How far toward the social audit?

Otto Lerbinger

How Far Toward The Social Audit? Dr. Otto Lerbinger is a professor and director of the Public Relations Graduate Program in the School of Public Communication at Boston University . He prev iously taught at M .I.T . and did research at Princeton University. He has also been associQted with Ruder & Finn, lnc ., as director of research And development. He is the author of numerous books and has held offices in the Public Relations Society of America and the Association for Public Opinion Research.

T

he 'social audit, a concept long dormant, has in the past few years been considered by corporate management as a promising way to review and guide social performance. Management consultants, accountants, and sOcial scientists are the main actors in this unfolding, pioneer development, With public relations professionals playing a somewhat hesitant and uncertain role. The aim of this paper is to relate the social audit movement to public relations and convince public relations professionals that they too are qualified to become more centrally involved in this highly interdisciplinary and challenging endeavor. ,. . Concern over what is/known as the social audit is an inevitable cOnsequence of increasing public pressure for greater corporate social responsibil_ ity-a phrase that has been bandied about so long and so loosely that it has lost much of whatever meaning it may have had.! The purpose of the SOcial audit is to provide an operational definition of social responsibility by breaking it down into manageable components that can be described, measured in various degrees, and evaluated. Just what constitutes a social audit is not yet agreed upon. Some see it as little more than a cataloguing of social action programs for public relations purposes. Only a few see it in the form proposed over twenty years ago by the economist, Howard R.Bowen, who wrote in his book, Social Responsibilities of the Businessman: Just as businesses subject themselves to audits of their accounts by inde_ pendent public-accountant firms, they might also subject themselves to periodic examination by independent outside experts who would eva]; uate the performance of the business from the social point of view." Most advocates of the social audit seem to accept the intermediate approach of attempting to evaluate social performance without obligation for public disclosure. That the stakes are high is implicitly recognized, for While

38

-

Soelal Audit the social audit can help management to integrate social with economic values and thereby strengthen the free enterprise system, it can also head the economy in the direction of a "do-it-yourself" socialism. Partly for this reason, but more in deference to semantical accuracy, some writers have urged use of the term "social accounting" to refer to the generation of information while reserving "social auditing" for Bowen's meaning of independent verification or attestation." Further distinctions are drawn in this paper by examining six stages in the development of the social audit: (1) accepting social responsibility, (2) publishing social reports, (3) designing a system of social accounting, (4) developing guidelines for social program management, (5) devising measurements, and (6) conducting an outside social audit. By examining each stage we are better able to determine what aspects the public relations professional is equipped to handle. Stage 1: Accepting Social Responsibility The basic requirement in working toward a social audit is that management agree to accept the principle of social responsibility-a term which at least means not doing harm to others and, in a larger sense, becoming involved in efforts to help solve the nation's social problems.' Such acquiescence does not imply altruism or a philosophical denial of the primacy of economic motivation. It simply demands that business take a long-run viewpoint that recognizes the ultimate interdependence of business and society. And from a pragmatic, short-run viewpoint business is asked to recognize the immediate and growing pressures from public-interest groups and the government to respond to more than legally-mandated requirements to act in the public interest. Historically, public relations counselors have played a significant role in interpreting the necessary demands of social responsibility to business. As "keepers of the corporate conscience," they have generally leaned toward one of two major business ideologies concerning its social responsibilities." The so-called classical creed, espoused by men like Milton Friedman, asserts that society can best be served when business sticks to maximizing profits for the benefit of its stockholders, while government and other institutions in a pluralistic society assume the responsibility of looking after the general welfare." Opposing this view is the managerial creed, which recognizes management as the trustee for many social groups and as voluntarily and actively seeking to solve the many social and environmental problems afflicting the nation. Proponents of the social audit lean in support of the latter view because their attention is focused on such long-term goals as survival, growth, and increasing respect and acceptance by the public. 7 Particularly in the new literature of social responsibility, profit as the sole symbol of success and progress is seriously questioned. George Cabot Lodge of the Harvard Business School raises the question of our outmoded ideology when he writes: For example, in the abstract, profitability is the best measure we have of effective employment of economic resources. But profit is really a some39

