Social Assessment continued by Chris Nelder
		Problems of Social Assessment The field of rigorous social assessment is really only beginning to be explored by a few pioneers, such as Kirk Hanson of the Stanford Business School, who recently completed his independent commissioned assessment of The Body Shop; Jon Entine, who performed his own, uncommissioned audit of the same two years ago; Paul Hawken, who performed Ben & Jerry's commissioned audits from '92 to '94; and a few other agencies like Gil Friend & Associates in California, Green Audit in New England, and the New Economics Foundation. These precedents certainly provide a good basis for the field, but there are a lot of questions to be answered, and problems yet to be solved. A matter of time One of the problems, simply, is time. At this early stage, there is a dearth of long-term social data on most companies, and it's hard for small auditing organizations to track the necessary dimensions consistently over time. Gravitz: "Again if you look at the financial infrastructure, there is a huge infrastructure out there, Standard & Poor's, Dow Jones, Dunn & Bradstreet, and those are just the instantly recognizable names, but in addition every large bank has it's own set of analysts, every large mutual fund, every pension fund, there's all these consultants--there's this whole world, this enormous infrastructure out there that gets this kind of information out to you, and they are expensive services! We're here in our little tiny infant industry, there are two or three tiny companies doing their best on a shoestring budget to monitor the social and environmental performance over time of companies. So there's the time dimension too, what kind of progress is a company making over time?" Emergent methodology Another basic problem is the lack of any standard methodology to use in assessments. The models developed so far have shed some light on the problems of the process, and to be sure, they have produced some useful and intelligent analysis. But we're a long way from a standard, presuming that one is even possible. Hawken seems to think not: "They never will standardize it, because it's so soft and interpretive. That's why I never use the word 'audit,' I always use 'assessment', because it's not the financial world, and you can't track everything down to the last penny." The SRB/SRI business leaders are looking to academia for the answers. Domini: "I think that one thing that is absolutely critical is academic research. Everything--modern portfolio theory, derivatives trading, global economics--all of them got their start with profound academic research. As long as this field doesn't have it [standardization will continue to elude us]." Even from her vantage point in the industry as one of the top SRI analysts, she finds a real need for better methodology. "I think a lot of the audit process that I hear about is more based on the kinds of internal audits Stonyfield Yogurt has done or something. They're really tools to help management see whether or not they're consistent with their vision and have taken advantage of every opportunity. I haven't yet seen somebody who understands the goals of these companies better than those of us who are already auditing them." Hanson's method Kirk Hanson may have some answers, from his perspective at the Stanford Business School. He has been involved in the field for over 20 years, and it is because of his independence and authority that the Body Shop hired him for their recent independent audit. For that report, he gave them grades of 1 to 5 stars on 39 dimensions of social performance. Hanson identified four fundamental questions that one must answer in developing an assessment: What are the dimensions of social performance? What's the standard/metrics? How far do you go in your study, how extensive should it be? Is the assessment done by insiders or outsiders? Social Performance The dimensions of social performance are certainly arguable. Gravitz summed it up like this: "One school of thought says that, whatever the activity is, it has to be as socially and environmentally responsible as possible. And the other school of thought says, well, it depends on what the activity is. Isn't having a "responsible production of chlorine," for example, an oxymoron?" Hanson agrees: "In some senses you could say that everything is social performance; any time a company does anything, there's going to be somebody affected. And I think we will continue to hone our ideas. These 39 dimensions are my definition for the Body Shop of what social performance is. They're condensed from over 200 categories I started with." Standards There are today few generally accepted measures of social responsibility, and really no standards. Hanson put it like this: "What's your standard? Is there some kind of absolute scale? Say, this company gets a 43% on governance? There isn't an accepted metric. There aren't even accepted standards of 'best practice' in many areas, although in governance you do have the Cadbury Standards used in the UK and you have the requirements of the New York Stock Exchange and such in the U.S. But in many dimensions there are no standards of 'best practice'. So what is your metric?" For his report, Hanson chose a comparative method which weighs the company's performance against that of other companies on average, for each of the dimensions he assessed. "The metric I used, which is in some sense a default ... is on the other hand, very useful because every company wants to know how they size up and compare to others." Extensiveness An obvious question is, how far do you go, in breadth and depth, in your evaluation? Hanson chose a sampling method, acknowledging its limitations. "Financial auditors too, if you gave them an unlimited budget they could evaluate and verify every single transaction in the organization. But that's not realistic for financial accounting and it's certainly not realistic