Publication: At Work
February, 1998

Social Accounting:The State of the Art

Ann Svendsen


            VanCity Credit Union, a small financial institution in Vancouver, Canada, Ben & Jerry’s Homemade Ice Cream, one of North America’s best-known value-driven companies, and IKEA, the highly successful global home furnishings company, have all decided to measure their success using more than profits as a guideline.  In addition to preparing the traditional financial audits, they are undertaking some form of social accounting.  This practice is spreading: blue-chip companies such as British Telecom, Royal Dutch Shell, and KLM Airlines, along with fifteen percent of all companies in Europe, are planning to do a social audit in the next two years. North American companies are not far behind.   

            Social accounting can help companies verify their social responsibility claims, monitor their performance in relation to changing social values, communicate information credibly, and respond to stakeholder feedback. It can also bolster the bottom line in the longer term by providing a company with vital information about what is going on in the external environment, improving relations with communities, employees and supplieres, and creating an avenue for collecting and considering new ideas from customers.

            While the field of social accounting is evolving rapidly, there are three leading approaches: 1) management oriented social reports like those prepared over the years by Ben & Jerry’s, 2) more extensive, quantitative and externally verified social audits undertaken by companies like the TradeCraft and The Body Shop in Britain, and 3) ethical accounting statements based on a process of stakeholder dialogue pioneered by the Sbn Bank in Denmark.

Ben & Jerry’s Social Reports

            Ben & Jerry’s has published a social performance assessment in its annual report every year since 1988 - longer than any other company in North America. These reports were originally conceived as a tool for management to ensure that the company was achieving its social mission and goals. Typically, social reports are prepared by an external researcher over a two or three month period based on interviews staff and other stakeholders and a review of company policies and procedures. Often, the reports comment on things like recycling and other environmental initiatives, workplace safety, employee satisfaction, corporate philanthropy, and pay equity for men and women.            

            While lauded by some for bringing information about non-financial impacts of corporate activities into the public domain, others criticize these types of social reports because they are based on the researcher’s subjective impressions and the conclusions are not externally verified. Last year Ben & Jerry’s took these concerns to heart and  hired The New Economics Foundation, a London-based non-profit organization and recognized leader in the social audit field, to conduct a more extensive, externally verified social audit.

The New Economics Foundation’s Social Audit

            Compared with social reports, social audits are more quantitative, comprehensive, and oriented towards verification of corporate social responsibility claims. Because they involve an external auditor and are more rigorous and time-consuming to conduct, social audits are also much more expensive. The Body Shop’s first social audit, designed and conducted with the help of The New Economics Foundation, and published as part of its 1995 International Values Report, is one of the most extensive and expensive social audits ever conducted.            

            Their social audit,  separate from the environmental audit and animal protection assessment, focused on how UK-based employees, suppliers, community grant recipients, customers and shareholders perceived the company’s performance. Focus groups, surveys, and interviews were used to collect opinions of these stakeholders . Managers identified performance standards based on industry ‘best practices’ and collected quantitative data over the course of a year. Statistics such as staff community volunteering rates and foundation donations were used to measure The Body Shop’s community involvement relative to other international corporations. Staff turnover and salary differentials were used as performance indicators in the human resources area and dividends and share price performance were used to assess performance related to shareholders.

            The widely distributed social audit report included a description of the research methodology, a statement by company founders, an overview of major company policies and programs related to each stakeholder group, a summary of feedback from each group and statistics related to key performance areas.  Successes and problem areas were also highlighted, along with a statement by management about how the Body Shop aimed to address problem areas. As is the case with a financial audit, the social auditors provided a statement verifying the accuracy of the results. A 13-member audit advisory panel of experts chosen by NEF assessed the audit process and results.

Social audits, like this one prepared by The Body Shop, have raised the bar of corporate disclosure higher than ever before. Some would argue however, that there are significant problems with these types of social audits. Activists argue that social audits are no more than a thinly disguised PR tool which uses numbers,  ’market research’ and supposedly independent researchers  to create the impression of rigor and objectivity. Companies complain that social audits are not only very expensive, but also can expose them to unwanted negative media coverage and criticism from stakeholder groups. Both community stakeholders and corporate decision-makers also have decried the lack of effective mechanisms for integrating social audit results into corporate decision-making systems thereby limiting their utility for driving actual improvements in social performance.

SbN Bank’s Ethical Accounting Statement

            Ethical accounting, compared with both social reports and social audits, is all about bringing the views of stakeholders into the management arena via an extended process of dialogue.  While talked about in the same breath as social auditing, ethical accounting’s focus has not been on the objective assessment and ‘reporting’ of corporate social performance but rather on creating an alignment between corporate and stakeholder values. Stakeholders even make recommendations for changes to corporate policies and programs  and review and comment on company budgets.

