Social Accounting at Tana Netting
Developing and implementing a social accountability framework
Social Accounting at Tana Netting
Developing and implementing a social accountability framework
Author: P.B. van Eck Student Number: 1219235
Faculty of Management and Organization
University of Groningen:
Preface
This world is becoming more and more aware of the concepts of social responsibility, sustainability and social accountability. Within organizations the attention for these, and all related issues, is growing and companies are implementing systems which enable them to contribute to society. This has resulted in the principle of corporate social responsibility in which organization take responsibility for society.
The concept of corporate social accountability is also fascinating and interesting. This because the concept can lead to benefit for both society in general as for the organization. Conducting research into this topic, at Tana Netting, has been difficult but rewarding. It was difficult to find the desired balance between acquiring sufficient scientific data foundation and generating a practical and useful result for the organization.
It has been rewarding in many different ways. First of all, I have learned a lot both on the research topic and about conducting scientific research. Secondly, I have had the opportunity to live in Bangkok for a period of six months. I have experienced this period to be highly pleasant and enjoyable. The third reward is the resulting Master thesis, which was the final barrier of my MBA, and a product of which I am proud and satisfied.
For this opportunity and wonderful experience, I would like to thank everybody at SiamDutch and Tana Netting for their cooperation, help, assistance and support with this research. I especially would like to thank the owner of SiamDutch and Tana Netting, Nicolaas Pierson, for the opportunity he provided to me. I also like to thank the Director of Marketing & Sales Nadim Mohr for the help and guidance during the research.
Also, I would like to thank my supervisors of the University of Groningen, Joost Miedema and Bartjan Pennink for their guidance and help in writing this thesis.
Finally I would like to thank all my friends my family, especially my parents for their endless support, encouragement and sponsorship. Extra special thanks to Mullika for your moral support and much more!
Thank you a million!
Executive Summary
This research has been conducted at Tana Netting Company Limited, Thailand. A framework for social accounting will be designed which suits the business context of the organization and enables the organization to communicate its social performance.
Reasons for Research
The concept of corporate social responsibility means organisations are undertaking initiatives of which society can benefit. Communicating the initiatives is a problem recognized in both business context and the academic community. Currently, no international and widely recognized social accountability method which can measure and report on the complete spectrum of social aspects is available.
Setting an example, by implementing the concept of social accounting, a movement towards social accountability can be generated throughout the entire value chain. In this research, a social accountability system is developed which can serve as a standard throughout the value chain.
Designing a Social Accountability Framework
The suggested social accountability framework is built around a process model which distinguishes the steps:
Planning: formulate, review and (where applicable) adjust the performance standards. Accounting: collect measurements (in the form of data) of the current performance Auditing and reporting: analyse the accounted data by comparing the desired
performance (standards) versus the current situation (represented by the accounted data) and report on the findings.
The three steps of planning, accounting and auditing and reporting should be regarded as a continuous process.
The process model is complemented with a set of performance standards. These performance standards are dived into three areas which together represent the broad concept of social accountability: human resources, environmental practices and quality management. The requirements in the areas of human resources and environmental practices directly influence the social performance. The requirements in the area of quality management facilitate a system behind social accounting by supporting the process model and integrating the value chain.
The three areas are subdivided into topics and all topics have their performance standards. The performance standards come in the form of requirements for which international recognized standards are benchmarked.
Recommendations are given for three different aspects of the social accountability
framework. In the first place, improvements of the business process recommended. These are based on finding on the internal audit and associated with the areas of human resources and environmental practices.
Secondly, data which represents measurements with regards to the performance standards (requirements) is suggested. For each requirement, in the areas of human resources and environmental practices, one or more measurements are recommended. This results in an overview of which data can be used to create a social account.
The third recommendation focuses on the implementation of the social accountability framework. The requirements in the area of quality management together with the process model of social accounting form the basis for these requirements.
Conclusion
In this research tools are provided to implement social accountability at Tana. The most important tools are:
Requirements which serve as performance standard within the framework. Recommendations to implement the requirements.
Overview of measurements to measure if requirements are met Recommendations on how to report on social performance
A process model which incorporates requirements, measures, evaluation and reporting on corporate performance.
