bauer_what is a corporate social audit

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HarvardBusiness ReviewJanuaTy-Febiuaiy

Raymond A. B auer and Dan H. Fenn, Ji.

W hat is a corporatesocial audit?No one knows for certainhut this analysisof the prohlems and vagueness involvedpoints to a pattern for executives to followForewordMost companies have socially oriented programs ofone kind or another, and every company ohviouslyhas an impact on the society in which it lives. Publicconcern about the ways companies fulfill their socialresponsibilities has created pressure for "social audit-ing" in the corporate domain, and executives them-selves have been attracted to the notion of a socialaudit as a possible method for satisfying both them-selves and the public that their companies are doing

what they ought to he doing in the social area. Heretwo authors review the prohlems and interests in-volved in a social audit; then they develop a generalscheme for a company's first audita scheme that mayseem incomplete, but one that at least makes a hardbeginning on the question of a formalized audit.Mr. Bauer is Professor of Business Administrationat the Harvard Business School. Mr. Fenn is Directorof the John F. Kennedy Library and Lecturer at HBS.

Q'nee the murky notion of the social respon-sibility of business began to take on popularappeal and specific shape, it was inevitable thatpublic pressure would begin to build for somesort of business accountability in the socialsphere. After all, if society really believes thatcorporations should broaden their concept oftheir own function to include social responsibil-ity, articulate members of society are going todemonstrate and implement that belief by de-manding some kind of accounting of corporateperformance in noneconomic areas.


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Harvard Busmess Review: January-February 1973This demand that corporations be socially ac-countable has been augmented by a growingrealization among businessmen that corporatesocial programs have been haphazard in theirgrowth, poorly aimed and weakly coordinated,and little known or understoodeven within agiven corporation. Further, if specific programs

are hazy and obscure, the notion of "total socialimpact" has proved almost completely opaque,not just to businessmen, but to society as awhole. Thus it should surprise no one that thepressure for and talk about a formal "social au-dit," in some way analogous to a financial audit,have increased measurably in recent months,both within and outside companies.The social audit is indeed a relatively newdevelopment; it has orily a thin history priorto the 1970's. It first appeared on the scene whenthe accepted definition of "corporate social re-sponsibility" was no longer being formulatedprimarily by businessmen, but rather by socialactivists who had reason to capitalize on a gen-eral suspicion of all "establishment" institutions,including business. What the term means iscommensurately vague, and there is preciouslittle agreement on how such an audit ought tobe conducted.

In the pages that follow, we present a descrip-tion and analysis of some of the problems en-countered by those who are attempting to per-form social audits and outline an approach thatappears to us to be viable. We term this approachthe "first-step audit." It is designed to providedata that are immediately useful for corporateexecutives; it is also designed to put the wholeeffort toward social accounting on an upwardlearning curve by combining descriptive infor-mation with quantitative measures in a mean-ingful way. Hopefully, the first-step audit willbe helpful to businessmen who are trying to re-solve such questions a s: "Wh at activities shouldI be auditing? W hat m easures should I use? Andwhat standards of performance should I use tocalibrate my record?"Some readers will say that what we are pro-posing is not an audit at all, but rather a form ofsocial leport. So be it; but we cannot see thatthe question of terminology has much signifi-cance at this point. The loose usage of the word"audit" has characterized discussions of corpo-rate social audits and is sanctioned neither bydictionaries nor the accounting profession. Anaudit means the independent attestation of factsby some outside party, but it is clear to us thatindependent attestation is a step that still lies

far down the road. The first-step audit we shalldescribe will prove, we believe, a useful waystation.For the purposes of this discussion, we shalltake "social audit" to mean: a comm itment tosystematic assessment of and leponing on somemeaningful, definable domain of a company'sactivities that have social impact. This definitionis a fairly disciplined one, and one that willallow the activities now carried on under thesocial-audit banner to be included in a moreembracing form, with independerit attestation,at a later date.

