AccountAbility AIMS: Improving organisational accountability and performance

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1 EBEN Research Conference 2001 Standards and Audits for Ethics Management Systems AA1000 and AccountAbility AIMS: Improving organisational accountability and performance Mike Peirce, Research Manager May

2 1 The Operating Context What is business success and how can we recognise it when we see it? What is corporate responsibility and how does it relate to business survivability or sustainable behaviour? Straightforward and important questions. Yet many simple answers often misrepresent a business environment in which the roles and responsibilities of business are constantly categorised, challenged and re-classified, and the techniques of quality management are regularly reviewed and changed. Many features of the current corporate operating environment are evident from business behaviour and the activities of a wide range of consumer, employee, investment, regulatory and other communities. We can see, for example, the: Rapid increase in voluntary corporate reporting on social and environmental aspects of performance; Increasing sophistication of business-to-community and business-to-business partnerships to address common problems; Involvement of national and international governmental bodies in programmes to develop management tools for business in parallel with exhortations for improved performance; Increase in investment funds that are managed using criteria explicitly based on socially responsible behaviour; Widespread disquiet concerning the (perceived and real) impact of major corporations on the environment, society and the economy. In this complex environment, many businesses and stakeholders are determined to build new skills and find new ways to improve performance. The growing interest in measuring, managing and improving overall performance (described variously as corporate social responsibility, corporate citizenship and sustainability management) appears to be both a result of these developments in society as well as a pressure for further development in business practice. A variety of models (ranging from the descriptive to the normative) have recently been developed to explain and justify this interest in corporate responsibility. Simon Zadek, Chair of AccountAbility, outlines a four-part typology of business case arguments [Doing Well and Doing Good, The Conference Board, 2000]: The case for defending reputation and avoiding potential financial loss; the traditional cost-benefit business case - e.g the impact on employee recruitment, retention, and productivity [and] customer loyalty ; the strategic business case, through which corporate citizenship becomes an integral element of a company s broader strategic approach to long-term performance; the New Economy case, companies feel citizenship can help them manage risks and promote innovation and learning. In the latest issue of the Journal of Corporate Citizenship [JCC, Warwick University, Summer 2001], William Halal identifies five elements that drive the collaborative enterprise : conflict resolution; equitable treatment; market competition; political bargaining; collaborative problem-solving.

3 Recent years have also witnessed the emergence of a number of standards and guidelines to support and assess the performance of organisations. To be effective, these standards [understood loosely] need to be technically robust - coherent and appropriate to their target groups. They must allow innovation and flexibility in managing social, ethical and environmental issues. They must allow leaders to lead, but also must bring along those organisations new to the fields of accountability and sustainable development. And in order to be successful, the standards must work alongside other efforts to improve accountability and performance, including new management tools, new experiments in partnership, and initiatives to develop national and international legislation. But standards have a more complex role than this. To be effective, they also have to be viewed as legitimate by organisations and their stakeholders. Bowker and Star define three design requirements for the systems of classification and standardisation. These are as follows: Recognising the balancing act of classifying - Classification and standardisation schemes always represent multiple constituencies, and can do so most effectively through the incorporation of ambiguity; Rendering voice retrievable - By keeping the voices of standardisers and their constituents present, the system can retain maximum political flexibility; Being sensitive to exclusion - Bowker and Star draw attention to the distribution of residual categories - who gets to determine what is 'other' The most innovative of recent standards seek to build effectiveness for the standard through legitimacy as well as technical robustness. Four key examples, the Global Reporting Initiative (GRI), Social Accountability 8000 (SA8000), the Ethical Trading Initiative and AccountAbility 1000 (AA1000), have been developed by multi-constituency partnerships between business, governments and international agencies, and civil society institutions. The GRI Sustainability Reporting Guidelines are focused on a specific part of the social and ethical accounting process - reporting - although GRI is exploring the role of auditing guidelines to support its reporting process. GRI defines a set of indicators of performance covering a full range of issues of concern to stakeholders, including social issues as well as environmental and economic issues. A revised version of the guidelines will be launched in June Social Accountability International s SA8000 defines a management system, referring to the definition of policy, the monitoring of activities and results, the verification of conformance, the communication of procedures and the development of management systems. It is however focused on a specific issue - working conditions in global supply chains. ETI is a partnership of companies, unions and non-governmental organisations. The ETI s Base Code is focused on a set of defined labour issues. Members require that suppliers meet agreed standards, and that performance is measured, transparent, and ultimately a precondition to further business. Members produce annual reports on progress against the code, and an annual summary report is produced by ETI.