Table of Contents
Chapter 1 Introduction 8
1.1 Overview of the Thesis 8
1.2 The importance of Social Accountability 8 1.3 Research Context 8
1.4 Research Subject 9
Chapter 2 Tana Netting Company Limited 11 2.1 History 11
2.2 Primary Process 11
2.3 Mission and Vision 13
2.4 Social Responsibility at Tana 14
Chapter 3 Problem Exploration 15
3.1 The Problem 15
3.2 Problem Definition 15
3.2.1 Research Goal 16
3.2.2 Research Question 16
3.2.3 Essential Requisites 17
Chapter 4 Theoretical Framework 18
4.1 The History of Social Accountability 18
4.2 Social Accountability 21
4.2.1 SA8000 22
4.2.2 Global Reporting Initiative 22
4.2.3 ISO 14001 23
4.2.4 AA1000 24
4.3 Social Accountability Framework 26
Chapter 5 Research Design 31
5.1 Research Typology 31
5.2 Data Collection Method 31
5.3 Research Model 32 5.4 Measurements 32 5.4.1 Human Resources 33 5.4.2 Environmental Practices 38 5.4.3 Quality Management 42 Chapter 6 Results 46 6.1 Results for the Area of Human Resources 46
6.2 Results for the Area of Environmental Practices 54 Chapter 7 Recommendations and Conclusion 62
7.1 Human Resources 62
7.2 Environmental Practices 70
7.3 Implementing a Social Accountability System 73
Chapter 8 Conclusion 82
8.2 Recommendations on Further Research 84
References 85
Figures
Figure 1: Tana’s primary process 12 Figure 2: Triple Bottom Line (Elkington, 1998) 19 Figure 3: The AA1000 Principles (AcountAbility 1000 Framework, 1999) 24 Figure 4: The AA1000 Process Model (AccountAbility 1000 Framework, 1999) 26 Figure 5: The Process of Social accounting 30
Figure 6: Research Model 32
Tables
Chapter 1
Introduction
§
1.1
Overview of the Thesis
This Thesis will commence with a description of Tana Netting Company Limited in chapter 2. This organization provides the context for this research. The history, primary process, mission and vision and corporate social accountability within the company will be discussed. In chapter 3 a problem exploration will be given. The research goal, the associated research question(s) and the essential requisites are outlined. In chapter 4, the theoretical framework for this research is developed. The history of social accountability is discussed, a definition of social accountability is formulated and different social accountability methods are examined. Based on this, a social accountability framework is suggested. In chapter 5, the research design is discussed. The research typology, data collection method and research model are explained. The chapter concludes with a description of measurements for the areas of human resources, environmental practices and quality management. In the sixth chapter, results are presented. Chapter 7 discusses recommendations on improvements in the area of human resources and environmental practices. Recommendations on how the social accountability framework can be implemented at Tana are discussed. These recommendations are based on the results presented in chapter 6. In chapter 8 an incorporated answer to the research question and recommendations on further research are given.
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1.2 The importance of Social Accountability
Today’s interest in social accountability has been triggered by increased sensitivity to, and awareness of environmental and ethical issues. These issues include: environmental impacts such as global warming, inappropriate treatment of workforce such as child labour and corrupt production which can lead to inconvenience and health and safety hazards for employees and consumers.
This increased sensitivity and awareness has led to a movement towards social responsibility, both on the individual level as on the corporate level. Social responsibility, on the individual level and the corporate level, concentrates on environmental impact and development of more sustainable solutions both in the ecological area as that of human resources.
Social accounting is concerned with accounting and measuring the actual or potential
economic, social and environmental impacts of the actions of organizations. It should enable third parties to judge the social performance of an organization. If social accounting is implemented and the results are made public, the total performance of an organization becomes more clear and complete.
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1.3
Research Context
The context for this research is Tana Netting Company Limited (hereafter “Tana”) which is a manufacturer of mosquito nets. Tana’s production process is recently developed and
implemented in its new factory. The design of the production process allows the organization to manufacture Long Lasting Insecticidal Nets (LLIN) with minimum impact on the
environment serve as the research context. This research has been conducted as the final assignment of the Master program Business Administration.
1.4 Research
Subject
Tana manufactures insecticide treated mosquito nets, which are specifically designed to save and improve people’s lives. As a private company operating in the development sector, most of Tana’s customers are directly involved in development aid and have specific opinions and policies on social issues, including demands that their suppliers provide basic social working conditions and adhere to certain environmental principles.
Tana considers itself a responsible organization and puts great importance on maintaining good social conditions for its employees and minimizing the environmental impact of its manufacturing process. Tana places high importance on social responsibility; the company wants demonstrate to all interested parties what corporate social responsibility means to them and how Tana implements these principles in their business process.