Sources of pressureAs we have said, there are powerful forces loosein the land that are demanding some kind ofsocial audit:1. Executives generally desire to acquire bothan individual and a corporate image of socialresponsibility, one that harmonizes with a pub-lic concern which they (and we) do not believeis going to subside.2. Businessmen, like everyone else, are caughtup in the changing mores and priorities of thesociety and are concerned today about matterswhich only a few years ago did not worry them.The level of this concern should not be under-estimated. Pollution, the disadvantaged and mi-norities, clarity and directness in advertisingis-sues like these have moved rapidly onto (andhigher and higher on) the agendas of corporateexecutives.

3. Another infiuence is commercial. A num-ber of consultants, serising the possibility of anew source of business and inherently curiousabout the whole complex area, are trying todevelop ways of performing social audits.4. Then there is the stimulus of the outside"auditors"-the Naders, the Council on Eco-nomic Priorities, the new mutual funds, the re-cently established journal called Business andSociety Review, minority groups, ecologists, andso forth, all of w hom have a, stake in mak ingpublic almost anything that a company maywant to hide. Obviously, such stimuli encouragemanagements to present their cases in ways theythink accurate and proper; but, perhaps evenmore important, managements want to knowAuthors' note: Our thinking on the issue of the social audit is reportedhere in condensed form. Readers who wish further information aboutour work on social auditing and the process-audit concept may consultThe Corporate Social Audit hy Raymond A. Bauer and Dan H. Fenn, Jr.(New York, The Russell Sage Foundation, 1971).


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Corporate social auditwhat is in store for their companies if they areattacked. This second motivation has obtainedin some of the companies with which we areacquainted, where managements actually donot (or did not) know what or how well theywere doing, although they m ay havehad some suspicions.

5. Nonprofit organizations suchas churches and educational institu-tions have spurred the idea of so-cial auditing. Urged by their con-stituents to establish a "social port-folio," to sanitize their holding ofpaper from companies adjudged ir-responsible, or to infiuence the pol-icies of those in which they haveinvestments, these organizationshave been seeking (usually withpainful unsuccess) to establish someway of determining if Company Xis or is not socially responsible.6. Investment houses which, for a variety ofreasons, are establishing funds specializing in"clean" securities are also generating interest.These houses face the problem of identifyingcompanies that both act responsibly and prom-ise to be good long-term gainers. This is not asimple matter: it begs a gaggle of questions turn-ing on what is "good social performance."7. The social activists themselves have an ob-vious stake in some kind of measurements. Ifthey expect to have significant impact on cor-porat6 behavior, they need some yardsticks touse in advising the general public of the socialhealth of this or that company.

Confusion of methodsIt is precisely this broad spectrum of pressuresfor social auditing that causes much of the con-fusion. Everybody is talking about the socialaudit, but scarcely anyone agrees with anyoneelse as to exactly what it is, and n o two organiza-tions are doing it quite the same way. To il-lustrate :

D In one company, the chief executive as-signed the task of designing a social audit pro-cedure to his public affairs group. This group,naturally enough, was primarily interested inincreasing the company's role in communityaffairs and consequently designed an audit thatwould demonstrate a close linkage between so-cial programs and long-range profitability.D Another CEO wanted to satisfy his own

conscience that his company was, indeed, be-having responsibly. Inevitably, the issues andnorms selected for the audit were those whichwere important to him personally, and the na-ture and precision of the data generated weredetermined by how much he need-ed to know to sleep at nigh t.D One president wanted to makesure that his corporation's social pro-grams were producing the maxi-mum benefit to society for the in-vestment being made. He focusedthe auditing effort on making aninventory of wh at the company wasdoing and evaluating the usefulnessof each program vis-a-vis others inwhich the company might engage.Hence his audit was designed toanswer such questions as this:

"Should we be working with thepublic schools in town instead ofsponsoring low-income housing?"D The relevant question for a church or aneducational institution is this: "Which com-panies are doing well in ways that are of par-ticular concern to our constituency?" If a con-stituency is upset about apartheid, or antiper-sonnel weapons, or pollution, the only questionsthe audit must answerwithin the bounds of fi-nancial prudenceare whether or not any com-panies represented in the institution's portfolio

are viewed by the constituency as socially re-sponsible on this particular range of points; and,correspondingly, the audit will be designed toprovide just the data that show whether thecriteria are in fact being met.D Consider the social activist who seeks toforce corporations to halt activities that have(as he thinks) antisocial effects, and who alsoseeks to enlist them in the effort to improve theworld around them. Here, again, the task is dif-ferent, and the audit will be different. The activ-ist will select the issues that strike him as beingespecially significant and collect enough data toconvince himself and the general public, whichis the ultimate source of his infiuence, that im-proper things are being done.D The consulting firm interested in helpingclients with the auditing problem obviouslywants to develop a version of the social auditwhich is financially and professionally feasibleand applicable for as wide a variety of clientsas possible. Its nonindividualistic approach isbound to confiict and contrast with those ofother auditors.


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Harvard Business Review: January-February 1973D The company that is seeking either a goodimage or protection against attack will selectthose areas for investigation that, in its judg-ment, will satisfy the public it is trying to im-press (which may, incidentally, include its ownemployees). Since the audit data must be madepublic, the company will probably need to make

investigations and disclosures that are very ex-tensiveextensive enough to convince an audi-ence that is growing ever more skeptical ofcorporate pronouncements. Its audit is boundto be company-specific, by virtue of the natureand depth of the data required.In short, many purposes and programs are cur-rently crowding and jostling under the umbrellaof the social audit. Nevertheless, the full visioncontinues to be that, in the future, companiesshall report their social peformance with thesame regularity and the same appearance of pre-cision with which they now report their finan-cial performance.The question to be asked is whether the auditcan ever be developed to a state that will satisfythat austere vision.

The vision vs. experienceIn the past few months, we have investigateda number of organizations that are engaged inone or another kind of social auditing. We havetalked with consulting firms and looked at theirefforts. We have met with and, in some cases,worked with com panies in m any different indus-tries that are taking bites at the apple. We havebeen associated with several of the social actiongroups. We have studied some of the investmen thouses. And we have now reached the point, wefeel, where we can define five significant dif-ficulties imbedded in this auditing process.

I How do we decide what to auditlAs the social auditor enters the thicket of im-plementation, thefirstbramble bush he w ill meetis the question of what to audit. What are theareas of social responsibility, anyway? As wehave surveyed current practice, we have foundalmost as many answers as there are aud itors.Pollution and the hiring and promotion ofminorities (including women) receive a roughlyconsistent priority, but after that things are fairlywide open. Some auditors virtually ignore cor-porate giving and community programs; others

include them. Ouite a few stress consumerisissues of various kinds; others go heavy onmunitions manufacturing, or investments inSouth Africa or Portugal. Still others focus onemployee well-beingfringe benefits, promotionopportunities, safety, and so forth.The choice is not easy to make. When hecomes to decide whether to include a specificfactor, the auditor inevitably realizes the fullcomplexity of some of these issues. For manyPolaroid's involvement in South Africa was asimple matter, but the company did not find itso. Finally, after a strenuous internal debate, thecompany came to the conclusion that it wouldbetter satisfy its social responsibility in the longrun, even in the eyes of the groups pressing forwithdrawal, by remaining in that unhappy landthan by leaving it. ;Equally, some of the components of socialresponsibility are as vague as they are complex.For example, how does the auditor grapple witha subject Hke "quality of work?" This term canand doesmean everything from the adequacyof fringe benefits to the degree of employee par-ticipation in corporate decisions. Executives inone company found to their surprise that em-ployees felt it was socially irresponsible for m an-agement to demand of them as much time andeffort as the corporate mission required. Clearly,quality of work is too imprecise a quantity to betaken for granted.

