Social Accountability and Disclosure

This article throws light upon the two approaches followed for social accountability and disclosure. The approaches are: 1. Narrative disclosure 2. Reporting in Formats.

Social Accounting: Disclosure Approach # 1. Narrative disclosure:

Important social issues, e.g. on pollution control, equal employ­ment opportunity, product safety, etc., are addressed in contemporary financial reports as ‘foot­notes’. They are mainly verbal descriptions, and highlight information mostly in an optimistic tone for the knowledge of the public.

These disclosures are mostly non-quantitative, and generally lack appropriate appraisals and evaluation from the fundamental view point of social accountability.

Example: In the area of environmental protection:

“Conserving materials through recycling has been a way of life in the Company for over fifty years. During the year we added two new recycling procedures to our repertoire. One technique is to recycle the excess plastic produced during normal cable manufacture thus saving 800,000 pounds of polyethylene annually, the equivalent to 230,000 gallons of oil”.

The annual reports publish involvements in the areas of either community participation through contributions in support of art, education and other projects of social significance, employee safety by reducing incidents, injuries and illnesses. Such disclosures reveal internal matters only.

Social Accounting: Disclosure Approach # 2. Reporting in Formats:

Much of the interest in corporate social reporting is the development of new and distinctive reporting models or formats. Such formats “range from Marlin’s one-dimensional statement, which is restricted to physical information about pollution, to the complex statements of Abt. Associates, Inc. and Seidler., which present in monetary terms information on several dimensions of social concern.”

Illustration 1 – Marlin’s Proposal:

Marlin proposed two approaches to reporting on a company’s pollution (as an illustration).

Firstly, one report compares the company’s controls with the state-of-the art standards (established either by Marlin or jointly with AICPA), and

Secondly, the other report to present actual pollution emissions figures with certain Federal’s or State’s Standards. In a word, such reports could be generalized to produce a separate report on each area of significant social concern.

This approach focuses on measures that are actually being made, not hypothetical; calls for standards; and discloses such information which can be attested by an outside auditor. Integration of information on various social aspects to produce an overall rating or evaluation is the limitation of this approach.

Illustration 2—Social Action Report:

Scovill Mfg.. Co., in the Annual Report, used the Balance Sheet method of reporting to attach monetary values to all of the ‘social action’ things done and reported.

The ‘Social Action Report’ was modelled as:

Illustration 3—Abt. Associates Format:

Abt. Associates’ social audit represents one of the most ambitious social reporting efforts. This model presents both stocks (balance sheet) and flows (income statement). All measurements are in money units. It attempts to integrate both traditional financial and social effects into a single set of statements.

The reporting model, which is given below in short- form, appears to be very appropriate during the present evolutionary stage of social accountability.

Social and Financial Balance Sheet and Income Statement:

In the above the ‘social assets’ reflect the social costs to reconstitute the firm and the ‘social liabilities’ include commitments by the firm to ‘non-socially productive contracts’ and ‘environmental pollution’. The benefits and costs appearing in the Social Income Statement indicate current-period effects in separate categories with a net social income or cost for each category.

Illustration 4—Socio-economic Operating Statement:

The business firms reflect their positive and negative contributions to society. It describes the voluntary activities of the firm to enhance social welfare as well as the actions which could have been, but were not pursued to improve social conditions during a given period. This report consists of two parts, improvements and detriments in each of the three areas: employees and the public, the environment, and product safety.

The improvements and detriments are specified respectively in terms of costs which were actually incurred or might have been incurred. This statement is entirely input-oriented and fails to explicitly consider the improvements or benefits as outputs of corporate social actions. Consequently, the model understates the benefits which probably represent a multiplier effect of the costs or inputs stipulated.

Illustration 5—Social Income Statement:

It attempts to measure the contributions made by a company.

Such a statement, although simplistic, takes the following model:

1. Value added by production:

[Assuming all production goods, or labour, mineral extraction and capital consumption]

2. Plus: Socially desirable outputs not sold:

[Such as job training, health improvements, employment of minorities and backward people, etc.]

3. Less: Socially undesirable effects not paid for:

[Such as air and water pollution caused by the firm, health crises caused by using the firm’s products e.g. organic chemical products having obnoxious properties]

4. Net value (social profit or loss):

In the model above, the added value would reflect the particular firm’s own contribu­tions—what it sells less what it buys. The ‘socially desirable outputs not sold’ represent external economies, i.e. social benefits stemming from private costs for which no internal benefits have been received.

‘Socially undesirable effects not paid for’ reflect the costs which the firm imposes on society but is not charged for—external diseconomies or private benefits stemming from costs borne by the society.

Conclusion:

Most of the firms, however, furnish nothing more than verbal descriptions of their activities in the social arena. While some companies do supply quantitative as well as verbal information, very few provide comprehensive social accounting statements. Moreover, the corporate social accounting and reporting are all typically too generalized, simplistic, and glossy.