4 The Institute of Social and Ethical AccountAbility s, AccountAbility 1000 (AA1000). AA1000 is an accountability standard that can be used in two ways: 'As a common currency to underpin the quality of specialised accountability standards, existing and emergent, i.e. identifying the core elements of quality in accountability standards; As a stand-alone system and process for managing and communicating social and ethical accountability and performance.' i.e. defining a quality process of social and ethical accounting, auditing and reporting. AA1000 gives companies (and other organisations) a standardised system that can support their processes of social and ethical accounting. It seeks in particular to help companies understand the links between different standards and guidelines, and also the links with other management tools such as the balanced scorecard or the business excellence model. This supports the aim of social and ethical accounting to bring social and ethical issues into the heart of business' strategic management and operations.

5 2 AccountAbility and AA1000 AccountAbility The Institute of Social and Ethical AccountAbility (AccountAbility) was created to support these aspirations. AccountAbility is the international professional body for accountability: a worldwide cross-sectoral membership institute for individuals and groups who wish to improve organisational accountability and social responsibility. It focuses on the development of cutting-edge management tools to improve the quality of accountability processes, and on training, learning and accreditation services to members who wish to practice in the field of accountability. AccountAbility was established in 1996 by leading companies and individuals in the field of corporate social responsibility. Current members include those working in a wide range of business sectors including the socially responsible investment community and professional advisory firms. It also includes members from not-for-profit organisations and professional institutions including academia. These membership categories are represented in its international Council, made up of 8 elected members and up to 12 co-opted members, selected by the existing Council. AccountAbility s Council Carol Adams, University of Glasgow, Roger Adams, Association of Chartered Certified Accountants Gavin Andersson, LeaRN Richard Evans, Ethics.Etc Reino Fridh, Independent consultant Adrian Henriques, Independent consultant Vernon Jennings, Novo Nordisk Mark Lee, Business for Social Responsibility Alberto Martinelli, University of Milan Ed Mayo, New Economics Foundation Paul Monaghan, Co-operative Bank Craig Mackenzie, Friends, Ivory & Sime Malcolm McIntosh, University of Warwick Sara Murphy, Forum for the Future Valdemar Oliveira de Neto, Ethos Institute Peter Pruzan, Copenhagen Business School Maria Sillanpaa, KPMG Sustainability Advisory Services Chris Tuppen, BT Simon Zadek, Chair of Council AccountAbility launched its professional qualification programme in May Its two main components are:

6 The accreditation of training courses The certification of individuals as full or associate members of AccountAbility. Other individuals are welcome as affiliate members of AccountAbility. Accredited training courses have been provided by three consortia in London, Manchester and Warwick in the UK, and in Nova Scotia in Canada. In addition, AccountAbility has participated in the Trivisi programme, funded by the Flemish ministry of labour, in which training capacity in social and ethical accountability has been developed in the Vlerick-Gent Management School. AA1000 AccountAbility launched the AccountAbility 1000 (AA1000) Framework in November 1999 to provide a practical framework for organisations to address issues of accountability and to improve overall performance. At its heart is a quality management process based on stakeholder engagement. AA1000 includes a set of principles and process standards. The principles draw from the experience of financial accounting, but also from the quality movement and from more recent initiatives in environmental and social and ethical accounting. They are based on an emerging consensus in business and society on aspects of best practice. Inclusivity is the lead principle of social and ethical accounting. It requires that the aspirations and needs of all stakeholder groups are reflected at all stages of the social and ethical accounting process. The other quality principles of social and ethical accounting can be put into three broad groups that relate to: the scope and nature of the company's social and ethical accounting process; the meaningfulness of information created by the process; the management of the process on an on-going basis. The principles of social accounting Principles relating to the scope and nature of the accounting process Completeness - concerns the inclusion in the accounting process of all appropriate areas of activity relating to the organisation s social and ethical performance. Materiality - concerns the inclusion of significant information that is likely to affect one or more stakeholder groups and their assessment of the organisation s social and ethical performance. Regularity and Timeliness - concerns the need for regular, systematic and timely action of the accounting process to support the decision making of the organisation and its stakeholders.

