MGMT 452 Corporate Social Responsibility Zeynep Gürhan-Canlı Social Audit Chapter 12 March 1, 2010

Social Auditing The process of assessing and reporting business performance of economic, legal, ethical, and philanthropic social responsibilities expected by stakeholders. Social auditing is an objective approach to social accountability. Social auditing provides tools that companies can use to: Identify and measure their impact on stakeholders. Communicate this information internally and externally. Apply this information to make continual improvements in areas that stakeholders see as important.

Benefits of Social Auditing To achieve the best social performance possible. To project a good image in light of negative publicity. To facilitate organizational improvement and organizational learning. Permit stockholders and investors to judge whether a firm is achieving the goals it has established and abiding by the values it has specified as important. Improve relationships with stakeholders. Increase transparency. Develop a dialogue.

Benefits of Social Auditing (cont.) Can assist the organization in identifying potential risks and liabilities. Can assist in coordinating programs throughout the firm. Allow the company to assess its impact on the environment, the community, and society.

Risks of Social Auditing May result in serious problems being uncovered that the company would prefer to not disclose. May result in stakeholder criticism and dissatisfaction. Imposes a burden on recordkeeping and costs. Provides no guarantee that the firm will not face challenges related to its citizenship efforts. Is a relatively new process with few common standards.

Social Auditing vs. Financial Auditing Financial auditing is concerned with a company’s claims about its financial performance, whereas the social audit is concerned about citizenship and social responsibility. Social audits are voluntary; financial audits are required of publicly traded companies. The two audits use the same procedures and processes to create a system of integrity with objective reporting, and both begin with planning.

Challenges of Measuring Nonfinancial Performance Purpose of nonfinancial measures is to determine the wholeness and soundness of the many aspects of a business that enhance responsibility and profits without increasing risk. Six Sigma Balanced Scorecard Triple Bottom Line AccountAbility Integrity Institute Open Compliance Ethics Group

Social Auditing Standards Competence Independence Due Care Planning Control Structure Evidence Standards of Reporting

The Auditing Process Secure top management support and/or board support. Establish an audit committee. Define the scope of the audit process. Review mission, policies, goals, and objectives. Define social priorities relative to stakeholders.

The Auditing Process (cont.) Identify tools to measure achievement. Collect relevant information. Analyze the data. Verify the results by an independent agent. Report the findings to the audit committee.

Group Project 1) Define the scope of the audit process (including areas important to the audit); 2) review organizational mission, policies, goals, and objectives; 3) examine the organization’s social priorities as they relate to stakeholders; 4) identify tools or methods the organization can employ to measure its achievement of social objectives (employee relations, consumer relations, community and philanthrophy, environmental issues, technological issues);

Group Project 5) collect or review relevant information in each area important to the audit (should include internal and external data—concerned stakeholders and publications); 6) summarize and analyze collected data, and compare internal information to stakeholder expectations; 7) explain how the results could be verified by an independent agent; 8) discuss how the results could be used by an audit committee, top management, and relevant stakeholders; 9) propose one strategic philanthropy initiative for the company.