Public Ilclatlons Ilcvlcw what ineffective measure of business' social and political effectiveness. If profit is taken as the sole or major aim of business, othe~ social ?nd political relationships between business and the surrounding environment may be neglected, and business may ultimately be denied even its objective of profit. 8 David Finn, chairman of Ruder & Finn, Inc., goes even further in his The Corporate Oligarch when he discusses the utilization of corporate reSOUrces for the service of public interests in every way possible: "T his will require putting the old maxim of profit, growth and corporate benefit where theJ:' truly belong, in the junkyard of outmoded symbols, and, in their place, raIsing a new standard which will make it clear that the corporate oligarch's mission is to build a just society capable of fulfilling the potentialities of all its citizens."9 The new rhetoric of social responsibility does not supplant the necessity for profits but asks that social values by considered along with-and some say ahead of-economic values. The minimum acknowledgment required by advocates of the social audit is the recognition that the total impact of a bUSiness is much greater than indicated by the profit and loss statement 'or balance sheet. In addition to financial transactions which are mainly mediated by the market place, the unrecorded transactions that measure the value and COst of the larger impact of business on society, and vice versa, should not be ignored simply because they are unadorned by dollar signs. Even if management preferred to ignore the ideology of social responsibil_ ity, it cannot-at least not in the publicly visible corporation. That public pressure is aimed squarely at top management and the board of directors Was evident at the historic 1970 annual meeting of General Motors. Stockholders had to vote on two proposals submitted as part of "Campaign GM " by a group associated with consumer crusader Ralph Nader. One proposal called for the appointment of three "public interest" directors to the board; the other asked for the creation of a shareholders' committee to evaluate GM 's activities in social and environmental concerns. Although these proposals were easily defeated, GM subsequently responded to this pressure by placing Rev. Leon Sullivan, the first black, on the board ; creating a Public Policy Committee, and forming an environmental activity staff. Top management at GM and elsewhere got the message that directors must "audit more than just profits," as Business Week put it. 10 The implication of this new attitude is that the rhetoric of social responsibility rnust be supported by performance and institutional change. In short, conditions calling for a social audit are now firmly established. Stage 2: Publishing Social Reports Acceptance of social responsibility, especially in response to social pressure, almost automatically leads into the second stage of publishing social reports. Corporate management's attitude is symbolized by Exxon's "We Want You to Know" slogan and should be distinguished from disclosure demands in terms of the public's "right to know ." The latter is a very sensitive issue that immediately extends the social audit

40

--

Social Audit process into advanced stages . Because of pressure from public-interest groups, recently reinforced by an order from a U.S. District Court, the Securities and Exchange Commission is charged with considering regulations requiring "broader disclosure in the environmental and equal opportunity areas."!' The intention is not only to inform the typical financially-oriented investor about the economic impact of environment and social regulations, but to recognize the new-style "ethical investor" as well.P In either case, the research task that confronts the writer of a social report is to inventory all activities with social significance . Simply to do that would be a major step forward for most companies. 18 In deciding which items to include in a social activity inventory, one approach is to concentrate only on explicit social programs and to ignore the social impact of mainstream activities. The Bank of America has done this by studying four programs: one which reduces home loan terms to low-income borrowers ; one which liberalizes terms for minority entrepreneurs; a National Alliance of Businessmen program for hard-core hiring and upgrading efforts; and a student loan program. 14 Existing records can be examined and those involved interviewed. Because of public pressure, corporate social reporting must usually extend to the impact on the social and physical environment of their production processes, the nature of their products, and such decisions as where to locate a plant. Even then, however, the in~entory is likely to be selective . The criterion IS chosen on a purely reactive basis, namely, to respond to issues that the government or public is particularly interested in . Another basis of selection is to choose those programs that are highly visible and strategically useful for publicity purposes-a tendency associated with public relations . A third basis for selection is to select items that can easily be identified and measured-for example, programs dealing with safety or the training of minority workers. Social reporting typically takes one of three forms: inclusion in the annual report, a specialized report on a single topic, and comprehensive social reports. The subject of corporate responsibility has continued to get top billing in annual reports . In 1973 almost two-thirds of the reports contained sections about pollution control, minority hiring practices, and general corporate citizenship;" A content analysis of annual reports from 1965 to 1971 shows that the portion of the annual report devoted to social responsibility rose from 1.4 percent of the report in 1965 to 4.8 percent in 1971. 16 The emphasis on different subjects changed during this time-away from philanthropic activities and social and community involvement and toward environmental issues. Some companies gave special treatment to social reporting in their annual reports. Scovill Manufacturing Company's 1973 annual report contained a "Social Action Report" in the form of a balance sheet. Under the employment opportunities section, for example, Scovill cites as an asset an increas~ in m~­ nority employment from 6 percent in 1963 to 19 percent in 1972. Balancl~g this item in the liabilities column is the statement that the company needs more upgrading of minority employees into higher labor grade jobs ."IT.Eastern Gas & Fuel Associates included a special insert entitled "Toward SOCial ~ccount­ ing" in the back cover of their 1972 annual report. Selected .for aue~t~on were four topics: industrial safety, minority employment, chantable glvmg, and 41.