Defining the relevant parts of social respon-sibility creates further difficulties. For some, asocial audit is adequate if it simply examinesthe community activities in which a corporationis engaged. For others, this is ducking the issue:the relevant point, they feel, is the impact acompany is having on society because of thebusiness it is in or the way in which it is con-ducting that business. An insurance companymight ask itself, for example, what good it doesto audit its investment in low-income housingand m inority enterprises but ignore its red-liningpolicies in the ghettos? Similarly, one mightargue that a change in the traditional hiringpractices of a company is going to . have a fargreater beneficial effect on a community thanall the gifts it makes to the C omm unity Fund.Finally, the definitions of corporate social re-sponsibility are still evolving. If one takes therecent past as a basis for prediction, he wouldhave to guess that expectations will rise, thatstandards of performance will be hoisted, thatnew and unforeseen issues will be introduced,and that some of today's causes will become less


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Corporate social auditrelevant. Thus, in 1973, good labor relations isno longer much of an issue; similarly, if pollu-tion laws are strengthened and enforced, pol-lution control may not be worth auditing inthe future. Social responsibility is a moving tar-get, and this fact greatly complicates the choiceof what to audit.

Roughly, the decision as to what to audit hasto be determined in one of two ways. Either thetop corporate executives, on the basis of theirinterests and their perceptions of the concernsof their constituents, must make the choices, orsome kind of survey of the relevant constitu-encies must be conducted. A good case can bemade for either approach; it is largely a ques-tion of what purpose a company has determinedfor the audit.2. What are the measures^Once a company has defined the areas it wantsto audit, it must decide how to measure its per-formance.One obvious way is by costwhat it spendsin each area. But even if a company selects onlya narrow definition of social responsibility andfocuses just on the costs of its so-called socialprograms (for example, English-language pro-grams or housing rehabilitation), how does itdetermine what the true costs of such activitiesare? How does it measure the executive timethat goes into them? How does it assign overheadto them? How does it assess the opportunitycosts involved?Furthermore, cost by itself is an inadequatemeasure, since the main question the companywill want to answer about each activity is, "Wasit a success?" The difficulty in answering thisquestion is that such corporate activities canordinarily be measured only in terms of suchintermediate effects as the number of peoplewho have received a given type of servicesay,the num ber of comm unity residents whose apart-ments have been rehabilitated. Few social pro-grams can satisfactorily document what the de-livery of these services did for the people whoreceived them.In addition, these activities are extremely ex-pensive to evaluate,- and it is doubtful whetherany company would find it feasible to makefrequent evaluations of its total contributions.A compounding difficulty here is that the an-swer to the question, even if one gets it, maybe valueless. If a com pany ascertains the numberof high school students who use the computer

it has donated, what has it really learned? Prob-ably, not very much.3. What constitutes successlThus we come to the problem of defining whatconstitutes successthat is, of defining the ap-propriate norms against which a company shouldmeasure. Even if a company can make a soundselection of items to audit and can develop somesatisfactory measure for its performance on theseitems, how will it know when it has done a jobright? How good is good?Government standards (if they exist) may fillpart of the need here, but most of us would feelthat such standards are minimums for perfor-mance, not norms for judging success. Further-more, in many areas such as pollution and mi-nority hiring, there is so much variation of fac-tors from industry to industry in the problemswith which companies are confronted that oneprobably needs separate performance norms foreach. Sometimes this is possible; more often it isnot; but even when it is, it is rarely adequate.One would not expect Con Ed's records for hir-ing and promoting Puerto Ricans to look likethose of PG&E. Specialized norms mean toughercomparisons in measurement.In an effort to cut through such problems,some people have suggested that the effective-ness of a company's program in meeting a socialissue is the norm that should be used. We havealready referred to the difficulty of evaluatingsocial programs and the even greater difficultyof comparing the ones selected with otherswhich could have been undertaken.There is also another difficulty with this ap-proach. The success of a program for trainingthe hard-core unemployed, for example, can bemeasured in terms of numbers completing thecourse, being hired, and being retained in thejob. But if an observer tries to go the next stepand judge whether a particular company's hard-core training program solved or even significant-ly contributed to the solution of a social prob-lem, the verdict may well be dismal, simply be-cause any one company's contribution is un-likely to solve a problem unless it is a very largecompany in a very small community.4. Where are the datalNext we should mention the difficulty of collect-ing data in this area. It is expensive and timeconsuming for a large, complex company to