Financial accounting demonstrates, in part, that an organisation is handling its finances in a responsible way. Financial accounting is a way to show to those who are entitled that an organisation is accounting their financial aspects according the established and agreed upon rules of financial accounting. Because the rules and methods of financial accounting are widely recognized, anyone with knowledge in this area can verify an organization’s financial position. Financial accounting helps stakeholders form an educated opinion about the
financial responsibility of an organization.
However there are more organizational aspects which are important regarding the overall performance of an organization. These aspects are often hard to judge and subjective to the opinions and values of individuals. The ethical, moral and social aspects of an organization are examples which are subject to individual judgement. Corporate performance in these areas influences the overall performance of a company just as financial performance does.
Individuals generally have different opinions on what is ethically, morally and socially acceptable and the definitions of these values depend on a number of characteristics,
including religion, social background, educational level and geographical background. There are no generally agreed upon rules, policies and principles that define ethical, moral and social standards and measuring these values is extremely complex.
Environmental and social responsibility has gradually evolved into a topic of attention and awareness of the subject continues to grow among individuals, interest groups, organizations and society in general.
As public awareness of environmental and social responsibility continues to grow,
organizations are increasingly acknowledging the importance of this area. A frequently used term for environmental and social responsibility of organizations is “corporate social
responsibility” (CSR). As such, it can be said that many companies have developed environmental and social policies, guidelines and projects to increase their CSR.
Chapter 2
Tana Netting Company Limited
§ 2.1
History
At the very origin there was a plan to create export revenue for a Third World country with a product that would be useful around the world. Mosquito nets were in demand in Western countries because of their decorative value as well as their usefulness during warm summer nights, replacing environmentally unfriendly tools to ward of mosquitoes. At the same time, nets proved to be a basic necessity of life in malaria endemic countries. This resulted in SiamDutch Mosquito Netting Company Ltd. based in Bangkok, Thailand, a company producing, marketing and selling mosquito nets to customers around the world.
For over 20 years, SiamDutch has been a leading manufacturer in the mosquito net industry. Working with organizations like the WHO, UNICEF, PSI, USAID, JICA, CIDA, the World Bank, Asian Development Bank, Ministries of Health and private distributors across Africa, Asia and Latin Americas, SiamDutch established itself as a professional and reliable source for all types of mosquito net products. In 1989, in cooperation with leading international development organizations, SiamDutch produced its first Insecticide Treated Nets (ITN), mosquito nets pre-treated with insecticides, used as a tool in the fight against malaria. In 2003, SiamDutch Mosquito Netting launched a partnership that included Bayer
Environmental Science, NetMark (a USAID funded project) and Anovotek textile consultants to develop a new and innovative mechanized chemical application process for the production of Long Lasting Insecticidal Nets (LLIN). A LLIN differs from an ITN because it must
comply with certain characteristics; a LLIN must withstand a minimum of 21 standard washes and have a life span of at least three years without losing effectiveness. These criteria are defined by the World Health Organisation.
After two years of researching various technologies, the owner of SiamDutch Mosquito Netting incorporated a new company named Tana Netting Company Limited to produce a LLIN marketed under the name DawaPlus®. A state of the art facility was designed together with partners in the private and public sector as a fully integrated mosquito net manufacturing and impregnation site. The site is located in the export processing zone at Amata Nakorn, Chonburi only 45 minutes southeast of Bangkok (Tana Netting, 2006).
§ 2.2
Primary
Process
Raw material storage Laying and cutting Finished goods storage Sewing Impregnation Packing
QC QC QC
1 2 3
Figure 1: Tana’s primary process
The primary process basically consists out of four sections: laying and cutting, sewing, treatment and packing. There are two storage points, at the beginning and the end of the production process. The first storage point stores raw netting material (fabric) until it is ready to be processed.
In the laying and cutting section the fabric is being cut into parts which are being sewn together in the next section. The laying and cutting is being done with help of some tools. For rectangular nets, rectangular pieces of fabric are being cut. The fabric is already supplied in the correct width so only the appropriate length has to be cut. For the conical nets triangular and round patterns are required. These are produced by laying the fabric on the ground and manually cutting the patterns.
The first Quality Control (QC1) is to check if the supplied fabric is matching the
corresponding specifications. Fabric mistakes (rips or holes) are the primary concern. There are two options for performing this check. The first is to check in between the storage and the laying and cutting section. The other option is to check during the laying process. The later option is most common within Tana. This is more efficient because that way two process steps at once are done.