Publle Ilelatlon!li Ilevlew pensions . The second form of social reporting-the specialized report on ~ single topic-is illustrated by Alcoa's report on "Energy Use and Conservahon." It was first published in March 1973 and updated in November 1.974 with the explanation that: "This revised report describes new energy-savmg programs . initiated by the company . It includes updated figures that illustrate Alcoa's current position as a generator and user of energy. It is intended to demonstrate Aloca's determination to be part of the energy solution-not the problem." . The third type of social report is the comprehensive but non-technical booklet. An example is Standard Oil Company of New Jersey's (~ow Exxon's) 56-page "Social Action " booklet published in 1970. It reports on eVOlving programs to meet the social responsibilities of the corporation i~ ~~e World of the 1970's." After stating Jersey's philosophy of social responsibility, the report summarizes the following: • Company programs to prevent damage to air and water resulting from operations of its affiliates, and from the use of its products . • Ways in which Jersey's affiliates have translated into action its cOn_ cern with the ultimate resource-people-the development. <;>f their potentials, and the improvement of educational opportunities and methods. • . Efforts to develop and conserve through proper utilization the earth's natural resources for the coming generations. • Jersey's position on certain questions of public policy which affect the petroleum industry, the future of energy supplies , and the strength and security of the United States and the free nations. The report was used to reply to students and social protest groups who . wanted to know what Jersey had been doing in one or several social areas. It was also made available to stockholders who requested it. While these forms of public social reporting serve a valuable public relations function, they do not accomplish other objectives associated with the social audit. The scope of social accounting is limited, as is the attempt to evaluate the merits of each program . The Jersey report, for example, does not list the social deficiencies of its operations and relies mainly on journalistic descriptions of each program rather than on quantitative data and a consideration of alternative programs to achieve stated social objectives. That is why the concept of the social audit must be carried a stage further. Stage 3: Designing a System of Social Accounting A related but significant step beyond taking inventory of social programs and impacts is to organize all of these activities into a rational system of classification, as accountants do with financial transactions. One advantage of such a classification system is that it could serve as a checklist to identify items that might otherwise be overlooked. Progress toward a social audit depends a great deal on the process of selec_ tive perception: the ability to see and understand the often hidden, broad, and

42

---

Soelal Audit long-run consequences of social transactions. If linguists like Benjamin Whorf are correct, the mere existence of a new, more discriminating vocabulary would help social accountants to develop a "third eye" that could serve as a sensor of social accounting items. Economists provide us with one source of specialized vocaculary which could help us to supplement and refine terms now used in describing activities given to environmental issues, the term "social costs" -and its opposite, "social benefits" -have come into general business usage. Related terms, "social investment" and "social debt" also appear with greater frequency. A simplified definition of social costs and benefits is that they refer to the bad and good economic effects upon others resulting from corporate behavior. Economists have long referred to these as external diseconomies and economies and defined them as costs and benefits not reckoned in the private calculations of the enterpreneur. 18 One of the early books (1950) on social costs is K. William Kapp's The Social Costs of Private Enterprise.P Among the side-effects of production reviewed by him are air and water pollution, the impairment of aesthetic and recreational values by strip-mining and deforestation, and the depletion and destruction of animal, energy, and soil resources. Kapp concludes that when one begins to consider the omitted truth of social costs, it becomes clear "that the alleged beneficial orderliness of the competitive process is all but a myth.t" Non-market values of wealth and production, he says, must be considered in evaluating the economic system;" The side-effects of products sold and consumed can also lead to social costs. Cigarette sales may raise the incidence of cancer; auto sales lead to more highway accidents (and incidentally the need for more highways, traffic police, and hospitals); and snowmobiles result in greater noise pollution. These examples of social costs illustrate how the social audit helps to integrate information about such diverse areas as the environmental and consumer protection movements. While social critics have been diligent in identifying negative side-effects of business, they have generally neglected positive side-effects, so-called social benefits. A social audit, however, must also review company policies and operations to discover ways in which society is helped through private enterpreneurial activity. A convenient way of reviewing social benefits is to examine each item on the profit and loss statement and to ask what objectives besides profit-related ones are being achieved. Starting with sales, a social value can be assigned to the goods and services that a corporation supplies to society. Although the market price of these outputs is the standard measurement of this social value, economists recognize the concept of consumer's surplus. Alfred Marshall defines this as "the excess of the price which he would be willing to pay rather than go without, over that which he actually does pay. . . "22 It is obvious, he points out, that the consumer's surpluses drived from some commodities like matches and salt are much greater than from others. Judgments undoubtedly vary with regard to the utility accorded such products as tobacco and automobiles to which a social cost is ascribed. and