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Harvard Business Review: January-Februarycollect adequate data about its social programs,much less determine which of its activities havea social impact and thus should be studied. Quitefrequently, outside auditors have difficulty get-ting at the kind of information they need. Eveninside auditors may run into real problems. Forexample, one company with only minimal m an-ufacturing operations but extensive retailingones decided to hire a group of students to checkon what it assumed were the few locationswhere it could be polluting. It very quickly be-came apparent that the job was truly immense,because the company was disposing of solidwastes in literally hundreds of company loca-tions. The group could only sample, not study,the company's pollution programs.

Another reason for this difficulty is stubborninternal resistance. Even if the CEO wants asocial audit, he is likely to encounter foot drag-ging, if not outright opposition, within his ownfamily. In conglomerates in particular, divisionmanagers resent what they perceive as an intru-sion into "their" private files.Also, managers do not seem to care much formorale surveys to see what the people they su-pervise think of the company and its record insocial performance. Others disagree philosophi-cally with the whole social-responsibility idea;some even say that if the boss wants to foolaround with it at his level and work with theBoy's Club somewhere, okaybut he had betterkeep his liberal do-goodism out of operations.This kind of controversy has forced more thanone CEO to back off and scale down his in terna laudit from what he had intended.In one com pany, the headquarters staff startedto audit the condition of the employees becausethey thought it would be the easiest way to cuttheir teeth before they began to audit othermatters. Believing that equal employment waswell accepted in the company, both as the lawof the land and the right thing to do, they sentpeople to check records in one of the divisions.The division head, however, flatly refused tolet them look at the files; and when he finallydid consent to open the drawers as a result ofa topside order, he continued to be as uncoopera-tive as possible within the terms of the directivehe had received. At this point, the company be-gan to reconsider the whole social-audit idea.5. How accurate can weUnfortunately, there has been an inordinateamount of loose talk about the social audit.

much of it in responsible journals or in respon-sible places. For example, Thomas Oliphantwriting in The Boston Globe, said: "Almost alof this data exists right now on some corporateexecutive's desk. What is lacking is the decisionto put it all together and release it to the publicin a manner modeled roughly after financialaccounting standards to ensure a maximum ofinformation and a bare minimum of publicrelations." ^ To that statement, and the manysimilar ones being made today, we reply, "Non-sense."But, unfortunately, it is worse than nonsense.The twin myths that such a thing as a socialaudit exists and that financial audits are hardand precise have misled some businessmen intotrying to create a report on their social perfor-mance which has the same precision and ac-curacy they attribute to the balance sheet.

The fact is that we are not yet at the pointwhere such an audit is possible, and we maynever get thereindeed, we may never have to.The social audit, even when we have learnedhow to do one that is credible internally andexternally, may look nothing like a financialaudit at all. We are only on the edge of thethicket, and what we really need is not a manwith the answer, but a number of men with thecourage to try to frame an answerto experi-men t, to learn about how to measure and reporton social performance, and to pass what theylearn along to the rest of us.The Abt experiment: Only one of the compa-nies we studied, Abt Associates, had completedanything that could meaningfully be called asocial audit.The Abt audit of its own activities is a publicdocument included in the firm's annual report.It is an effort to represent, in purely dollar terms,the company's social assets and liabilitiesinother words, its social impact. This representsa diligent and ingenious pioneering work, espe-cially on th e part of th e president. Dr. C lark Abt,who spearheaded the effort. However, consider-ing the novelty of this effort, it is no surprisethat the firm's accountants did not give it theirofficial sanction.There are various reasons why we think thatthis format is not the one most likely to beadopted by large, complex companies:D It does not appear to respond to the cur-rently perceived needs of the executives of suchorganizations nor to the realities of their situa-

1. "The New Accounting: Profit, Loss and Society," May 1971.