7 Principles relating to the meaningfulness of information Quality assurance - concerns the audit of an organisation s process by an independent and competent third party. The audit is concerned with building credibility (and providing assurance) in the process with all stakeholder groups, and hence developing meaningful stakeholder engagement. Accessibility - concerns appropriate and effective communication to the organisation s stakeholders of its accounting process and its performance. Information Quality a) Comparability - concerns the ability to compare information on the organisation s performance with previous periods, performance targets, or external benchmarks drawn from other organisations, statutory regulation or nonstatutory norms. b) Reliability - concerns the characteristic that allows the organisation and its stakeholders to depend on the information provided by the accounting to be free from significant error or bias. c) Relevance - concerns the usefulness of information to the organisation and its stakeholders as a means of building knowledge and forming opinions, and as assistance to decision making. d) Understandability - concerns the comprehensibility of information to the organisation and its stakeholders, including issues of language, style and format. Principles relating to the management of the process on an ongoing basis Embeddedness - or systems integration, concerns making the accounting process part of the organisation s operations, systems and policy making, and not treated as a one-off exercise to produce a report. Continuous improvement - concerns recognised steps taken to improve performance in response to the results of the accounting process. Note: These definitions are summaries of the principles of AA1000. The principles have much in common with principles defined by other quality models, including the Global Reporting Initiative's sustainability reporting guidelines, and the Federation des Experts Comptables Europeens environmental reporting guidelines. But what do the principles mean in practice? What is the common thread that runs through the practice of energy giants like Shell and BP, smaller values-driven companies like Traidcraft and the Body Shop, but also mainstream small and medium enterprises? AA1000 includes a set of twelve process standards that cover the stages that an organisation should follow on an ongoing basis to account for its performance. These processes fit into five main categories (see figures 1 and 2): a) Planning - The company commits to the process of social and ethical accounting, auditing and reporting, and defines and reviews its values and social and ethical objectives and targets. b) Accounting - The scope of the process is defined, information is collated and analysed, and performance targets and improvement plans are developed.

8 c) Auditing and d) reporting - A report (written or verbal communication) on the company's systems and performance is prepared, the process (including the social and ethical report) is externally audited, the report is made accessible to stakeholders, and stakeholder feedback is obtained. e) Embedding - To support each of these stages, structures and systems are developed to strengthen the process and to integrate it into the company's activities. f) Stakeholder engagement - Each process stage is permeated by the company's engagement with its stakeholders. As part of the process of continuous improvement, the company begins planning for the next cycle of the process, incorporating experience from previous cycles. Figure 1 AA1000 process model summary Embedding Planning Stakeholder engagement Auditing and reporting Accounting

9 Figure 2 AA1000 process model Stakeholder engagement Planning Accounting Auditing Reporting Establish commitment Identify stakeholders Identify issues Determine scope Audit report(s) Communicate report(s) and and obtain feedback Define / / review values Identify indicators Prepare report(s) Collect information Analyse information, set set targets & develop improvement plan plan Embedding Organisations apply AA1000 in many and varied ways. It acts as a guide to best practice in social responsibility in business and not-for-profit organisations world wide. In an increasing number of cases, organisations are publicly referring to their use of AA1000 or are using independent advisors to provide statements of quality assurance matched against the contents of AA1000. AA1000 is referenced in published reports from organisations as varied as British Airways, the Co-operative Bank, the Ford Motor Company, Novo Nordisk, Southern Sun Group, Traidcraft and TXU Europe.

10 3 AccountAbility AIMS Interest in AA1000 and other models of corporate responsibility has grown significantly over the past two years. Yet application remains patchy and many businesses remain dissatisfied with the results of their corporate social responsibility programmes. At its most negative: The range of approaches to assurance is growing and yet the increased costs of audit are not building trust in businesses or the quality and responsiveness of their decision-making; Corporate social responsibility programmes are divorced from mainstream business concerns of knowledge management, learning and innovation and as such are hard to justify; Corporate responsibility guidelines are disjointed and don't provide coherent help to improve performance. Worse still, guidelines tend to assume a one-size-fits-all approach which misses the specific management requirements of multinationals, SMEs and community organisations, and of businesses in particular sectors; Stakeholder engagement fails to deliver business with useful information or to improve its decision-making. At the same time, it fails to build strong relationships as stakeholders perceive little change in organisational performance, and as the engagement appears either peripheral in its concerns and / or burdensome in the time required to engage. AccountAbility AIMS is AccountAbility's programme to develop the AA1000 Framework based on the experience of its application since 1999 and the emerging needs of business and stakeholders. A revised Framework will be launched in Autumn AccountAbility AIMS addresses four key challenges faced by organisations addressing issues of social responsibility: Assurance; Innovation & learning; Management & measurement; Stakeholder engagement. For each of these challenges, the new AA1000 will include a practical operating guideline. In addition, each of the elements will be incorporated in the core of a revised AA1000 management standard. Assurance - the challenge and the opportunity Organisations recognise the need to build trust and confidence with internal and external stakeholder groups. Yet many are uncertain about appropriate and cost effective ways to generate credibility in their behaviour and communications. Traditional assurance mechanisms do not satisfy all audiences, but neither do new approaches