Ethical accounting has been pioneered by the Sbn Bank in Denmark with Peter Pruzan a professor of Systems Science at Copenhagen Business School. The process works like this. The company identifies shared core values through a series of ‘conversations’ with employees, customers, shareholders and local community representatives. It then drafts value statements  and turns them into a questionnaire for members of key stakeholders groups. The results of the survey in the form of an ethical accounting statement provides the company and stakeholders with a measure of how well the company has lived up to its social values. More than 50 companies in Denmark in addition to Sbn Bank have gone through an ethical accounting process since 1990.


Sample questions from SbN’s 1993 Ethical Accounting Statement

  a. Employees

You are appreciated for the person you are.

Strongly agree 
Slightly agree 
Slightly disagree
Strongly disagree

No opinion

You are proud to work at Sbn Bank

Strongly agree 

Slightly agree 
Slightly disagree
Strongly disagree
No opinion

b. Customers

SbN Bank advises against investments which, in its opinion, are too risky.

Strongly agree 
Slightly agree 
Slightly disagree
Strongly disagree
No opinion

The local community trusts Sbn Bank.

Strongly agree 
Slightly agree 
Slightly disagree
Strongly disagree
No opinion





The VanCity Experience

            Though still being practiced in their unique forms, the three approaches are converging. VanCity Credit Union is perhaps the furthest along this path as they have embarked on a stakeholder-focused, quantitative and comprehensive social audit. At the same time they are grappling with how they will incorporate the audit results into their existing strategic management and budgeting systems.  The VanCity experience offers insight into where the field of social accounting is going.  It also provides a window into an emerging discipline which, I believe, will replace financial accounting as the prime vehicle for assessing corporate performance in the future.

           VanCity’s foray into social accounting began in 1992 when its Board of Directors decided to broaden the scope of the corporation’s annual report to include more information about the credit union’s social performance. This decision was based on the fact that the credit union was ranked below many of the larger banks for its level of disclosure in a study by the Society of Management Accountants of Canada. VanCity had a long history of strong community reinvestment and support and had expected to excel in this area. Also, as a member-owned, locally based financial organization they felt they had an obligation to report on socially responsible community initiatives.

           The next two years saw VanCity move towards more complete reporting of their progress in meeting their social goals and objectives. Their 1996 annual report, for example, covered their activities related to community economic development lending, volunteerism, job creation, environmental impact, employee benefits and compensation, training and equity.

           This year VanCity is undertaking a more comprehensive social audit with the help of the New Economics Foundations of Great Britain. Using their management philosophy and mission statement as the starting point for the assessment, VanCity has identified key stakeholders, met with groups of managers to develop indicators of social performance, benchmarked ‘best practices’ in and outside the industry, and held focus groups with employees, customers and other credit union leaders to assess their views on their relation ship with VanCity and to identify important social responsibility  issues and values. They have also looked at their management systems to identify barriers and problems from the point of view of improving their overall social performance.

           Early in 1998, when the first full social audit report is released along with their annual report and financial accounts, VanCity intends to examine how it will integrate the audit process into its strategic management system, from using the results in budgeting to incorporating corporate social performance objectives into employee evaluations. They intend to continue the dialogue with stakeholders and use that process to more fully engage members, employees, suppliers and other stakeholders in improving their overall social performance.

Social Accounting as a Management Tool

            Most would agree that the emerging field of social accounting has not been well integrated into corporate decision-making. This may be because social accounting has generally been carried out by social activists and socially minded academics to put pressure on corporations to be more socially responsible. But companies like VanCity are beginning to express an interest in using social audits as a management tool. They recognize that an audit can help them achieve several complementary goals:

  • develop more socially responsible corporate strategy,
  • assess the social costs and benefits of policies and projects,
  • clarify corporate values and goals,
  • gather information about stakeholder perceptions and expectations,
  • identify changes in supplier or customers demands and preferences,
  • identify ways to improve existing products and develop new ones,
  • help build stronger relationships with stakeholders.

The Next Stage in Social Accounting

            While public watchdog groups still need to keep up the pressure on companies to be more responsible by collecting and publishing “ranking” type information, many companies are looking for information which can help them do a better job of both monitoring and managing their social performance. I believe that a new management-oriented approach is the next logical stage in social accounting.  This integrated approach will be seen as more relevant and legitimate to business because it provides practical information which can be used by companies in their day-to-day operations.  It also brings essential information about the interests, perspectives and expectations of stakeholders into the management mix so that companies can do a better job of identifying “win-win” opportunities for meeting their own business goals and improving the lot of their stakeholders. Social accounting within a strategic management system provides a mechanism for building stronger stakeholder relationships and, in the longer term, for ensuring long term corporate sustainability and profits.            What could an integrated approach to social accounting look like? While a complete discussion of this new fully integrated approach to social accounting is beyond the scope of this article, a framework is outlined in the table below. The framework draws from existing approaches, but differs in four key areas. First, employees and management are engaged in defining or refining the company’s social mission and values at the beginning of the process. This step is essential because it builds internal commitment to the process of improving social performance and  provides a link between the overall corporate business strategy and specific social responsibility initiatives.