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Corporate social auditas we understand them. For example, the

and aspirations for an auditAbt Associates is a relativelyconsulting firm. The total so- |;impact of a large complex com- I

D The goal of the Abt audit, once

if the in-

D Abt's audit is designed for external report-intern al repo rting for internal assess-

D Finally, the Abt form of a social audit is

utility in many contexts, this utility is, finally,limited; we feel there is likely to be fatal errorin employing the dollar measures as exhaustiverepresentations of social phenomena.Our judgment is not so negative with respectto proposals for auditing the dollar costs of socialcontribu tions, although we are respectful of boththe difficulties and the tricky judgmental ques-tions imbedded in such calculating.Mainly we are skeptical of the avail-ability and possibility of renderingd the social consequenceswhether1 positive or negativein dollar terms .All in all, given the complexi-ties and complications of doing asocial audit, given the various formswhich an audit might take, andgiven the varying uses to which it

might be put, we judge it a mistaketo specify at this time just what itsfinal form should or will be. In-stead, we believe that the task ofmanagement for the immediate fu-ture is to get on the learning curve.This is best accomplished by tackling the au-diting problem in a way tha t is sufficiently mod-est to be attain able , yet of sufficient scope to haveboth some utility and some value as a base formore ambitious versions of the social audit. The

first steps toward a social audit also should bedefined with an eye toward the organizationalconflicts that a social audit can bring about.Hints for getting startedThus our first suggestion is that the audit beinitially designed for internal purposes onlythat is, for aiding in the decision making pro-cess and for helping officers assess the com-pany's social performance, both with a view toits vulnerabilities and to changes that manage-ment may want to make in its activities. Sucha course offers dual benefits.For one th ing, it relieves the anxieties of thosecorporate officers who fear the embarrassmentof disclosure, enabling the company to makecorrections with a certain amount of privacy ifit chooses to do so. Equally, it allows officers totake what guidance they can from data andjudgments that may be too imprecise to presentto the public, and it bypasses their natural fearsthat their professional and financial future may


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Corporate social audit

for future perspective.)There will be other kinds of difficulty as well.

Once the inventory has been reduced to those

s as "social programs," management can

f the company's comm itment to eachThe first area is the matter of costs. Generally,

wh ich is quite a different matter, as we

, wherever the resources m ight have been

em, what system it is using to m easure work,

Since considerable expense and effort are re-

Our sense is that the public at large is not

However, for management decision making,

is performance data. The place to start is stillreadily available statistical data that show thelevel of effort expended and measure the output.For example, how many hard-core unemployedhave been trained, or apartments renovated, orchildren served in a day-care center? It is true,as we have pointed out, that pulling togethersuch material m ay be difficult. It is also true th atthis kind of material does not necessarily show,in and of itself, the effectiveness of the program s.Perhaps the assistance extended to minoritybusinesses has in fact done m ore harm than goodin that the funds generated ultimately are spentoutside the inner city, or the failures have servedto discourage people form starting ventures in-stead of encouraging them to do so. But we shallretu rn to this difficult matter of norms and socialbenefits in a mom ent. Suffice to say at this po intthat there are some figures that can be obtained,and that they do constitute legitimate data fora social audit.Here again, we would opt for a kind of "cream-ing" approach. Rather than spending inordinateamounts of time either in determining whatfigures should be collected or which should beincluded, we would urge that the most obviousand easily ascertainable be the ones that arereported. It is too early in the state of the art totry to squeeze out the last, ultimate figure orto fight through the finest kind of judgmentsas to what should be in or out.Ethics of public reporting: These first two stepsof an audit will give a picture of the extent andnature of the company's social programs and ofthe resources committed thereto. The display ofjust these two sets of information will be of he lpto many managements in assessing their socialperformance. These sets of information couldalso be the basis for reporting to the public,should management choose to do so.It may be argued that reporting data such asthese is very little different than what is beingdone for public relations purposes by many com-panies in their annual reports or in special pub-lications. We grant this. But we see nothingwrong in a company's communicating the extentand nature of its social activities and the magni-tude of effort behind those activities, providedthe coverage is complete and the reportinghonest.

