation is aware of key diversity issues, which may include but are not limited to: the gender, race, age, disabilities and culture of the samples. Regardless of the method chosen, stakeholders are encouraged and helped to understand the process and to provide information. The organisation also involves stakeholders in the design of the questions to be addressed in the process of information gathering. The rationale and processes of data collection are documented to enable internal and external auditing of their appropriateness. For the audit of stakeholder engagement processes, the organisation allows the auditor to examine documentation and to attend dialogues, unless this raises conflict with other principles of accountability or issues of sensitivity for stakeholders. These issues are discussed with the auditor. Analysing Information

From the information collected, the organisation: (a) evaluates its performance against values, objectives and targets previously set (b) uses this evaluation and engagement with stakeholders to develop or revise objectives and targets for the future, with a focus on improving performance. To interpret the information collected and evaluate performance, the social and ethical accounting approach links the organisation’s performance to its state values, objectives and targets, incorporating an analysis of the organisation’s activities and the key issues identified by stakeholders. Reporting Information The organisation prepares a social and ethical report relating to the process undertaken in a specified period. The report clearly, and minimising bias, explains the process and demonstrates how the organisation’s performance relates to its values, objectives and targets. It includes information about its performance measured against its key social and ethical performance targets. The organisation provides comparative information for previous periods to help stakeholders understand the current performance in the context of prior trends and external benchmarks, if available. The content of the report reflects the principles of AA 1000 and is inclusive, complete, material, comparable, reliable, relevant and understandable. In defining the structure of the social and ethical report the organisation is guided by principles of information quality. The report should include prescriptive information, including a statement of the organisation’s: (a) Mission and values. (b) Governance procedures including the role of stakeholders. (c) Structures and processes for dealing with social and ethical issues. (d) Methodology adopted for process, including the scope of the exercise and the reasons for the exclusion of any activities, locations, stakeholders or issues from the process cycle. (e) Plans for future cycles of the process. The report should contain performance information, which includes: (a) Information on the organisation’s performance against its mission and values and standards, codes and guidelines to which it subscribes. (b) Information on stakeholder identified indicators (including stakeholder commentary on the organisation’s performance in relation to stakeholder values) for the current cycle and also comparative data for previous periods of account, if appropriate. (c) Information reflecting societal benchmarks – these include indicators for the organisation’s performance against legal requirements for performance and disclosure. The social and ethical report makes clear where issues and indicators are outside the power of influence of the organisation, or where the organisation is operating in partnership to affect the indicators. The social and ethical report may also include (a) Stakeholder commentary on the organisation’s selection of issues, indicators and auditor. (b) Commentary attributed to specific stakeholders on the organisation’s performance against its values and on salient issues relating to the interplay between the organisation and the stakeholder group. (c) An indication of any links with financial and environmental information where this enables a better understanding of the particular issues or the organisation’s decision-making processes.