43

.·ublle Itelatlons Review whether or not the net balance between social costs and benefits is positive. But with products like pencillin there is little doubt that the social value far exceeds its market price . The greatest attention on the profit and loss statement has so far been given to labor costs, particularly fringe benefits and employee amenities. Interest in this item dates back at least to the famous Hawthorne studies of Western Electric in the late 1920's and early 30's when, he stated that in addition to producing a product for profit, a business must also create job satisfactions for its employees .f" This idea underlies an important contribution by Fred H. Blum who, in his 1958 article entitled the "Social Audit of the Enterprise," wrote : "The SOcial audit seeks to increase the values for which business takes responsibility by including human values as 'cost items ' in its cost accounting system and giving them a central place in that system.'?" Management, he believed, would be concerned with workers as people in their own right rather than solely as functional parts of the organization;" Clark C. Abt enumerates the kinds of social benefits contained in expenditures for employee compensation and fringe benefits. 86 Education and training programs that improve employee skills and knowledge and therefore lead to a greater market value for their services is one of the items. Health and other insurance coverages, recreational programs, day care services, subsidies of company meals, holidays and vacations, minOrity employment and advancement, comfortable and aesthetically pleasing Work space, and career advancement are other employee items. It might be argued that these are normal and necessary business expenditures for the purpose of attracting and retaining employees. Simply to say that the company benefits directly does not mean that there are not also side-effects that benefit the employees, their families, or the communities in which they live. For example, if an employee leaves the company and finds that because of company training programs and job experience he can command a larger Wage or salary than offered for his beginning skills level, a social benefit Was created. The same feature of social benefits applies to a company's research and development expenditures. Although the aim is to produce ideas and products with a "payoff" for the company, society's total store of knowledge is also increased . When the purpose of a company expenditure is primarily or exclusively to help solve special problems, replenish or enlarge society's store of collective goods, or otherwise strengthen what is often called social overhead, then another social accounting category, "social investments," may be used. Philanthropic contributions, the donation of equipment and skilled person_ nel to schools, and the running of "prep" and other training programs for nOnemployees are typical examples. A recent outstanding example is Xerox's Social Service Leave Program to 20 employees for a year to teach retarded children, campaign for mine safety, or perform any other non-partisan good works they choose." This review of social costs, social benefits, and social investments does n t exhaust the possible list of social accounting categories. Others, such as the

44

-

Social Audit "social debt" industrialized nations owe to countries which provide raw materials or that whites owe to blacks, are discussed by such scholars as Gunnar Myrdal .w The source of many new ideas for corporate social accounting will come from current research on social indicators and systems of national social accounting. Stage 4: Developing Guidelines for Social Program Management From a practical viewpoint, the next stage is to develop guidelines for the exercise of social responsibility - or what might more appropriately be called "social program management.'?" A basis must be found for evaluating a corporation's role in society and, more specifically, for reviewing social programs and expenditures. In placing this stage ahead of measurement - the next stage - the underdeveloped status of measuring tools and the general lack of training by public relations professionals in this area is acknowledged. Others would argue that measurement logically follows the development of a system of social accounting and is needed for the application of guidelines. There is no doubt that quantification of social benefits and costs would allow the economic calculus, so successful in dealing with financial and production problems, to be applied to social programs. But there is universal agreement that social scientists and accountants do not yet possess adequate measuring tools for such sophisticated analysis. We might well agree with Raymond A. Bauer and Dan H. Fenn, Jr. that we should take advantage of the possibility of partial measures and/or informed judgments in attempting to measure the social contribution of some types of social responsibility programs." The effort at measurement should not be abandoned but neither should we postpone developing guidelines. For this reason, this stage follows the design of a system of social accounting . A good starting point in the search for guidelines is to examine existing corporate philanthropy policy statements and checklists. Aside from such abstract statements that the corporation should support "civic and social betterment," illustrations of some more specific guidelines are these: (1) that the company should seek to strengthen the vigor of the voluntary sector and maintain good balance with the public sector in the attack upon overall social problems ; (2) that priority should be given to those cities and towns where the company operates and a relatively large number of its employees reside; and (3) that although the Federal Income Tax law permits contributions to the extent of 5% of taxable income, the national norm of about 1 % of pre-tax income should be followed. While not making much use of social accounting data, such philanthropic guidelines at least surpass the tendency to provide "mere rationalizations for pet charitable schemes, or a set of press releases calcu~at~d t~ sh?w how alt~u­ istic the company is."81 Furthermore, they carry a basic Imp!lcatlon that SOCIal dollars should wherever possible benefit both the corporation an~ the. donee simultaneously. This criterion refers to a benefit conti~uum showl~g different ratios of private and social benefits that accrue from a grven .expend;.ture. d th The extreme to be avoided is the point where the public be~e Its ad 'lIe company receives no benefits except possibly a degree of public goo WI . 45