Such an audit would at least reveal the extentof the company's concern. One of us recently


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Ha rvard B usiness Review: January-February 1973help the community, and we were struck by thefact that success or failure, or even quantity ofeffort, is outweighed in people's minds by evi-dence that companies or individuals actually areconcerned and are doing something about it.Businessmen are not expected to solve the prob-lems of the city, nor are they expected to besuccessful in every venture they undertake.However, they are expected to take the problemsseriously.Thus an honest and straightforward publicreporting of what a company is doing, accom-panied by the figures that are available, seemsto us to be perfectly appropriate if public report-ing is the name of the game.Questions of measures e) normsWe know a fair number of companies that havetaken one or both of these first two steps-in-ventorying activities and assessing costs. Somehave done it as part of a social audit activity;others, for the more straightforward reason thatmanagement w anted to know w hat the companywas doing. None found that this was a trivialeffort, and a number found that the mere as-semblage of information as to what the companywas doing was already of value to management.

However, we doubt that managers who takethe concept of a social audit seriously will wantto stop at this point. They will wa ntto make an assessment of how wellthey are doing in their various so-cial activities. Since this seems tous to be an inevitable direction forthe social audit, we would encour-age this stepbut with moderation,because assessing performance is be-set with grave difficulties. Assess-ment in the first audit should belimited to only several of the mostimportant activities.Here we must distinguish be-tween cases where true measuresof performance are available andcases where they are not (we shalldiscuss the second of these possibilities whenwe describe the process audit).Now a true performance m easure is a measureof the ultimate result that an activity is intendedto accomplish. We have already identified thetwo types of program areas for which perfor-

"easily available" data which are noted at inventory stage, but such data are bound toincomplete; a company is very likely to hdata available on emissions into the air water, for example, but it is not equally likto know about its contribution to solid waPersonnel records, too, will vary with respto the availability of information about the ployment of minorities.Norms, also, are required, and once againpicture is cloudy and uneven. There are lof various kinds by which to judge one's leof emissions into air and water, but not for emsions of solid waste. Nor are there likely toindustrywide norms of performance unless industry in question has been studied by Council for Economic Priorities or some sim

organization.Some commentators suggest that one shojudge pollution performance by what is tenologically feasible, and this may work outsome cases; however, cost/benefit trade-offs only too likely to crop up. Again, companies get industry norms for the employment staof minorities from the Equal Employment portunities Commission, but these industrywnorms may have to be adjusted to the idioscracies of the communities in which a comny's installations are located.However, while it may be possible to get equate performance measures norms for some of a company's cial programs, for others it willdifficult to the point of virtual possibility. The results of a comunity development program, example, perhaps will not be cluntil sometime in the future, aa particular company's contri

tions to these developments willhard to isolate even then. Agamanagement might be satisfied wjudging a program for training hard-core unemployed by the nuber of candidates who gradufrom the program and secure eployment, but management might also vithese numbers as only intermed iate m easuresthe long-term effects which it regards as crucWherever the auditing team and managemfeel that there are no adequate performanmeasures of a social programand this is lik


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Corporate social audit

rmed future decision mak ing. A company that

The second step is to explicate the goals of

The third is to spell out the rationale behind

The final step in the process audit is to de-

The goal of such a process aud it is to assembleer h e agrees with its goals, to decideether the rationale is appropriate to the goals,

Process audits are most likely to be appropri-

ess audit m ight be conducted in part

Even where the purpose of the audit is just

may want to bring in an outside expert to helpdefine the relevant factors to assess and to makethe final evaluation of a program. When suchexpertise is brought to bear, management canbetter judge whether it is satisfied with presentactivities, whether it wants one or anotherchanged and improved, and whether it wantsto shift its efforts among activities.Once all the above information is assembledfor management scrutiny, and possibly for pre-sentation to the public (an option always opento man agement), we would regard the first roundof a social audit to be completed. It seems likelythat the public will be uninterested in the firststep of the process audit we have proposednamely, the circumstances under which thecompany undertook the activity (though theremay be instances where this is relevant). How-ever, the remaining steps develop informationthat would be helpful and acceptable to thepublic in its evaluation of the company's per-formance.

