1. Chapter 12 The Social Audit

2. Copyright © Houghton Mifflin Company. All rights reserved.12–2 Social Auditing The process of assessing and reporting business performance of economic, legal, ethical, and philanthropic social responsibilities expected by stakeholders. Social auditing is an objective approach to social accountability.

3. Copyright © Houghton Mifflin Company. All rights reserved.12–3 Social Auditing (cont.) Social auditing provides tools that companies can use to: –Identify and measure their impact on stakeholders. –Communicate this information internally and externally. –Apply this information to make continual improvements in areas that stakeholders see as important.

4. Copyright © Houghton Mifflin Company. All rights reserved.12–4 Why Social Audits? To achieve the best social performance possible. To project a good image in light of negative publicity. To facilitate organizational improvement and organizational learning.

5. Copyright © Houghton Mifflin Company. All rights reserved.12–5 Benefits of Social Auditing Permit stockholders and investors to judge whether a firm is achieving the goals it has established and abiding by the values it has specified as important. Improve relationships with stakeholders. –Increase transparency. –Develop a dialogue.

6. Copyright © Houghton Mifflin Company. All rights reserved.12–6 Benefits of Social Auditing (cont.) Can assist the organization in identifying potential risks and liabilities. Can assist in coordinating programs throughout the firm. Allow the company to assess its impact on the environment, the community, and society.

7. Copyright © Houghton Mifflin Company. All rights reserved.12–7 Fortune’s Most Admired Companies for 2003 Wal-Mart Southwest Airlines Berkshire Hathaway Dell Computers General Electric Johnson & Johnson Microsoft FedEx Starbucks Procter & Gamble

8. Copyright © Houghton Mifflin Company. All rights reserved.12–8 Risks of Social Auditing May result in serious problems being uncovered that the company would prefer to not disclose. May result in stakeholder criticism and dissatisfaction. Imposes a burden on recordkeeping and costs. Provides no guarantee that the firm will not face challenges related to its citizenship efforts. Is a relatively new process with few common standards.

9. Copyright © Houghton Mifflin Company. All rights reserved.12–9 Crisis Management and Recovery Crisis management plans –Prepare a company to respond to and recover from social responsibility disasters that can result in legal and financial costs and disrupt routine operations, paralyze employees, reduce productivity, damage reputation, and affect shareholder confidence.

10. Copyright © Houghton Mifflin Company. All rights reserved.12–10 Crisis Management and Recovery (cont.) Contingency planning is tied to risk assessment and planning for potential negative occurrences. –Provide tools to respond to the crisis.

11. Copyright © Houghton Mifflin Company. All rights reserved.12–11 Figure 12.1 "Framework for Social Auditing and Disclosure at The Body Shop International” Source: Maria Sillinpaa and David Wheeler, "Integrated Ethical Auditing: The Body Shop International, UK" in Building Corporate Accountability: The Emerging Practices in Social and Ethical Accounting, Auditing, and Reporting, ed. Simon Zadek, Peter Pruzan, and Richard Evans (London: Earthscan Publications Ltd, 1997), p. 116.

12. Copyright © Houghton Mifflin Company. All rights reserved.12–12 Social Auditing vs. Financial Auditing Financial auditing is concerned with a company’s claims about its financial performance, whereas the social audit is concerned about citizenship and social responsibility.

13. Copyright © Houghton Mifflin Company. All rights reserved.12–13 Social Auditing vs. Financial Auditing (cont.) Social audits are voluntary; financial audits are required of publicly traded companies. The two audits use the same procedures and processes to create a system of integrity with objective reporting, and both begin with planning.

14. Copyright © Houghton Mifflin Company. All rights reserved.12–14 The Auditing Process Secure top management support and/or board support. Establish an audit committee. Define the scope of the audit process. Review mission, policies, goals, and objectives. Define social priorities relative to stakeholders.

15. Copyright © Houghton Mifflin Company. All rights reserved.12–15 The Auditing Process (cont.) Identify tools to measure achievement. Collect relevant information. Analyze the data. Verify the results by an independent agent. Report the findings to the audit committee.

16. Copyright © Houghton Mifflin Company. All rights reserved.12–16 Strategic Importance of Social Auditing Conduct social audits on a regular basis. Potential problems –Expensive and time consuming. –Selecting qualified auditors can be difficult. –Can be disruptive to employees.

17. Copyright © Houghton Mifflin Company. All rights reserved.12–17 Strategic Importance of Social Auditing (cont.) Benefits –Social responsibility reports are a useful management tool. –Asset reallocation can be determined. –Profit growth and risk reduction can be more effectively achieved. –Stakeholder relations can be improved.