.·ublle Itelatlons Review Xerox's Social Service Leave Program, to perform non-partisan good vvork, comes close to this extreme. But it raises morale and helps in the recruItment and retention of young people. There is no reason why private benefits cannot be combined with public benefits. For example, in Xerox's expenditure of four million dollars for the television series on the United Nations, the argument was advanced to stockholders that this expenditure advanced the corporate image abroad and provided a foundation for the expansion of its own markets and profits .i" When considering the ratio of private and social benefits, s~me notion of the size of costs and benefits - even if not easily quantified - might serve as a guideline. In what might be called the "social bargain quotient," a company can give priority to those programs that provide enormous public benefits at little or no cost to the company. . For example, a company that allows an adjacent church to use Its parking lot on Sundays loses little (only a little extra wear and tear and maintenance costs), but the church saves by getting by with a small parking lot. A similar example is the willingness of an oil company to use its specialized fire fighting equipment to extinguish certain combustible kinds of industrial fires in a neighboring community. In both examples, a social bargain is created because existing company overhead or resources are extended to outside publics. For this reason, companies should hunt for social bargain opportunities and government should explore partnership opportunities in which private business provides a share of public goods compensated for by appropriate payments. Stage 5: Devising Measurements To fully realize the potential of social accounting as an instrument of SOcial management, measurements must eventually be developed. Only then can social accounts and guidelines serve as a sound basis for evaluating social programs and social impacts. The primary aim is to arrive at an optimum mix that either achieves the maximum social benefit for some fixed costs, or that will cost the minimum amount for some fixed level of social benefit. 84 Another aim is to provide a basis of comparison among companies and industries, thereby allowing the setting of standards of social performance." Bauer and Fenn are correct in concluding that current measures are either non-existent or crude and that the development of measures will take a long time and in some areas will never meet the criteria for social measurement. But it is refreshing to encounter the impatient and determined spirit of Clark Abt, who in 1971 published a social balance sheet and social profit and loss statement with quantitative measures." Despite their imperfections, the social accounts and measures plot the direction that must eventually be takense Benefit-cost analysis - a specialized form of economic analysis - sho " pro~ise as a. me.asurin.g tool. Its mo~e~n develop~ent and application ~s decislon-making IS attributed to the military and thmk-tanks like the Ra °d

. Corporatton.

n

A review of t~is ~a~kground shows that problems f~ced by military leade :.:.:. have not been dissimilar to those now faced by busmess executives deal" rs -=-.:..:~Ing

48

--

Soeial Audit with corporate social performance. Prior to 1961, the Defense Secretaries lacked the tools to manage the over-all effort of the military on a truly unified basis. They had to resort to the "budget ceiling" approach, with each department allocated a certain sum. As reported by Charles J. Hitch, this system was not satisfactory: "Each service tended to exercise its own priorities, favoring its own unique missions to the detriment of joint missions, striving to lay the groundwork for an increased share of the budget in future years by concentrating on alluring new weapon systems, and protecting the over-all size of its own forces even at the cost of readiness. "37 Secretary McNamara decided to replace this system, which gave him a passive judicial role of judging the decisions of subordinates, to one which allowed him to exert an active leadership role. He established a staff of skilled economists and statisticians and insisted that they present him with hard and quantitative analyses of the "effectiveness" of various alternatives among which choices were to be made.t" This kind of analysis came to be called "costeffective analysis" and was later incorporated into a Planning-ProgrammingBudgeting (PPB) System. The theme of all of these forms of analysis is "quantification" and, where possible, "monetarization." Managers are asked to put numerical values on every program in their books - even where it seems impossible. 89 As the following examples illustrate, the task is not insuperable. The best known example is the use of the accounting term "goodwill," which is the difference between the book value of a company and a greater amount which is actually paid for it by a purchaser. The dollar value listed as goodwill represents such intangible assets as shareholder loyalty, the confidence of the banking and financial community, customer loyalty, and favorable community public opinion. As the record of acquisitions by companies shows, it is not uncommon to have the value of the physical assets amount to no more than 40 to 60 per cent of the purchase price.t" Following this pattern of goodwill, Rensis Likert developed a system of human resources accounting. The aim is to recognize that efforts and expenditures to recruit, train, and coordinate employees represent a fixed asset of a company. Using an applied social research technique, he based his estimate on a question asked of top management: "Assume that tomorrow morning your company has all its plants, equipment, offices, patents, etc., but ~~ people other than the president, and that he has to start the process of hiring personnel, training them, and building them into the successful organization that your company has today. How much would it cost in terms of your annual payroll to rebuild your organization to its present performance level1 Would It be equal to one years' payroll, two years', five years', or what1"41 The answers he received varied from two to ten times the annual payroll. In similar fashion some yardsticks have been developed for estimatin~ the market value of social goods The value of education is measured byhthe dlft rence in income of graduates ~nd dropouts; the value o~ a rk by t e rb~ th~ of people using it; and the cost of displacement throug ur an renewa

Pb

47

Public Ilelatlons Ilevlew cost of relocation. . , . th .t If we were interested in estimating the value of not living m f e Y, we would offer a non-New Yorker an "identical "job in New York or 5,000 a year more ; if he does not take it, he would be putting a $13.70 a day value on not living in the big city. 411 d Because some reference to existing financial costs can. be rna e, the measurement of the cost of social programs is somewhat easier than ~or t.he social costs of production. For example, in measuring the costs of rnlnonty employment such items as the differences in recruitment cos t.s, turnover rate, participating in training programs, and usage of supervisory time must l:'e c~n­ sidered. One insurance company estimates that the hidden costs of mlnonty employment is one million dollars a year. In making these various estimates, the assumption made and t~e. formulas used must be explicitly stated and clearly expressed so that a48dls~nterested party could readily understand and replicate the measurement. Differences of opinion with regard to items include d. weights assigned, and dollars imputed can then be examined and argued . Whether the measurement stage should and will reach the poi.nt where social data and financial data will be integrated is a further question to be answered. Even Clark Abt reports that this is still beyond the state of the art but several companies are working on methods for doing just this:" At this point in time we should not look that far ahead and concentrate Instead on whatever measuring tools are available, no matter how crude ; and support efforts to discover new measures.