In the sewing section the different fabric part are being sewed together. This is done manually with the help of sewing machines.
After the sewing process, a second point is inserted in the production process. At this QC-point the focus lies with checking if the nets are the appropriate sizes. This is done by
sampling a maximum number of sewn nets its checking the dimensions.
In the treatment area the sewn nets are impregnated with a pesticide called Deltamethrin. The nets are loaded into a machine in which the nets are treated in such a way the Deltamethrin is evenly distributed the entire surface of the nets. Afterwards, the nets are put into drying machines. These machine dry the nets using heated air. After the drying process the nets are treated and ready to be packed.
A third QC-point is positioned after the treatment section. This QC-point is focused on checking if the treated nets are according to specifications regarding the amounts of
In the packing section the nets are manually folded and inserted into a plastic bag. These bags are heat sealed and the nets are packed into separate units. Because the packed nets are bulky (caused by the amount of air in inside) the nets are pilled together and pressed using a bale press. The nets are packed together in bales and ready to be stored and shipped.
In the finished goods storage, the nets are stored until they are ready to be shipped.
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2.3
Mission and Vision
Tana’s mission and vision will be explained and the current strategic position will be discussed.
The factory ahs been built to deliver one particular type of product which is the LLIN. LLIN’s are produced and used in the battle against Malaria. Therefore, Tana’s primary market is the malaria market. Tana’s mission is to help in the fight against Malaria by producing a quality product aimed at Malaria prevention.
Currently large quantities of mosquito nets are being bought by large organization active in development aid. These organizations are currently dominating the market for LLIN’s. Most of the LLIN’s purchased by these development organization are distributed to people in Malaria infected regions. The demand for LLIN’s originating at these organizations generates an important market for Tana. Currently, Tana is primarily focussed on manufacturing and selling to these organizations.
However, Tana does also develop a distribution network to develop the consumer market. This distribution network is primarily focussed on the African market. The products in this market are also concentrated on malaria prevention. Tana also sell small quantities of mosquito nets on other markets. But the primary focus of Tana’s products is the malaria market.
The guiding principles of Tana reflect the company’s mission and vision. An overview of the guiding principles is given below.
Ethics and trust
Firmly rooted in Thai culture, the organisation is guided by principles of ethics, humanity and trust. Reviving a simple natural product once used by Egyptian royalty thousands of years ago, Tana’s products are the outcome of present-day, customer-specific needs. The clients are part of the team.
Core business
Tana’s products primarily serve malaria markets and conform to internationally accepted norms. The company’s principal aim is to improve the lives of people.
Partnerships
Consumer rights
Tana promotes fair competition across the industry and believes that end users should enjoy consumer rights regardless of where they live in the world.
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2.4
Social Responsibly at Tana
As can be derived from the mission and vision of Tana, social and environmental
responsibility is of great importance and strongly rooted in the business principles of the company. Tana defines social responsibility as conducting business in a way that minimizes negative impacts on society in general.
The manufacturing process, which has been designed to minimize impact on the natural environment, is an example of this commitment. The process has been designed to release no chemical compounds into the natural environment and minimizing the number of employees who are exposed to products treated with chemicals. Tana Netting recognized the potential health and safety issues that could arise as a result of employees handling chemically-treated materials during the entire manufacturing process and therefore designed a process where nets are chemically treated only after they are cut and sewn.
There are other characteristics of the factory which are an expression of social responsibility. Efforts have been made to provide a pleasant work environment. Examples of these efforts are: the materials used within the factory are chosen for their environmental friendliness. This means that no hazardous or dangerous compounds have been used. The colours of the inside of the factory are bright and the roof is made out of material which permits natural light to penetrate. This lowers the need to use artificial lights which are usually electrical operated. On the factory premises extra room has been reserved for lawns and plants. These are all examples of CSR efforts which have been installed in the design of the factory. The above examples influence either directly or indirectly the well being of the employees. Other efforts, policies and practices have been implemented in the factory to enhance the well being of the employees even further. An example is that the cooks in the canteen are instructed to cook healthy food which means that the use of (artificial) taste enhancing ingredients is not allowed and that the choice of food provides a certain degree of variety. These choices have been made to provide a comfortable, safe and healthy work environment.