11 provide a coherent framework through which assurance providers can understand the quality of performance and against which assurance providers can be tested. AccountAbility AIMS will generate a set of assurance guidelines that facilitate the meaningful assessment of organisational activity including core processes, external reports and other communications. The guidelines will provide a overarching position on the critical elements of quality assurance processes. In doing so, they will encourage the generation of detailed protocols by service providers to work within the AA1000 framework. The assurance guidelines will also provide the basis for the maintenance of high standards of service provision by assurance providers. Innovation and learning - the challenge and the opportunity Tomorrow s successful businesses will be those that continuously and effectively innovate, renewing and reinventing their processes and products. 80% of British business leaders agree that such innovation requires effective knowledge management above all else. Yet responsiveness to the innovation challenge is recognised as being weak across much of the business community. Only 50% of business leaders feel that they are making full use of even familiar knowledge sources. Very few businesses effectively tap the unfamiliar, dynamic and rich information embedded in knowledge networks within local communities and wider civil society. Management systems from the ISO9000 series to EMAS to AA1000 recognise the importance of continuous or continual improvement. Yet the role of learning and innovation in driving improvement is typically ignored or assumed as a given. How then can management guidelines facilitate learning and innovation? AccountAbility AIMS will develop a practical approach to embedding knowledge management and associated learning and innovation into organisational management systems. A particular focus will be the role of diverse forms of stakeholder engagement and partnership. AccountAbility AIMS will build on on-going work taking place through the Innovation through Partnership project (see fgure 3 below).

12 Figure 3 - The Innovation through Partnership Cycle Management & measurement - the challenge and the opportunity The challenge of measuring and improving social performance bears differently on organisations depending on their objectives and operating sector as well as their particular culture and histories. Management guidelines need to recognise the core elements of social responsibility that cut across all organisations, but also support specific issues and business challenges. AccountAbility AIMS will develop specialist accountability management guidelines for large organisations and for small and medium enterprises (SMEs). The former guideline will provide explicit advice on the use of AA1000 as part of a suite of management tools including (amongst others) the GRI sustainability reporting guidelines. Both guidelines will provide a simple, step-by-step approach to social responsibility and will explicitly relate back to the core AA1000 standard (and hence to the AA1000 assurance framework). Further guidelines will be developed in a second phase of AccountAbility AIMS to support the internal and external assessment of management process and performance.

13 Stakeholder engagement - the challenge and the opportunity The soliciting of stakeholders' views in order to gather useful data and ideas, strengthen relationships, enhance corporate reputation or improve decision-making is increasingly part of mainstream business practice. Yet as the phrase 'stakeholder engagement' becomes commonplace (in staff communications, policy statements and published reports), concerns are raised that the activity is devoid of value or even damaging: that it can distract the business from its core activities and that it can be manipulative of stakeholders. Beyond the seemingly obvious idea that it s good to talk to and understand your employees, customers, suppliers, community groups and other key constituencies, is there a deeper value and purpose to stakeholder engagement? What accountability is owed to stakeholders, and what do stakeholders expect from engagement? What are the strategic and tactical business needs that engagement addresses? How do the nature of business and stakeholder relationships, and the issues that are important to each group affect the value and purpose of engagement? The practical question then arises: What do you actually have to do to ensure that you have meaningful and successful engagements? AccountAbility AIMS will develop a framework to support the selection of approaches to stakeholder engagement and their delivery. It will consider the drivers of engagement (including organisational objectives, stakeholder aspirations and needs and the nature of the business-stakeholder relationship and the issues at hand) together with the practical methodologies of engagement (the who, what, where, when and how of engagement.) The framework will also provide the basis for the assessment of stakeholder engagement by stakeholders and assurance providers.

14 4 Conclusion Two aspects of current corporate social responsibility practice can focus the ambitions of AccountAbility in its revision of AA1000: Corporate social responsibility practitioners come from a variety of backgrounds and are found in a range of different functions within business. In a number of organisations, social accounting and reporting appears to be viewed as an add-on to the practitioners existing responsibilities for environmental reporting, human resources or financial accounting. Stakeholder accountability is not seen as an integral part of organisational strategy and decision-making Published corporate reports (sustainability reports, social reports, corporate reviews, etc) have captured the imagination of business and the attention of the media and other close-range professional stakeholders. Yet the relationship between reporting and performance improvement is insufficiently clear either for business or its full range of stakeholders. These issues raise an important challenge: to encourage a move from the idea that social accountability can be tagged on to company reporting to the realisation that company reporting is only a part of a much wider social accountability that incorporates a drive to improve performance. AA1000 and other initiatives must help organisations to increase their transparency and to comply with legal requirements. But, in addition, they must help business achieve its ambitions and those of its stakeholders. The accountable business is one that makes evident the real improvements in its performance.