$1

#

•

Stage 6: Conducting an Outside Social Audit As originally proposed by Bowen, the social audit was to be analagous to financial audits by independent public accountant firms. These audits confirm the truth and accuracy of all journal entries, ledger postings, and financial statement summaries. In this sense, certified public accountants represent and serve the public, for they agree upon a common language of accounting, assure uniformity of accounting procedures, and develop trustworthiness in the certified reports. Although there are recent signs that they fall short of their ideal, on the whole society has been satisfied with this arrangement. ' In its most advanced state, the social audit would duplicate this model, for an independent group of outside experts would evaluate the performance of a business from the social point of view . It is this stage of the social audit that most managements resist. They fear the internal organizational friction it might cause and the possi~ility that it might make one look bad in public. After all, how can evaluation be made when standards of social performanc simply do not exist and perhaps defy definition1 e In .a~swer tl? these objections, pro~onents of th.e social audit point out that unofficial outside auditors already exist and are hkely to improve upon th . methods. One type of unofficial auditor is the investment company that cat elf to the ethical investor. In 1972 at least two were well-known : the Drey;rs Third Century Fund, and the Social Dimensions Funds, Inc.4l' us A second ty.pe o~ u~~fficial auditor is.the pub1ic-i~terest group. The Co u _ n ell on Economic Prlorities. and the National Council of Church's Corpo rate

4H

Soelal.i\.. dlt Information Center and Interfaith Committee on Social Responsibility are excellent examples. Their interests are similar and pertain to five basic areas of corporate policy: " (1) minority group employment policies of a company; (2) amount of production of military goods and types of weapons ; (3) amount of environmental pollution caused by a company and its products; (4) effect on the lives of people in under-developed lands of a company's investment policies; and (5) consumer health and safety issues. '?" The Council on Economic Priorities publishes informative "Economic Priority Reports" every two months. These are valuable not only for their ratings of specific companies but because the criteria used for judgment are explicitly stated. Several management consulting firms offer social audit services. Clark Abt proposes to use a professional staff of social scientists who have had field experience in the impact areas of Interest ;" They would typically include economists, sociologists, and political scientists familiar with the specific problem areas of housing, health, education, entrepreneurial development, and labor relations. One of the first steps of the social audit team would be to meet with company officials to gather background data. Daniel Gray of A.D. Little elaborates on this first step of meeting with company officials, for he feels that corporations should first look within themselves to achieve needed social activity goals that would eventually win them public acceptance." His group has developed "five easy pieces" to help management in this effort. For example, he asks management to reduce to writing the policies which the corporation really professes to believe. These are then matched to performance to determine the "value gap ." Other procedures are to open channels to groups that are or could be sources of hostility and to look within the corporation itself to find specimens of broader social problems which the corporation, by itself or with others, causes. Although a few leading public relations firms are willing to offer social audit services, most counseling firms complain that they have not yet found "a handle" that is convincing to their clients. Nor have most public relations professionals accepted the inevitability of the social audit. The Future of the Social Audit In some form or another the concept of the social audit is here to stay. How advantaged a stage it will reach, and how fast it will progress depends on the intensity of pressures from public-interest groups, ethical investors, and government. The invasion and supplementation of economic values by "quality of life" values is the major social trend that will influence the past of the social accounting movement, of which the social audit is the end result. A considerable number of companies have quietly begun to "get on the learning curve."49 Usually initiated by top level management, the actual research is done by people with business or social science backgrounds and, only occasionally, by public relations professi~mals. . . This paper has shown, however, that public relatlo,:,s profe~sl.onals can an.d ought to playa larger role. Admittedly, me~surement IS an activity that public relations persons are not trained for. But this task occurs at an advanced stage of the social audit and still leaves many preliminary stages that are of greater