Chapter 3
Problem Exploration
§ 3.1
The
Problem
As discussed, the production process at the Tana factory has been developed to deliver a quality product with zero environmental impact and maximize human health safety. Tana supplies international organisations involved in development projects; these agencies attach great importance to social issues of all kinds. Some of these organisations are Non
Governmental Organisations (NGO), which are defined as“…independent voluntary association[s] of people acting together on a continuous basis, for some common purpose, other than achieving government office, making money or illegal activities.” (Willetts, 2001) The term was coined by the UN in 1945 in order to differentiate in its Charter between participation rights for inter-governmental specialised agencies and those for international private organisations. While many diverse types of bodies are now described as NGOs, there is no generally accepted definition and the term carries different connotations in different circumstances. All NGOs have their own specific mandates, stating their specific visions and opinions on social aspects such as working conditions and environmental practices.
Due to the fact that social and environmental impacts of an organisation are sometimes difficult to measure, checking these aspects is often not considered a direct priority for Tana’s customers. However, Tana intends to set an example by implementing a social accountability system that can be used by all stakeholders, including its customers, to evaluate the
company’s level of social responsibility. Through these efforts, Tana hopes that socially and environmentally accountable manufacturing can become a valid measurement among procurement staff of the customers.
The core of the problem lies with the fact that there is no agreed upon social accountability method like there is with financial accounting. The quest for an internationally recognized social and environmental accountability method has been ongoing since the early 1990s. Some promising developments have been made the last few years and Tana would like to implement a social accountability method based on these methods.
The key to the success of this social accountability method or system lies with the fact that it must be easily to check if the social accounts produced by the system are actually correct. In other words, third parties will have to be able to check if the data presented is correct. By implementing such an easily checkable system, Tana hopes to raise the bar of social performance with all clients of development organisations.
This problem is the topic of this thesis. The problem will be translated into a problem definition which will be addressed in the next chapter.
§ 3.2
Problem
Definition
§ 3.2.1
Research
Goal
The following research goal has been derived, based on the information described in the previous sections:
To generate a social accountability system suited for the specific business context Tana operates in, which can be used to increase awareness of social accountability and social performance with the stakeholders of Tana.
§ 3.2.2
Research
Question
The research goal leads to the following research question:
How can a social accountability system suitable for Tana be generated and implemented to create greater awareness of the importance of social accountability with the stakeholders of Tana?
The research question can be divided into different sub-questions:
1. What is the definition of social accountability in a manufacturing environment such as the one Tana operates in?
Articles and other relevant publications will be used to gain insight in theories, ideas and opinions concerning social performance and social accountability. Definitions of corporate social responsibility, corporate social performance, sustainability and social accountability will be presented to form the basis for the rest of the research.
The most important social accountability issues found in the scientific literature will be discussed. This will result in an overview of which aspects are considered most important in the field of social responsibility. This overview will form the basis for the actual
implementation of the social accountability method which shall be implemented at Tana. The different approaches to social accountability and the difference between the focus of these approaches will be discussed. This will be done by studying the scientific literature on social accountability and by case studies of the current social accountability systems. The different aspects of the social accountability systems will be combined to create a complete overview of social accountability which is suited for Tana. Derived from the different social
accountability a list of topics shall be suggested which will cover the broad view of social responsibility.
2. How can social accountability be measured in the case of Tana?
For each topic one or more requirements will be developed. The existing social accountability systems will serve as a source for these requirements. The requirements will serve as a
benchmark for the different topics. Measurements will be suggested for each of the requirements.
Requirements will also be set for the social accountability system. The social accountability system will be structured as a quality management system. The requirements will focus on what the quality management system must comply with. These quality management
These requirements will be used for the actual implementation of the social accountability system.
3. Does Tana comply with the requirements?
Although the primary goal of this research is to implement a social accountability system, Tana would like to review its business process in order to make improvements in the area of social responsibility. The company wants to operate according to the latest socially
responsibility standards. The requirements which are set in answering the second sub-question shall be used as a benchmark for the latest social responsibility standards.
In this paper, compliance with these benchmarks set by the requirements will be investigated. The production process will be audited by comparing the requirements with the actual
situation. This will result in an overview of which requirements are met and which are not within the current production process of Tana.
Wherever there is divergence between the actual situation and the desired situation set by the requirements, improvements in the operational process will have to be achieved.
4. How can the social accountability system be implemented at Tana?
This sub-question deals with implementation of the actual system which shall be used to account for the different social aspects of business. The goal of the system is to convert the process of measuring the different social topics into a continuous process. This continuous process will be structured as a quality system and will enable Tana to present a social account of the different topics of social responsibility at any given time.
