Seeking new social responsibility measures
ST. LOUIS — Flip to the back of any company's annual report, and you'll find the auditor's statement - boring stuff usually, but vitally important.
Every year, even the most secretive public companies let outsiders come in to pore over the books and determine whether the company is telling the truth.
Now, several groups want to audit corporate social and environmental practices, as well.
It's a radical idea, but companies in Europe and the United States are warming to it.
If the idea catches on, investors will gain a better sense of how companies minimize pollution and improve living standards of workers.
For their part, company executives hope to build investor confidence, especially since socially responsible investing now amounts for more than $1 trillion in the US alone.
"We believe that public accountability is part of our commitment to environmental and sustainability improvement," says Judith Mullins, director of General Motors' public policy center in Detroit.
On environmental and financial issues, she says, "investors want that same consistency of analysis, and they don't have it."
Some observers see such audits as inevitable.
"In a decade's time, you will see major companies producing one or both an environmental report and human-rights and labor report that are set to a consistent standard and independently verified," says Simon Billenness, senior analyst at Franklin Research and Development Corp., a social-responsibility investment firm in Boston.
Other observers take a more cautious view.
"It has a chance," says James Post, a management professor at Boston University. But "if [these steps] were easy they'd already be done."
So far, the environmental arena has created the most activity. Ever since companies such as 3M saved hundreds of millions of dollars by measuring and cutting their waste streams, other companies have taken a hard look at their polluting.
One problem: Every company reports environmental activities differently. Some are thorough; others create "green glossies," says Bob Massie, executive director of the Coalition for Environmentally Responsible Economies (CERES) in Boston.
"There are pictures of people planting trees and smiling around the recycling bin, and that's about it," he says.
CERES has proposed the Global Reporting Initiative, one set of standards worldwide. Earlier this year, a dozen companies including General Motors agreed to test the standards.
"We often get inquiries about our performance," says Ms. Mullins. But "they're asked in a different way, different format."
Proponents also hope standard reporting will improve performance.
"You can't manage what you can't measure, and, by the same token, you can't improve what you can't measure," says Mark Lee of Business for Social Responsibility.
Although the Global Reporting Initiative also touches on labor and human rights, two other groups are pushing those standards more forcefully.
The Apparel Industry Partnership, a coalition initiated by the White House and made up of apparel and footwear companies and human-rights, labor, and other groups. After years of criticism that US companies bought and sold goods made in Third World sweatshops, the partnership has drawn up a workplace code of conduct on child labor, wages, health, and safety.
Last year, it agreed to create a nonprofit group to accredit independent monitors, who will determine whether companies meet the code.
While the partnership limits itself to a couple of industries, another two-year-old coalition wants to set global labor and human-rights standards.
The Social Accountability 8000 guidelines are based on the better-known global quality standards from the International Organization for Standardization (ISO).
ISO guidelines, however, measure only management practices; SA8000 covers performance.
Already, its monitors have reviewed health, safety, and labor practices at 15 facilities, including US plants run by Avon, Italy's largest supermarket chain, and three Chinese companies.
"China has moved rather quickly," says Alice Tepper Marlin, president of the New York-based Council on Economic Priorities Accreditation Agency, which oversees the standards.
"There's so much discussion in the West about not doing business with China at all," she says. "So if the factory itself can demonstrate it's well run ... it has a lot to gain."
The most difficult hurdles could be workers afraid to talk and companies willing to lie.
They say: " 'Sure, we'll comply,' but under that there's a cat-and- mouse game of deception," says Fredi Munger, managing director of Verit, a nonprofit labor-monitoring organization.
The Amherst, Mass., company trains monitors for corporate clients and mounts its own investigations for US and European companies eager to have their facilities checked out.
"Sometimes, it's little things," she says, "like unlocking the bathroom. Sometimes, it's big things, like paying two years of back wages."