introduction owen

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Introduction Social Accounting, Reporting and auditing: Beyond the Rhetoric?

David Owen and Tracey Swift

We are currently witnessing a dramatic resurgence of academic, professional and corporate

interest in social accounting and auditing that has been largely dormant since the 1970s. Reporting

initiatives of avowedly values driven companies, notably Traidcraft, Bodyshop and the Co-

operative Bank, launched in the second half of the 1990s, are eliciting an ever-growing response

from mainstream commercial organizations in a range of industrial sectors. Prominent amongst

these have been the oil giants Shell and BP Amoco, BT, Diageo, Natwest Group, BAA, TXU

(formerly Eastern Group), Camelot and United Utilities, and the number increases monthly as

further players enter the field.

Accompanying reporting initiatives have been a myriad of attempts to develop overriding

principles and standards designed to promote both quality of external reporting and underlying

management systems (see for example Zadek et al. 1997,Gonella et al. 1998). Noteworthy in the

latter context is SA8000, launched by the Council on Economic Priorities in Octuber 1997, which is

concerned with promoting enlightened labour management practices amongst third world

supplies. On the reporting side, the GRIs (2000) Sustainability Reporting Guidelines and ISEAs

(1999) Foundation Standard AA1000, which specify principles and processes to be followed in

order to secure the quality of social and ethical accounting, auditing and reporting have achieved a

great deal of prominence.

It is particularly striking that the practical and theoretical initiatives briefly referred to above all

seek to promote the business case for socially responsible management and reporting practices.

The argument that the economic, social and environmental dimensions of sustainable

development are increasingly intertwined is echoed, and indeed particularly cogently started, by

John Elkington (1997) in his advocacy or triple bottom line reporting. Significantly, Elkingtons

central thesis, that social responsibility provides a major means of achieving long-term economic

success, finds favour amongst many other influential commentators (see for example Wheeler and

Sillanpaa 1997, Zadek et al. 1997, Gonella et al. 1998, MacIntosch wt al. 1998, SustainAbility 1999).

Much of the analysis offered by these commentators adopts an almost evangelical tone, the

message essentially being that in the new media age of the global village and CNN works

(SustainAbility, 1999), socially responsible corporations will prosper, whilst the ungodly will be

exposed and suitably punished in the market place.

For us, this vacous consultant-speak with its essentially meaningless phraseology and jargon poses

a major problem in that its mere usage tends to displace necessary in-depth analysis of the

tensions and problems encountered in holding powerful economic organizations accountable.

John Pilgers (1998) rigorous expos of the power propaganda and censorship underpinning much

western corporate and government activity provides a powerful antidote to the cosy world of

organizational transparency increasingly peddled by enthusiastic advocates of the new wave of

social accounting and auditing activity- For Pilger it is simply a myth that we live in an information


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age. Rather, we live in a media age where the available information is repetitive, safe and

limited by invisible boundaries (Pilger, 1998:4), and democratic accountability and vision are

replaced by a specious gloss, the work of fixers known as spin doctors and assorted marketing

and public relations experts and their fellow travellers (Pilger, 1998:5).

Certainly the term specious gloss, rather than democratic accountability, describes many

corporate social reporting initiatives. Reports recently issued by the high street banking giants

Barclays and Natwest provide particularly apposite examples. The formers Social Review for 1999

appears under the reassuring title a shared interest and devotes much space to upbeat

messages about promoting employee well-being and making a lasting commitment to

customers. Significantly, it fails to make any mention of the then planned 171 branch closure

programmed, or the banks campaign (since withdrawn) to introduce cash machine charges.

Similarly, information on senior executive remuneration is conspicuous by its absence, as is

information on the 30 per cent hike in pre-tax profits and its relationship to the ongoing employee

redundancy programme. For its part, Natwest is happy to discuss ethical lending issues in general

terms within its 1999/99 Social Impact Review, but steers well clear of specifics such as the

controversy surrounding its dealings with animal testing laboratory Huntingdon Life Sciences.

Admittedly a handful of leading edge social reporters adopt a far more rigorous approach by

subscribing, in at least some degree, to the principles of stakeholders dialogue promulgated by

AA1000. However, even though in these cases the reporting exercise is informed by the active

canvassing of stakeholder views concerning key social issues, indicators and performance

outcomes, doubts remain over the real degree of change in organizational culture which this

represents. Does stakeholder dialogue amount to little more than sound marker research and a

renewal of 1980s-vintage joint consultation exercises? Are stakeholder management and

reputation management the driving forces rather than a desire to submit to some form of

democratic accountability? Certainly the disappointing public response to BTs firs social report

indicates that stakeholders themselves have real doubts as to the usefulness of the whole process.