5. How can a social account create greater awareness of social performance at the stakeholders of Tana?
The answer to this sub-question will be in the form of a number of recommendations on how a social account can be used to create and increase the awareness of the importance of social responsibility at the stakeholders of Tana.
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3.2.3 Essential Requisites
According to De Leeuw, ‘the essential requisites relate to the constraints regarding the methods of research and to constraints regarding the feasibility of research’ (2001, p.90). The essential requisites will be divided into requisites regarding the product and requisites
regarding the process of research. Product:
• The actual social accountability system implemented will have to be usable within production companies comparable to Tana.
• The social accountability framework must be able to measure and report social performance.
Process:
• The field research took place from the 1st
Chapter 4 Theoretical
Framework
§
4.1
The History of Social Accountability
Social accountability developed from a business approach called corporate social
responsibility (CSR) or ‘corporate citizenship,’ which originated in the United Kingdom and the United States of America. The concept of social accountability is connected to the concept of corporate social performance (CSP). To report on a company’s social performance, the social aspects must be measured and reported. Just like with the financial aspects, an
accounting system must be developed to report on the social performance. An overview of the development of CSR and CSP will be discussed.
According to Drucker (1984), Andrew Carnegie was one of the first businessmen to initiate the concept of corporate social responsibility. In Wealth (1889), Carnegie describes corporate responsibility as having two principles: charity and stewardship. Carnegie’s philosophy was ‘The sole purpose of being rich is to be a philanthropist’.
H.R. Bowen’s book, Social Responsibilities of the Businessman (1953) is being viewed by many (i.e., Carrol, 1999 and Sijtsma and Broekhof, 2002), as the beginning of modern thinking about CSR. Bowen (1953) defines corporate responsibility as ’the obligation of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in term of the objectives and values of our society’. This definition started the discussion on the definition of CSR in scientific literature. Also in 1953, the government of the U.S. suspended all regulations on corporate charity donations, allowing U.S. corporations to donate to charities according to their own policies and visions. During the 1960s more definitions of CSR were developed. Davies suggested that social responsibility refers to “businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest” (1960: 70). In 1963, McGuire accommodated a broader view of the firm’s social responsibilities. He stated that “The idea of social responsibilities supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond the
obligations” (1963: 144). Both these definitions of social responsibility stress the fact that a company’s responsibilities extend beyond the direct economic interests. However neither definition makes clear which areas besides the economic, technical and legal areas should be included within the business process.
During the 1970s the definitions on CSR become more accurate. The development of the social accounting approach also started during this period. In the early 1970s, the Public Interest Research Group established Social Audits Ltd. to carry out and publicise
investigations into the operations of large public companies, without necessarily gaining their permission or cooperation (Pay, 2001). The American Institute of Certified Public
Accountants (AICPA) published The Measurement of Corporate Social Performance in 1977 in which the authors discuss the problems of social measurement in six areas: [1] the
During the 1980s, the term sustainable development emerged. Sustainable development is materialized from the environmental perspective. The World Commission on Environment and Development (WCED) formulates sustainable development as “development that meets the needs of the present without compromising the ability of the future generations to meet their own needs” (WCED, 1987).
According to Faber (2005), there are many other examples of approaches to sustainability, all highlighting different issues and all applying the concept in different contexts. For example, in the 1990s a new form of voluntary social accounting based on engagement with
stakeholders was developed by Traidcraft and the New Economics Foundation (NEF), which formed the basis for a new form of social accountability called AA1000. This approach will be discussed later in this chapter.
In the late 1990s, Elkington (1998) introduced the triple bottom line principle for sustainable development. The triple bottom line can be defined conceptually as economic prosperity, environmental quality and social justice. According to Papmehl (2002), triple bottom line reporting is the latest evolution of what is often reported as corporate sustainable
development, or corporate social responsibility (sustainable development reporting).
Figure 2: Triple Bottom Line (Elkington, 1998)
Many definitions of CSR stress the fact that the responsibility of a business exceeds the economic, legal and commercial responsibilities of organizations (i.e. Davies, 1960; McGuire, 1963; CED, 1971; Carroll, 1979). Definitions like these do not indicate which aspects should be included in CSR. Elkinton’s (1998) triple bottom line principle is developed to define the responsibility concept within this research.
McElroy redefines the triple bottom line principle. He sees “economic capital merely a form of social capital” (McElroy, 2006). According to his view there are only two fundamental bottom lines: the environmental (or ecological) and social bottom line.
information regarding the financial performance, social accounting provides information with regards to the social performance of an organization.