49

.·uhlle Relations Itevlew strategic importance because they determine the direction social accounting will take. By virtue of their orientation to the socio-political environm~~t. and their experience in dealing with decisions in the realm of social responslblhty, public relations professionals are equipped to playa central role in the ea~ly stages of the social audit: advising on the acceptance of the doctrine of soc~al responsibility, preparing corporate social reports, designing social accountmg systems, and developing guidelines for social performance. . Public relations professionals who have conducted so-called pubhc relations audits are already on the learning curve, for these audits serv~ as a useful approach to the social audit. However, the focus must be reonented. The public relations audit deals with a corporation's constituents - who t~ey are, how they relate to the company, how they view the company (partially in "corporate image" terms), and what power they possess to affect the welfare of the company." While a social audit also deals with constituents, the emphasis is not on how they affect the company but how the company ~ffects them. This concern over the impact of the company on society IS n~t ne~. Over ten years ago, in writing on "The Social Functions of Public Relations, I listed "social bookkeeping" as one of them: The inequities that arise among different organizations and parts of society as a consequence of social benefits and social costs sh?uld be recognized. A mechanism of social bookkeeping should be established to keep account of these nonmarket items. It is proposed that the public relations man make this his job: he should be the "social bookkeeper. "51. Although the term "social accountant" is now proper (and public relations person rather than man), this social function not only remains but is accentu_

ated. What has been added is a concern for physical environment. Public relations professionals now face an opportunity to consolidate their past accomplishments in the area of social responsibility by undertaking activities associated with social accounting and the social audit. The stages in the sequence outlined in this paper are intended to be the logical ones to follow. Most public relations professionals will probably find it most frUi tful to concentrate on the preparation of comprehensive social reports. Initially, this will involve more intensive inventory taking of social perfor_ mance, but soon these activities will extend to primitive formulations of systems of social accounts. These are not expected to be used for public report_ ing but as internal aids for the management of social programs. As this skill is developed furthe~, ~ore guidelines will be forthcoming and these, in turn, will generate interest 10 Improved measurements. For years business has used the rhetoric that the corporation is not only an economic but a social and, political institution. In return for this pledge th private sector of our "mixed economy" has remained strong and reasonabl e free from extreme f~rms of government control. This pledge is now more diff~ cult to honor than In the past, but not to honor it is to invite what busin I fears most: inroading socialism. The social audit movement is both a philoess phy ~~d a meth?d for business .to regain public confidence by demonstra t~;­ that It IS responsive to the changmg needs of the sOcio-political environment. g

50

Soelal Audit Footnotes

, Robert Rutherford Smith , "Social Responsibility : A Term We Can Do Without," in Corporate Social Policy , Robert Heilbroner and Paul London , eds . (Reading , Mass .: Addison-Wesley Publishing Company, 1975) pp. 31-35. • Howard R. Bowen, Social Responsibilities of the Businessman (New York: Harper & Brothers , 1953), p . 155. • Raymond A. Bauer. "The State of the Art of Social Auditing," in Corporate Social Accounting. Meinolf Dierkes and Raymond A. Bauer, eds . (New York: Praeger Publishers, 1973), p . 14. • The term "social injury" is used to describe the harm done to others in John G. Simon , Charles W. Powers and Jon P . Gunnemann, The Ethical Investor (New Haven. Conn . : Yale University Press, 1972), p . 21. • For a discussion of the two strands of the business creed. see Francis X. Sutton. et a l.. The American Business Creed (Cambridge, Mass . : Harvard University Press. 1956), p . 33-36. Also see an application to executive speeches In Maynard S. Seider , "American Big Business Ideology : A Content Analys is of Executive Speeches ," American Sociological Rev iew 39 (1974). pp . 802-815. • An excellent explanation appears in Milton Friedman , 'The Social Respons ibility of Business Is to Increase Profits ." New York Times Magazine, September 19,1971. , The managerial creed is reflected in the report by the Committee for Economic Development, Social Responsibilities of Business Corporations (New York, June 1971). • George Cabot Lodge, "Wh y an Outmoded Ideology Thwarts the New Business Conscience." Fortune 82 (1970), p. 148. • David Finn, The Corporate Oligarch (New York : Simon and Schuster. 1969), p . 250. '0 "The Board: It's Obsolete Unless Overhauled," Business Week. May 22,1971 , p. 50. II "Disclosing Social Data? " Business Week . April 14, 1975, pp . 76-77. ,. Simon and Powe rs, op . cit. IA Th is view was expressed in "Puzzled Businessmen Ponder New Methods of Measuring Success." The Wall Street Journal. December 9. 1971, p . 1. It Bernard L. Butcher , 'The Program Management Approach to the Corporate Social Audit ," The Unstable Ground : Corporate Social Policy in a Dynamic Society, ed . S. Prakash Sethi (Los Angeles: Melville Publishing Company. 1974), p.103. ,. "The Annual Report Becomes a Confession," Business Week, April 21, 1973, p. 46. te Meinolf Dierkes , Rob Coppock, Halina Snowball, and James Thomas, "Social Pressure and Business Actions. " Dierkes and Bauer, op. cit.. p . 77. " "The Annual Report Becomes a Confession, " op . cit., p . 46. ,. For simplified introductions to the concept of externalities see Paul A. Samuelson, Economics , 8th edition (New York: McGraw-Hill Book Company, 1970), pp . 799-800; and Orris C. Herfindahl and Allen V. Kneese, Quality of the Environment (Baltimore, Maryland : The Johns Hopkins Press , 1965), pp . 5-9. K. William Kapp . The Social Costs of Private Enterprise (Cambridge, Mass. : Harvard University Press, 1950). 10 Ibid.. p. 233. "' Ibid .. pp. 253-254. .. Alfred Marshall, Principles of Economics (London : Macmillan and Co., Ltd . 1947), p . 124. u R. J. Roethlisberger and W. J. Dickson , Management and the Worker (Cambridge, Mass .: Harvard University Press , 1939). .. Fred H. Blum, "Social Audit of the Enterprise," Harvard Business Review 36 (1958), p. 84.