Scepticism as to the degree of change in organizational culture an attitudes is understandable

when one looks at instances when economic and social or ethical considerations do not cozily

intertwine. Take, for example, the case of Marks and Spencer, enthusiastically endorsed by

researchers from the European Institute of Business Ethics as a company which knows that

behaving ethically is integral to their success and crucial to their bottom line (Zadek 1998

1998: 1422). This companys recent failure to please the capital markets dictated a decision to end

long-standing contracts with domestic suppliers and to seek out cheaper arrangements abroad.

The result? Major clothing supplier William Baird subsequently posted a 9.3 million loss, and a

company spokesperson referred to the huge human and financial impact of Marks and Spencers

actions. Similarly, Jarvis Porter and Coats Viyella soon followed suit in announcing factory closures

and substantial job losses.


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It is not our intention here to suggest that Mark and Spencer is less, or indeed more, ethical than

other high street retailers. The decision the company took was simply the traditional response of

any corporate operating under Western capitalist constraints and facing short-term financial

pressures. Our point is that pushing exclusively only the business case for social responsibility,

however intuitively appealing phrases such as triple bottom line may be, is unlikely to provide a

reliable means of securing meaningful and lasting change in corporate attitudes or reporting

practices. As Hummels (1998) reminds us, there is a fundamental ethical, rather than simply

commercial, dimension to be addressed. In particular, stakeholders are not merely those parties

who can influence, or be influenced by, the organizations continuity but are:

individuals and groups who have a legitimate claim on the organization to participate in the

decision-making process simply because they are affected by the organizations practices, policies

and actions. (Hummels 1998: 1408)

We are unable to discern within the burgeoning social accounting and auditing literature any

meaningful intention to transfer real decision-making power to stakeholders groups. Writers such

as Wheeler and Sillanpaa (1997) and Elkington (1997) do call for more inclusive forms of

governance, but this seems to amount to little more than nave reliance on voluntary corporate

action which is expected to move smoothly from a trust me through tell me to show me

culture (SustainAbility 1999)

The motivation for putting together this group of papers has been provided by the desire to move

beyond the mere consultant-speak and hype which underpins so much of the new wave of social

accounting and auditing activity. With one exception, initial versions of these papers were

presented at a full-day seminar on Accounting for Corporate Social Performance held in London

in March 2000 and funded by the ESRC. The phenomenal growth in interest in the field is reflected

by the fact that the workshop attracted some 100 participants drawn from academia, the

accounting profession, industry and commerce, NGOs and consultancies. The lively discussion

generated by bringing together such a wide range of participants proved particularly useful to the

presenters in developing the revised versions of their papers. These revised papers are offered

here in the hope of stimulating further debate.

In this keynote paper, Rob Gray, who for many years has been able to lay claim to being the

leading UK academic within the field of social and environmental accounting, looks back over

thirty years of social accounting, reporting and auditing activity and asks what has been learnt?

The answer is apparently not so much. In evaluating current practice he points to the lack of

theoretical rigour and the triumph of optimism and pragmatism over clarity of purpose, which is

leading to a a mlange of stakeholders dialogue, sustainability reporting (sic) and community

reporting which will not necessarily move us towards a more sophisticated and substantive

democracy (Gray, this issue).


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The key issue which particularly concerns Gray is the fact that we are moving away from the

accountability focus of much of the early work in the area, notably that performed by the

organization Social Audit Limited. In this view point accounting is largely worthless if it is not

anchored within the concepts of accountability and democracy. He further points to the need for

good quality independent attestation to the completeness and honesty of social accounts, and

bemoans the fact that this appears beyond the competence (or integrity) of most current auditors.

The following two papers, by Tracey Swift and Brendan ODweyer, delve further into the crucial

issue of accountability. In an intriguing analysis Swift presents an in-depth exploration of the

relationship between accountability, trust and corporate reputation building. Her essential

message is that in the current wave of social accounting and auditing activity corporations are

engaging in stakeholder dialogue and utilizing information thus gleaned for the purpose of self-

reporting on their trustworthiness as part of a reputation building process. There are no links to

institutional rights to information built into this process, and hence what we are witnessing is a

soft form of accountability. However, this is unlikely to be sufficient for promoting the ideal of

participative democracy should current power differentials between the organization and its

stakeholders remain unaltered, and hence mutual vulnerability not be established. In a situation

characterized by actual distrust of corporate management (rather than simply lack of trust) by

stakeholder groups, only the imposition of a positive duty to account upon the organization (and

establishment of associated rights to information for stakeholders), which Swift terms true

accountability, will suffice.