There are many ways in which an initialprocess will be incomplete and imperfect, com-pared with what a company might aspire to lat-er. It may be bulky and cumbersome. The for-mat will be unstandardized. Only a portion ofthe company's social impact will be assessed.And of that which is assessed, only the most im-portan t activities will be given any treatment be-yond bare identification, description, and spec-ification of costs. Furthermore, such technicalproblems as assessment of true costs and perfor-mance measurement will be handled in a fairlyrough and ready manner.But the show will be on the road. Manage-ment will be in a considerably better position tomake decisions and take actions. It will alsoknow whether it wants to report to the publicat th is stage; and if it does, it will hav e a respect-able report from which to work. Furthermore:O The foundations for future auditing w illhave been laid.O The nu cleus of an auditing team w ill havebeen trained.O The controller w ill have had his first tasteof the problem of assessing the true costs ofsocial programs.O Managemen t will have a realistic basis forestimating what an audit costs and is worth.O Hopefully, the fears of corporate executiveswill be surfaced and assuaged.O To the extent that m anagement thinks it


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Harvard Business Review: January-February 1973O The very fact th at m anagemen t has under-taken an honest, systematic effort w ill be a plus.

The reader will note that we have said nothingabout the relationship between responsibilityand profitability. This is intentional. We havespecifically excluded from our version of a firstaudit any attempt to assess the contribution ofsocial activities to the profitability of a com-pany. We believe that this exercise is possibleonly in the case of a minority of such activities,and that the attempt to complete this exercise,while having a certain appeal to technical vir-tuosity, is likely to divert attention from themore straightforward objectives we have pro-posednamely, management information andpublic reporting.The future needsWe close on the question of whether a companycan carry out such an audit on itself. As thereader would expect, there is not a yes-or-noanswer to this question. It is better to rephrasethe question and ask whether the company can

henefit from outside help. In fact, at presthere is not much outside help to turn to. Oa few consultants have had any experiencesocial auditing, and the experience of even thfew is limited.Our conclusion is that a certain amountoutside help can be useful both as a souof discipline and direction, and as a spurkeep the audit moving. Most companies hhad trouble on these scores. Outsiders can asupply technical help on such matters as sembling true costs, preparing information distribution to management and the public, the process audit.Eventually, we assume, if the social audevelops viably, the accounting profession wbe centrally involved, both in setting up systeto gather data and in attesting to the truththe data for the purpose of improving its cribility. This is already a matter of considerainterest in the accounting profession, but at point everyone in the race is standing on same starting line. The most important task nis to start running. Only in that way will learn what the track is really like.

Measurementof socialprograms

David F. Linowes, Partner,Leventhol, K rekstein,Horwath & Horwath,"Measuring Social Programsin Business," address to Am ericanAccounting Association,Southeast Region, Baton Rouge,

M uch is being said of the need for the m easure me nt of social programs,the ohservations run all over the horizon. The biggest mistake we can mat this junctu re is to try to design techniq ues w hic h w ill fully saall dimensions.It may be years before we can invent and use social measurement the confidence and relative precision with which we use economic fiscal measurements in business and government. But we do have enostandards available in social areas so that we can hegin now. I should however, considering the softness of much of the economic and fidata used todayas well as how these data are often misusedthatresults of social measurements with all their limitations can be juseffective as economic measurements. What we can do at once is to horfrom economics and apply the "system" of economic and fiscal measment to social areas. This is what socio-economic measurement isahout. . ..Further delay in implementing a reporting procedure for the soactions and inactions of a business organization could prove harmfuour way of life as we know it today. To a large extent, the business enprise dominates our society. Those responsihle for directing the afof these institutions cannot be expected to initiate and expand activiwhich in their immediate impact adversely affect the profit and statements, thereby reflecting adversely on incumbent managemestewardship.Business managers must have available a meaningful measure for tsocial actions for all the world to see and evaluate, along with the meaof profit-making operational activities which have always been gibroad visibility through the published profit and loss statements.


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bauer_what is a corporate social audit

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