Ethical accountability extends to social, environmental issues

HEADNOTE

[ETHICS]

REFLECTING THE LEGAL MANDATE IN SECURITIES LAWS, ALL COMPANIES measure and report their performance in financial terms. For almost all of them, this is the only method. It serves the needs of shareholders

and creditors but not the other stakeholders (groups that have a direct stake in the affairs of a corporation). The interests and information needs of these groups and their champions are beginning to receive increased attention. Drivers of these activities range from consumer, environmental, and employee groups to the rapidly growing social and environmental investment community, estimated to account for over 15% of new dollar investments. Dow Jones manages a Sustainability Index to track the performance of corporations deemed to be "sustainable."

Ethical consideration of the needs of all stakeholders is not only the "right thing to do," but it adds to the bottom line. Previous Strategic Finance ethics columns have discussed the beneficial consequences shown by many research studies to result in organizations that make a commitment to treat their stakeholders ethically. These "best practices" help attain a superior overall corporate reputation, which leads to easier recruiting, improved employee productivity, lower turnover, and higher customer loyalty. Because of these factors, the number of companies making voluntary reports on their social, health, safety, and environmental performance is steadily increasing. Yet these efforts have a limited usefulness since there are no standardized approaches. Thus, some view the reports as mere public relations puffing.

At present, a number of professional and interest groups are working to develop standards for a "triple bottom line"-social, economic, and environmental-performance. To date, much of the effort has taken place in Canada and the U.K. and has had only limited input from accountants.

Since it was established in 1997, the Global Reporting Initiative of the nonprofit Coalition for Environmentally Responsible Economies (www.globalreporting.ore) has worked to design and build a commonly accepted framework for corporate reporting on the linked aspects-social, economic, and environmental--of sustainability. In 1999, the U.S. Interfaith Center for Corporate Responsibility, together with its counterpart bodies in the U.K. and Canada, issued "The Principles for Global Corporate Responsibility," which sets forth 140 indicators of "good corporate citizenship." That same year, the Institute for Social and Ethical Accountability (www.AccountAbility. org.uk) issued AA1000 as a process standard for social auditing. Social Accountability International (www.sa-intl.org) is an accreditation agency affiliated with the social responsibility research institute, Council on Economic Priorities. The Corporate Sunshine Working Group, which is affiliated with Friends of the Earth, is designing a legislative strategy to achieve better corporate governance through more broad-based

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transparency.

Management accountants, financial managers, and information specialists from forward-thinking organizations should contribute their expertise and leadership to create a consensus of the most important nonfinancial performance indicators. These efforts should prevent the possibility that companies will be swamped with multiple requests for similar information.

The resulting systems should produce regular flows of useful, verifiable, and compatible information so that they can be tracked internally as well as between companies on a comparable basis. Companies already involved in this effort report internal benefits and an overall sense of contributing to effective corporate governance on a global basis.

Do you want to participate in this leading-edge activity?

AUTHOR_AFFILIATION

Curtis C. Verschoor, CMA, Editor

AUTHOR_AFFILIATION

Curtis C. Verschoor is the Ledger & Quill Research Professor, School of Accountancy, DePaul University, Chicago. His e-mail address is cverscho@condor.depaul.edu.