           Second, clear, measurable goals, objectives and performance indicators serve as the foundation of the accounting system. The goals are based on the company’s mission and business strategy, which is in turn based on the assessment of the interests and expectations of their key stakeholders. Performance objectives are clearly laid out for each department and team.. In this way, employee performance can be evaluated according to how well they achieve corporate and team social goals, creating both momentum and accountability.

            Third, a stronger connection is established between social accounting, strategic planning and budgeting to ensure that the company’s spending supports its social as well as financial goals. Social accounting information is fed into a strategic planning/budgeting cycle, so that companies can fund initiatives that will enable them to achieve their long term social goals as well as short term financial targets.

           Fourth, based on the results of the social audit, internal systems and structures are aligned to remove barriers and provide the necessary support for improving corporate social performance.  For example, an audit may show that performance evaluations and compensation programs need to be revamped to reward employees for meeting team and departmental social as well as sales objectives. The company’s internal communication system may need to be redesigned to ensure that information critical to job satisfaction is accessible to employees. Or, to increase public trust, the company’s external relations program may need to be extended to include opportunities for dialogue between community stakeholders and senior managers. This stage of aligning internal systems and structures based on social accounting results is a vital part of an integrated social performance monitoring and management system.


Framework for a Fully Integrated Social Audit                      

Step One - Defining Purpose and Scope

Why do we want to monitor social performance?
How important is improving social performance to us?
Is senior management committed?
How will results of the audit be used?
Who are our stakeholders and which ones will be involved in the audit?
Do we have an audit implementation plan?

Step Two - Clarifying Social Mission, Values and Goals

What is important to us beyond financial performance?
What values define our company?

What are our social goals?

How are our social goals linked to financial goals and our business strategy?

Have our employees been involved in developing the mission, values and goals?
Do they understand and support the mission and goals?
Do our key stakeholders understand and support our mission and goals?

Step Three: Baseline Assessment and Gap Analysis

What management systems affect our organization’s social performance?
What policies govern various aspects of our social performance?

What practices define our company’s current social performance?

What data is already being collected to help measure social performance?

What are ‘best practices’ related to our business?

What are our social performance strengths and weaknesses?

What are the major gaps and liabilities?

How can they be addressed?

Step Four: Develop Strategies for Improving CSP

Do our social goals need to be refined based on baseline assessment results?
What are the drivers or factors that will influence success?
What strategies will help us meet our social goals?

Step Five: Identify Indicators and Targets

What indicators can be used to measure progress?
Do managers responsible for implementing corporate strategies agree?

What do key stakeholders think about the indicators and targets?        

Step Six: Design a CSP Monitoring System

What data are we already collecting?
Where are the gaps?
What additional information needs to be collected?

How will be collected?

By whom?
How often?

Step Seven: Preparing a Social Audit Report

Has all the data been compiled? 
Is it accurate and complete?

What does it tell us about our social performance in specific areas?

What are our strengths and weaknesses?
Where do we need to improve?
How should this information be summarized?
How should it be communicated to stakeholders?

Step Eight: Review Results with Stakeholders

What process or tools should we use to solicit feedback (e.g. surveys, focus groups, interviews)?
How should the feedback be synthesized?
What does the feedback tell us about our social performance?
How do we need to revise our corporate goals and strategies?
Do we have the right indicators?
What targets should be set for next year?

Step Nine: Align Systems and Structures

What internal changes are needed to improve social performance?
Are there linkages between our corporate strategies and divisional and individual performance objectives and targets?

Do our reward and recognition programs support employees in their efforts to improve social performance?
How can communication and information systems be improved?
How can we integrate the results of the audit into the budgeting cycle?

For further information: The International Institute for Social and Ethical Accountability  formed in 1996 promotes best practices in social and ethical accounting and auditing, and develops standards and accreditation procedures for professionals in the field. The first annual international conference on social auditing was held in Holland in September 1997. Next year’s conference will be in Vancouver, Canada. The Institute’s website is at:

About the Author   

Ann Svendsen is a sociologist and partner in the Vancouver-based firm CoreRelation Consulting. Her book “The Stakeholder Strategy:Profiting from Collaborative Business Relationships” will be published by Berrett-Koehler in the fall of 1998.



Home | Current Projects | Research | Conferences | Courses | Resources | About Us | Contact