A common set of CSP measures is needed by both academic researchers and businesses that want to assess corporate social impacts (Davenport, 2000). Without accepted definitions of CRS and CSP, researchers lack a foundation for the work of systematically gathering,
organizing and analysing corporate data (Clarkson, 1995). The definition of CSP will help to formulate a definition of social accountability.
Building on the work of Wartick and Cochran (1985), Wood (1995) suggests a corporate social performance model. An overview of the corporate social performance model is given in Table 1.
Table 1: The Corporate Social Performance Model (Wood, 1991)
Principles of corporate social responsibility: • Institutional principle: legitimacy
• Organizational principle: public responsibility • Individual principle: managerial discretion Process of corporate social responsiveness:
• Environmental assessment • Stakeholder management • Issues management
Outcomes of corporate behaviour: • Social impacts
• Social programs • Social policies
The institutional principle of legitimacy originates from Davies (1973). It means that “society grants legitimacy and power to business”, it focuses on the obligations and sanctions of a business association (Wood, 1995). The principle of public responsibility originated from Preston & Post (1975) and focuses on the “behavioural parameters for organisations” (Wood, 1995: 696). According this principle, the business association is responsible for outcomes related to their areas of involvement with society. The principle of managerial discretion states that managers are moral actors, within every domain of corporate social responsibility. They are obligated to exercise such discretion as is available to them, towards social
responsible outcomes. The focus of this principle is on the individual choice, opportunities and personal responsibility of the managers (Wood, 1991: 969).
Social responsiveness refers to the state of social awareness of the organisation. Fredrick defies corporate social awareness as “The capacity of an organisation to respond to social pressure” (1978: 6). Ackerman (1975) suggests that a responsive firm has three
many stakeholder demands on it, and [3] it designs plans and policies to respond to changing conditions. These characteristics correspond with the issues mentioned in the corporate social performance model.
According to Wood’s (1991) corporate social performance model, the outcomes of corporate behaviour can be divided into three different categories. The social impacts refer to issues as environmental impacts such as air pollution, toxic waste, illegal payments, etc. The outcomes of a social performance measurement must be able to measure these issues. Although research has been conducted into the measurement of these social impacts (i.e., Weidenbaum, 1981; Rose, 1970) there is no such thing as a measurement system for measuring the social impacts. Social programs and policies refer to the “actions the firm undertakes explicitly to manage the social impacts” (Wood, 1991: 709).
Based on the above, Wood defined social performance as “A business organization’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s societal
relationships”. (1991: 693).
Wood’s model can be viewed as a framework of how social performance can be measured. Viewed this way, it is a first step towards social accounting. In the above, social accounting has been defined as the measurement of social responsibility. Wood’s (1991) model suggests that CSP can be viewed as the process of social accounting.
The next section of this chapter will focus a definition of social accountability that will be useful within the context of this research.
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4.2
Social Accountability
Elkington’s (1998) ‘triple bottom line principle’ will be used to define the concept of CSR. Within this research, corporate responsibility will be defined as: the accountability of
corporations to be responsible for its financial, social and environmental impacts on society. Financial accounting has already been implemented within Tana. The goal of this research is to implement a system that focuses on accounting for the two other aspects of sustainability: the social and environmental impacts on society. Social accountability in this research will be defined as: the accounting of environmental and social impacts on society. This definition of social accountability is closely related to the two bottom lines suggested by McElroy (2006). All references of social accounting in this thesis refer to accounting of social and
environmental aspects as defined.
Environment in this definition refers to the natural environment. Social impacts include everything which involves society in general. Society and the natural environment are interconnected.
A number of different social accountability methods currently exist. Some are focused on narrow aspects such as labour practices, while others have a more comprehensive focus. A number of these different social accountability methods will be described. As explained, a list of topics will be created that covers the complete concept of social accounting. A number of topics will be formulated for both environmental and social areas. These topics will be
derived from different social accounting methods. In the coming section, different accounting methods will be discussed.
§ 4.2.1
SA8000
Social Accountability International (SAI) developed SA8000, a social accountability methodology that focuses on universal labour standards based on International Labour Organisation (ILO) conventions, the United Nations Convention on the Rights of the Child and the Universal Declaration on Human Rights. SA8000 is a performance standard covering the areas of: child labour, forced labour, occupational health and safety, freedom of
association, discrimination, discipline, working hours, compensation and management systems. SA8000 is a uniform, auditable standard for third party verification systems. It provides a set of guidance standards covering the specific areas mentioned above on how an organisation should be audited against set performance criteria. SA8000 can be viewed as a social accountability certificate. To gain the SA8000 certificate, a third party (authorized by SAI) audits the company on the set performance criteria. The social accountability process suggested by SAI is similar to a process used by the International Standards Organization (ISO).