ODwyers concern is with the legitimacy of the accounting professions rapidly deepening

involvement in social and ethical accounting, auditing and reporting (SEAAR) activity. He argues

that should a concept of SEAAR become primarily focussed on true accountability to the wider

society (a process which in Grays analysis is absolutely essential) accountants participation,

particularly in the domain of external audit, can certainly be disputed. A neat coda to ODwyers

argument is provided in the following short paper by Adrian Henriques, formerly Head of

Corporate Accountability at the New Economics Foundation. Viewing social auditing as a means to

re-root formal organizations within the matrix of civil society from which they have emerged,

Henriques argues that the process can only be given legitimacy by the involvement of a civil

society organization (an NGO) rather than by leaving the field to accountants.

The final paper is contributed by Jane Fiona Cumming from the sustainable development

consultancy Article 13. Cumming presents the findings of a pilot study conducted amongst

companies, consultancies and NGOs which was concerned with establishing the current state of

the art of stakeholder dialogue and engagement practice. She points to a strong of meaningful

power being passed over to stakeholder groups. Significantly, the NGOs surveyed desire much

more in the way of citizen control, which would evolve via the linking of stakeholder dialogue to

business values, corporate governance and getting stakeholders involved in decision-making.

Although the collection of papers presented here addresses a wide range of issues arising from the

new wave of social accounting and auditing activity now taking place, one can discern a recurring


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concern amongst the authors. The concern is that the voluntary nature of the practice being

undertaken by organisations persuaded by the business case for adopting a socially responsible

profile has led to it being increasingly captured by managerial and professional interests, with the

result that true accountability slips off the agenda. Reporting organizations are not being forced to

re-examine in any meaningful way the moral underpinnings of their business practice or their

ethical responsibilities to stakeholders. In Grays terminology, the process isnt hurting.

A particular problem we have with the way social accounting and auditing practice is developing is

that mechanisms which ensure that stakeholder views and concerns feed directly into corporate

decision-making are largely absent (Owen et al. 2000). Even more significantly, there is a complete

lack of an institutional framework whereby stakeholders can hold corporate management

accountable for their decisions. Instead stakeholders are fed the line that their interests and those

of corporate management and capital providers are broadly identical, so that regulation of social

accounting and auditing practice whether it be concerned with information to be produced or

provision of institutional frameworks within that information may be used is completely

unnecessary.

Unfortunately, reliance solely on the business case and the benevolent nature of modern

capitalism provides a very shaky foundation on which to build a social accounting and auditing

practice that can deliver true accountability. On the reporting side, recent work by Campbell

(2000) indicates that corporate social disclosure practice tends not to be consistent but rather

varies according to the senior management team in place at a particular time. More

fundamentally, in terms of organizational practice, yesterdays, good guys can all too easily

become tomorrows bad guys. We have already alluded to the example of Marks and Spencer. A

salutary lesson is also provided by re-reading Elkingstons (1987) enthusiastic descriptions of

Monsantos health and safety and environmental management practices together with their

commitment to public disclosure!

In view of the above we are disappointed to note the emphasis placed on a so-called inclusive

approach to directors duties within the latest consultation document form the Company Law

Review Steering Group (DTI 2000). The alternative pluralist approach floated previously (DTI

1999) whereby company directors would owe enforceable accountability to a wider range of

stakeholders than merely capital provides has been dropped in favour of a requirement that:

directors have regard to all the relationship on which the company depends and to the long, as

well as the short, term implications of their actions, with a view to achieving company success for

the benefit of shareholders as a whole (DTI 2000: viii, emphasis added)

Admittedly the document does offer some endorsement of the principle of wider public

accountability through improved company reporting. This is to be achieved via statutory

publication of an operating and financial review which explains the companys performance,

strategy and relationship with employees and others, and its impact on the community and

environment. However, much is left to the discretion of directors, who have only to disclose what

in their view is material and relevant. Not surprisingly, for one influential commentator (Cowe

2000) the company law review process has, despite the initial grandiose intentions of creating the

stakeholder company, simply ensured that stakeholders rights are no longer on the agenda, so

that Victorian-age company law looks set to stay!


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We conclude, therefore, on a depressing note of dej vu. The 1970s witnessed an explosion of

reporting and accompanying corporate lip-service to notions of social accounting and

accountability. In the absence of any statutory response all this was too easily swept away in the

subsequent Thatcherite greed is good years. Will things be different this time round, or will we

once again be left a legacy of empty rhetoric?

introduction owen

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