NYT
March 24, 2002
The New Accountability: Tracking the Social Costs
By AMY CORTESE
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The Enron-Andersen debacle has cast an
unforgiving light on corporate bookkeeping,
but the growing demand for accountability could
extend far beyond financial statements. Pressure
from investors, customers, consumer activists and
even some governments is pushing more
companies, particularly multinational ones, to report
their nonfinancial performance, detailing the impact
of their businesses on the environment and human
rights.
This so-called social reporting has been under
way
since the late 1980's, when corporations, reacting
to the growing environmental movement, began publishing
brochures about reducing pollution. But many of
those early efforts produced little more than glossy
propaganda.
In the last few years, the forces of globalization
and increased access to information via the Internet have
helped to expand the scope of social reporting.
In addition to providing environmental, health and safety
reporting, companies are beginning to report on
all aspects of their social performance, from the amount of
waste they reuse to the wages they pay to workers
abroad.
Advocates of this more rigorous reporting, which
they call "sustainability reporting," say it provides
the most
accurate appraisal of a company's potential and
risk.
"As your number of suppliers and the number
of people looking at you goes
up, you need new tools for measurement," said
Robert Massie, a founder
and director of the Global
Reporting Initiative, a group based in Boston that
has been working with the United Nations to devise
internationally accepted
standards for social reporting. "Leading indicators
are not just financial."
More companies may decide that such reporting
is good for business. A
1999 survey of 25,000 people worldwide by Environics International,
a
research firm, showed that 56 percent formed opinions
of a company based
on its social behavior, versus 34 percent based
on financial fundamentals like
profits. Forty percent said they had boycotted or
considered boycotting
companies they viewed as irresponsible.
A handful of companies, like Royal Dutch/Shell,
Minnesota Mining and
Manufacturing (news/quote), General Motors (news/quote)
and Ford Motor
(news/quote), have been producing sustainability
reports since the middle to
late 1990's. A Web site that tracks social reporting,
CorporateRegister.com,
counts 487 sustainability reports published last
year, up from 194 in 1995
and 7 in 1990. (Social reports of all kinds, including
environmental and safety,
number in the thousands.)
The biggest new entry is McDonald's (news/quote),
which plans to release its
first sustainability report the week of April 15.
With operations in 121
countries, McDonald's symbolizes the expansion of
American business and
has been a lightning rod for activists protesting
everything from American
culture to genetically modified food.
Bob Langert, the company's senior director for
social responsibility, said the
publication of a sustainability report was not prompted
by any one incident.
"There is more interest in what companies like
McDonald's are doing with
social-type issues," he said. "We want
to provide a full view of where we've
been, where we're at and where we're going."
Its 50-page report will address issues like beef
safety, a suppliers' code of
conduct and the company's treatment of overseas
employees and franchise
owners.
Other companies working on such reports for the
first time include Alcoa (news/quote), International Paper
(news/quote) and Siemens. "There's no doubt
that the world at large is looking at the broader imprint that
companies leave on society," said Jake Siewert,
a vice president at Alcoa.
In another sign that social reporting is growing,
some large accounting firms are jumping in, looking to expand
their auditing and consulting services. Only 40
percent of social reports are now audited. "A lot of our
clients
and our clients' clients are asking for this,"
said Sunil Misser, partner in charge of a new practice for corporate
social programs at PriceWaterhouseCoopers.
Still, there are no common standards or oversight
groups, leaving wide variability in the reports and audits.
For auditors, the conflicts on the financial side
— relationships that provide more than one service to clients
— can be true on the social side as well.
A bigger problem to overcome may be public skepticism
of corporations fed by scandals, such as the
collapse of Enron (news/quote) and indictment of
its auditor, Arthur Andersen.
VOLUNTARY self-reporting by corporations lacks credibility,
said David C. Korten, the author of "When
Corporations Rule the World," a 1995 book considered
the bible of the movement against globalization. "If
we cannot trust management to put out an honest
report to shareholders," he said, "it would be silly
to put any
credibility in these social reports."
Many companies may view social reports as an
opportunity to "greenwash" — to highlight the good
and omit
the bad — with glossy images of employees planting
trees, butterflies or cupped hands holding a globe. "We
want to see specific targets that can be measured
year to year," said Paul Scott, director of NextStep
Consulting, a British firm that helps companies
create these reports and runs the CorporateRegister.com
database. Still, he said, "producing a report
is a good way to get management to sit up and take notice."
Indeed, social reporting, once a squishy exercise,
is becoming more serious. The
Global Reporting Initiative
drafted guidelines a few years ago, and 100 big
companies are following them. In Europe, some countries —
the Netherlands, Denmark, Norway and France —
require some sort of social reporting. More than 200
companies have signed the United
Nations Global Compact, which commits them to a code of
conduct that
includes abolition of child labor and slave labor,
recognition of union rights and responsibility for preventing
environmental damage. The code has no enforcement
provisions, but supporters say it is symbolically
important, much as the Sullivan Principles were
in pressuring South Africa to end apartheid.
At Shell, which will publish its fifth sustainability
report next month, there is a conspicuous sensitivity about
consulting with local groups in the planning of
new projects. A pipeline completed last fall in the Philippines,
for example, was routed to avoid sacred burial sites,
coral beds and fishing grounds. That contrasts with
Shell's old behavior, which caused a public backlash
that hurt its reputation. In 1995, for example, when the
company announced plans to sink an oil platform
in the North Atlantic and worked with a repressive regime in
Nigeria, protesters denounced the company and Shell's
European sales plummeted.
Mark Wade, the sustainable-development manager
at Shell, said those protests "triggered our understanding
of the importance of building relationships."
In Shell's sustainability report, the company
offers an annual measure of how it is doing on its commitments,
like reducing emissions that many scientists say
contribute to global warming. Shell's upcoming report, it said,
would show the company had reduced such emissions
by nearly 10 percent from 1990 levels. In contrast, the
Kyoto treaty to stop global warming, which the United
States has not signed, sets a 2002 goal of a 5.2
percent reduction from 1990 levels.
In a move that advocates of social reporting
say foreshadows corporate reporting to come, Shell will include
its sustainability report in the same binding as
its annual financial report for the first time this year, underscoring
the message that the two go hand in hand. Most companies
that publish social reports now do so separately
from their financial reports.
The Centre for Tomorrow's Corporation,
a business-sponsored research group in London, said Shell's move
portended an overhaul of the corporate annual report.
"The future is inclusive reporting," said Mark Goyder,
the group's director. "We want the finance
director, not the environmental director, lying awake at night
wondering if he has the right social performance
metrics."