Measurement of social performance is quite fluid because of its qualitative nature. In order to overcome the problem of fluidity, a separate branch of accounting, known as social accounting, has been developed. Robert Elliot has defined social accounting as “systematic assessment and reporting on those parts of a company’s activities that have a social impact-the impact of corporate decisions on environmental pollution, consumption of non-renewable resources, and ecological factors; the rights of individuals and groups; maintenance of public services; health, safety, education and many other social concerns.”In social accounting, three approaches are used for measuring social performance:
- Social cost-benefit analysis,
- Social indicators, and
- Social goal setting.
Social Cost-Benefit Analysis: Social cost-benefit analysis is based on evaluating benefits that accrue to the society and the costs through which these benefits accrue. While costs can be measured in terms of money, same is not the case with benefits. Since social benefits cannot be defined in monetary term, the concept of consumer surplus is applied to measure these. Consumer surplus is the difference between what a consumer would be willing to pay for a given product or service and the actual price charged. Thus, this willing price may be used for measuring social benefits. However, the willing price to be paid by a consumer is subjective and varies from situation to situation for the same consumer or may be interpreted differently by various persons.
Cost-benefit analysis may be undertaken either on the existing price system or discounted rate of costs and benefits. In the latter case, social costs and benefits are discounted at social discount rate to determine the present value of net social benefits. Social-cost-benefit analysis, though suffers from the limitation of precise measurement, is useful in evaluating the alternative social programmes that an organisation can under- take.
Social Indicators: Social indicators approach of social performance measurement consists of developing social indicators and measuring an organization’s performance on these indicators. Brumet has prescribed five broad indicators in which the contribution of an organisation should be measured. These are as follows:
- Net income contribution-earning enough to provide for the present and future costs of the organization’s continued existence but limited to legitimate socially desirable profit;
- Human resource contribution-development of system of human resource accounting to measure the impact of the organisational decisions on human asset value.
- Creation of jobs and providing employment opportunities to backward and socially handicapped population, contributing towards educational development, relief of people in distress caused by natural calamities, rural upliftment, etc.
- Environmental contribution-environmental improvement through pollution abatement, conservation of scarce natural resources, maintenance of ecological balance, and so on.
- Product or service contribution-ensuring quality, durability, safety and serviceability of products; customer satisfaction, truthfulness in advertising, etc.
Social indicators approach measures social performance of an organisation in the context of various factors. Many organizations follow this approach because it indicates the areas in which they have to work. However, one basic problem in this approach is the determination of expectations of various indicators and the way it can be fulfilled.
Social Goal Setting: Social goal setting approach emphasizes on incorporating social concern in the objectives of an organisation which may be on a perpetual basis or on periodic basis. A combination of both can also be followed in which some social concerns can be under- taken on perpetual basis while others can be taken on project basis for specific period. For example, consumer satisfaction, environmental protection, etc. can be taken on perpetual basis while special projects for certain specific social cause like eliminating the impact of destruction caused by certain natural calamities can be taken on ad hoc basis. In the social goal setting approach, an organisation can identify the social concerns to be served on the basis of its own environmental analysis and choose those areas in which it believes it can contribute effectively by reducing the social costs or enhancing social benefits.
This approach is better in terms of providing areas of social concerns on which the organisation can focus in terms of the needs of the areas and its own capability to satisfy those needs, thus, this approach can be well integrated with strategic management process.
Social Audit
When an organisation undertakes social activities, it must also evaluate the extent to which these activities are performed effectively. Social audit is primarily aimed to measure the effectiveness of these activities. Bauer and Fenn have defined social audit as follows: “Social audit is a commitment to a systematic assessment of and reporting on some meaningful, definable domain of the company’s activities that have social impact.”
- Problems in Social Audit: The idea of social responsibility of which social audit is a means of measurement is quite valid in business world and it has been recognized that business organizations have to fulfill their social obligations in their own long-term interests. Social audit is equally logical. Social audit, however, presents numerous problems. These problems are of two types: determining scope for social audit and measurement problem.
- Scope of the Social Audit: If a social audit is to be made, the basic question is what activities should be covered. There may be various alternatives. First, all social activities being performed by an organisation may be taken for reporting. However, if the social audit is to catalogue all such activities, verify the costs involved and evaluate the benefits produced, it is very impractical to carry on the social audit and information may be too massive to be useful. The activities may be too large because it is very difficult to say which activities are not social. Thus, various activities which an organisation performs are social from one point of view because these provide some social benefits besides benefiting the organisation as well. Second, the various activities of clear social utility without prospect of profit may be taken into consideration. However, if only such activities are taken into account, the scope of social audit will be too limited to demonstrate the extent to which the organization’s social performance is fulfilled. The scope of social audit may be determined keeping in view the information requirements of various groups, such as, employees, customers, shareholders, general public and those who influence the shaping of public opinions
- Measurement Problems: Another major problem in social audit is related to the determination of yardsticks for measuring the costs and accomplishments of activities included in the social audit. Though costs can be measured easily, these are not the true reflection of social responsibility. These may not be the result of social involvement. The measurement of benefits is much more difficult because of lack of objective quantification of the outcome of any social activity. Moreover, how much an activity is benefiting to the society and to the organisation concerned is difficult to measure. It happens that an activity may contribute to both the society and the organisation.
Social Audit Report
In spite of the various problems involved in social audit, the organizations may think of it because a time may come when social audit, like financial audit, becomes compulsory. The validity of social audit report may be determined on the basis of well-established financial audit report, that is, uses to which information will be put should govern both the conceptual and procedural bases on which information is prepared and disseminated. Corson and Steiner have emphasized that a social audit report should contain
- an enumeration of social expectations and the organization’s responses,
- a statement of corporation’s social objectives and the priorities attached to specific activities,
- a description of the corporation’s goals in each programme area of the activities it will conduct,
- a statement indicating the resources committed to achieve objectives and goals, and
- a statement of the accomplishments and progress made in achieving each objective and goal.
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