for social accounting. I put in 60 days [on the BSI evaluation], and to do that I have to not only have what areas I'm looking at but then I've got to develop a sampling methodology. Say, if I'm evaluating how they do in handling customer complaints, how do I do that? Well, I picked 10 random customer complaints in the UK and 10 random customer complaints in the US and I tracked how they handled them. And then made my evaluation on that dimension, although I also evaluated their system for handling them, and based on my understanding of management systems I gave them a ranking that, yes, they were good, or that they were poor, and so on. "But how many stores do you visit in order to say how well the stores implement the policies? We visited 10 UK stores and 15 US stores. Was that the right number? Well, I suppose that's challengeable. In the sampling I feel like I do have an accurate feel for the overall social performance, but always, just like the financial auditor, you're going to miss instances of particularly exemplary behavior and particularly substandard behavior because you're not doing a 100% sample." Internal or external? Finally, is the assessment done by insiders or outsiders? Like Hawken, Hanson believes that assessments must be done by an external auditor. Hanson sees a future where it will mainly be done "by insiders, with external verification. Like environmental auditing. So you'll develop the internal management information systems that collect this data, and then the outside verifier will go over that, do their sampling of whether that data was collected correctly." This year, the Body Shop subjected itself to two social evaluations, and internal one and an external one. The internal one basically was built around a stakeholder opinion survey. Hanson is critical of the internal one: "What you were doing was asking the stakeholders, 'how are we doing?' And the stakeholders, number one, have imperfect understanding of what your actual performance is, and number two, you may or may not succeed in getting them to state all of their views, and your methodology has to be pretty good in your survey. So I don't think that stakeholder attitudes are an adequate proxy for social performance." "As one of my colleagues here says, it's a 'lagging indicator.' Even if they have really good information, they wouldn't know what the current systems are that control future performance. So that's a question." UK / ISO standards In the UK, a variety of standards originally formulated to assesses environmental responsibility may be consulted, such as BS7750, ISO 9000, and the New Economics Foundation's Environmental Management System (EMAS). BS7750 requires an Environmental Policy to be in existence within the organisation, fully supported by senior management, and outlining the policies of the company, not only to the staff but to the public. EMAS includes a requirement of a preparatory environmental review, and a company declaration of environmental objectives. It establishes procedures, work instructions and controls to ensure that implementation of the policy and achievement of the targets can become a reality. In addition to requiring an internal management system at the company, the NEF standards also require a planned comprehensive periodic audit of the system, at least once every three years, to ensure that it is effective in operation, is meeting specified goals, and the system continues to perform in accordance with relevant regulations and standards. Principles of social auditing The NEF has identified a number of key principles underlying their social audit method, which centers on stakeholder consultations: Many Perspectives - accounts are based on the views and accounts of all stakeholders, as well as the mission statement and wider interests of the organisation concerned. The significance of this is profound, since it allows for the concerns of people with no direct authority to determine its aims to be heard. Comprehensive - accounts are comprehensive assessments of an organisation's social impact and ethical behaviour, covering the interests of - for example - staff and volunteers as well as clients and intended beneficiaries. It is critical that this principle is upheld to avoid any exclusion (deliberate or otherwise) of reporting of one or other aspect of the organisation's activities. Regular - accounts are produced annually (just like financial accounts). Social and ethical accounting over time becomes an integral part of the information system of the organisation, and thus the organisation becomes suitable for regular reporting in this area. Systematisation of Social Bookkeeping - the principles of comprehensiveness and regularity imply that the organisation is required to systematise the collection of information relevant to the social accounts. Externally validated - the principle of external verification has been central to social auditing. A two-stage approach has been adopted. First, an external person - the Auditor - agrees a methodology with the organisation, and monitors the preparation of the social accounts. As an additional cross-check, however, the Auditor then establishes an Audit Group comprising representatives of the stakeholders consulted which assesses and comments on the draft accounts. Disclosure - audited accounts must be disclosed to the stakeholders, as well as other possible groups. Thus, unlike traditional evaluations, the social audit is in the public domain. This is critical, since it is largely through public disclosure that the interests of diverse stakeholders are made effective. Continued... CONTENTS Introduction Roots of Social Assessment Problems of Social Assessment Emergent methodology The criteria The need for validation Organizational Benefits Visions for the Future What do you think? "Isn't having a 'responsible production of chlorine,' for example, an oxymoron?"
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