Help firms to open up

Universities should teach future captains of industry how to act ethically, says Carol Adams.

As business has become internationalised and multinationals have grown to sizes unimaginable a few decades ago, so too have their actual and potential impact on almost all aspects of our everyday lives, our environment and the local communities in which they operate.

Society is becoming increasingly intolerant of the view that the sole or main purpose of companies is to earn a profit for shareholders. Next week sees the fifth anniversary of the death of Ken Saro-Wiwa, whose environmental campaign put the spotlight on the issue of corporate ethics. Consumer boycotts and action by non-government organisations have played an important role in changing the corporate agenda, even if, ultimately, only out of self-interest.

The chemical industry's Responsible Care initiative, like other purely industry ones, has served to focus corporate attention, though performance falls short of that demanded by key stakeholders. The Global Reporting Initiative and the Institute of Social and Ethical AccountAbility, both international, multi-stakeholder organisations founded in the past three to four years, have launched new standards. While a multi-stakeholder approach such as that adopted by GRI and AccountAbility is problematic, it is more likely to lead to improvements in performance.

The AA1000 standard, published by AccountAbility last year, focuses on the processes by which companies report on their impact. This focus is based on the premise that unless, for example, corporate values are embedded, and governance systems, data collection systems, reporting mechanisms and audit processes are sound, reporting is unlikely to show a true picture of performance or reflect stakeholder information needs.

The GRI's Sustainability Reporting Guidelines, published in June, focus primarily on the content of "sustainability" reports, but incorporate some of the "principles" or "characteristics" of AA1000. The extent to which these standards will be adopted remains to be seen.

Further developments at a national level have had mixed success. For example, while the government appointed its first minister for consumer and corporate affairs earlier this year, the Company Law Review, which is to make some social and environmental reporting compulsory, is seen as a missed opportunity by those campaigning for greater corporate accountability for social, ethical and environmental impacts.

Changes to pension fund legislation, that came into effect earlier this year, require pension funds to adopt an ethical policy, although many appear to be breaking these policies. Following a campaign by Ethics for USS, the Universities Superannuation Fund, which is the UK's third largest, made a Socially Responsible Investment appointment this year and announced intentions to pursue a policy of more active engagement with companies. Craig Mackenzie, of Friends Ivory Sime, argues that this approach is more likely to result in changes in corporate behaviour than excluding companies from portfolios.

There is clearly no room for complacency. There is a gap between corporate policies, what they tell us about their social, ethical and environmental impacts, and what in fact happens.

The first social reporting awards scheme, run jointly by AccountAbility and the Association of Chartered Certified Accountants, was held this year. The joint winners were Shell International and the Co-operative Bank. The award to Shell International is controversial given the well-publicised impact of the past few years. However, one of the reasons why these reports were selected was their inclusion of negative information and opinions. For example, they detailed targets that had not been met and negative feedback from stakeholders. The reports of the winners, while leaving room for improvement, represent an attempt to be accountable that should be encouraged.

Universities have a key role to play in forcing this change further. They educate our top business executives and, as such, have a duty to provide them with the skills and knowledge needed to determine the social, ethical and environmental impacts of corporate activities; to consider these impacts in decision-making; to implement appropriate systems to reduce such impacts; and to provide an account to stakeholders of those activities. Executives who can do this are valuable to business because those companies who are leading in this field are convinced of the overall benefits of doing so. They are also valuable to society because they have the potential to change corporate behaviour.

Carol Adams is professor of accounting at Glasgow University.