I.

Mlbid.. p . 77 . .. Clark C. Abt, "Managing to Save Money Wh ile Doing Good. " Inno vation. 27 (January 1972), pp , 38-46. •, "The Xeroxing of Social Service ," Business Week , September 11.1971, p . 41.

51

PnblJe Relations Review Gunner Myrdal, The Challenge of World Poverty (New York: Pantheon Books, 1970). See Raymond A. Bauer, ed., Social Indicators (Cambridge, Mass.: The M.l.T. Press, 1966); Eleanor B. Sheldon and Wilbert E. Moore, eds., Indicators of Social Change: Concepts and Measurements (New York: Russell Sage Foundation, 1968); Bertram M. Gross, The State of the Nation; Social Systems Accounting (London: Tavistock Publications, 1966). 10 This term is used by Bernard L. Butcher, Assistant Vice-President to G. Robert Truex, EXecutive Vice-President for Social Policy, Bank of America, in "The Program Management Approach to the Corporate Social Audit, op. cit., p. 101. •, Raymond A. Bauer and Dan H. Penn, Ir., The Corporate Social Audit (New York: Russell Sage Foundation, 1972). p. 65. •• Richard Eells, Corporation Giving in a Free Society (New York: Harper 8< Bros., 1956), p. 76. .. Raymond Simon: Public Relations Management: Cases and Simulations (Columbus, Ohio: Grid, Inc., 1973), p. 182-183. •• Charles J. Hitch, Decision-Making for Defense (Berkeley and Los Angeles: University of California Press, 1966), p. 43. .. Clark C. Abt, "The Social Audit Technique for Measuring Socially ResPonsible Performance," Managing the Socially Responsible Corporation, ed. Melvin Anshen (New York: Macmillan Publishing Co., Inc., 1974), p. 100. 86 Abt Associates, Inc., Annual Report 1971 (New York: the Corporation, 1972). 87 Charles J. Hitch, op. cit., p, 24. 18 Robert H. Haveman, The Economics of the Public Sector (New York: John Wiley & Sons, lnc., 1970), p. 169. .. "Putting a Dollar Sign on Everything," Business Week, July 16,1966, p. 123. 40 Rensis Likert, 'The Influence of Social Research on Corporate Responsibility," in A New Rationale for Corporate Social Policy, William J. Baumel. et al. Supplementary Paper Number 31 (New York; Committee for Economic Development, 1970), p. 23. " lbid., pp. 22-23. .. "Putting a Dollar Sign on Everything," op, cit., p. 126. •• Clark C. Abt., "The Social Audit Technique for Measuring Socially Responsible Performance," op. cit., p. 104. .. lbid., p.105. .. For a discussion of their approach see Raymond A. Bauer and Dan H. Penn, [r., op, cit., pp. 35-39 . .. Frank White and Tim Smith, "Corporate Responsibility and the Church," S. Prakash Sethi op, cit., p. 516. ' 17 See "An Annual Social Audit:' Congressional Record, January 20,1970, E111. ... From a talk, 'The Social Audit-A Corporate Necessity7" presented at the Boston Urban Affairs Seminar, May 27,1971, sponsored by the New England Chapter, Public Relations Society of America. Also see his "One Way to Go About Inventing Social Accounting:' Meinolf Dierkes and Raymond A. Bauer, op, cit., pp. 315-320. .. See Raymond A. Bauer, 'The State of the Art of Social Auditing," op. cit., p. 38. See Alsohis 'The Corporate Social Audit: Getting on the Learning Curve," S. Prakash Sethi, op, Cit. p 81. ' . 18

19

80 An approach to the social audit which is similar to the public relations audit is described by Allan D. Shocker and S. Prakash Sethi, "An Approach to Incorporating Social Perferences in Developing Corporate Action Strategies," S. Prakash Sethi, op. cit., pp. 67-80. •, Otto Lerbinger, 'The Social Function of Public Relations," Information, Influence. and Com_ munication; A Reader in Public Relations, eds. Otto Lerbinger and Albert J. Sullivan (New York. Basic Books, Inc., 1965), p, 59. .

~ 52