The SA8000 standard is useful as a guideline and benchmark in the area of labour practices. However, it does not cover other aspects besides labour conditions. Therefore it is not a complete social accountability system. However, aspects of this method can serve as a benchmark for social guidelines. This shall be discussed in further detail in chapter 5.
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4.2.2 Global Reporting Initiative
The Global Reporting Initiative (GRI) aims to provide reporting guidelines for sustainability reports. Based on Elkinton’s (1998) triple bottom line principle, the focus lies on economic, social and environmental factors of the organization. The GRI reporting principles overlap with those principles used in financial reporting. GRI provides a set of guidelines which identify social reporting principles. Organizations using the guidelines are expected to apply these principles in their report preparation. Collectively, the principles define a contract between the reporting organization and report user, ensuring that both parties share a common understanding of the underpinnings of a GRI-based report. The principles are designed with the long term in mind. They strive to create an enduring foundation upon which performance measurement will continue to evolve based on new knowledge and learning (Global
Reporting Initiative, 2006).
The principles suggested by GRI are grouped in four clusters. Those that:
• form the framework for the report (transparency, inclusiveness, auditability);
• inform decisions about what to report (completeness, relevance, sustainability context);
• inform decisions about access to the report (clarity, timeliness) (Global reporting Initiative, 2006)
The GRI approach focuses on sustainability, as this is an aspect of social responsibility and social performance. However, the concept of sustainability as defined by GRI is not complete enough to be a social accountability system.
§ 4.2.3
ISO
14001
The International Organization for Standardization (ISO) is a global network which
recognizes that international standards are required by business, government and society. ISO develops them in partnership with the sectors that will put them to use, adopts them by
transparent procedures based on national input and delivers them to be implemented worldwide (International Organization for Standardization, 2006).
ISO 14001 is an internationally accepted specification for an Environmental Management System (EMS). It specifies requirements for establishing an environmental policy,
determining environmental aspects and impacts of products/activities/services, planning environmental objectives and measurable targets, implementation and operation of programs to meet objectives and targets, checking and corrective action, and management review. Below is an overview of how the ISO 14001 management system should be implemented at a company:
• Develop an environmental policy for your organization. The policy should make it clear that the organization supports the establishment of an environmental management system. It should also make it clear that you are committed to protecting the environment and improving your organization’s
environmental performance.
• Establish an EMS network of interrelated elements. These elements include
responsibilities, authorities, relationships, functions, processes, practices, procedures and resources.
• Identify the most significant aspects of the organizations past, present, and future activities, products and services. An environmental aspect is any feature or
characteristic of an activity, product or service that has or could have an impact on the environment.
• Clarify and respect the legal and other requirements that apply to your organization’s environmental aspects. ISO 14001 helps to identify and meet these requirements.
• Set environmental objectives and targets for all relevant functions and levels within your organization. Your objectives and targets should address significant
environmental aspects and be consistent with your environmental policy.
implementing the environmental policy and achieving the environmental objectives and targets.
• Evaluate environmental management system in order to identify opportunities for improvement. ISO 14001 expects the company to monitor, measure, audit and review your EMS in order to identify corrective and preventive actions and to improve your overall environmental performance. It also expects you to make sure that your environmental policy is appropriate and being applied, and that your environmental objectives and targets are being achieved.
ISO 14001 helps companies to establish an EMS. This system enables companies to account and report on their environmental performance. It obligates organizations to continuously monitor and improve their environmental performance. ISO 14001 can be viewed as a solution for accounting and reporting the environmental impact of an organisation.
§ 4.2.4
AA1000
An approach which includes the broad view of CSR and CSP is the AcountAbility 1000 framework (AA1000). AA1000 is developed by the Institute of Social and Ethical Accountability (ISEA). ISEA was founded in the UK in 1996 and is committed to
strengthening social responsibility and ethical behaviour of the business community and non-profit organisations. ISEA launched AA1000 in 1999.
AA1000 is built around a set of principles that identify the characteristics of a quality process. An outline of the principles is given in figure 3.
Figure 3: The AA1000 Principles (AcountAbility 1000 Framework, 1999)
The principles relating to the scope and nature of the organization’s process are divided into three aspects: completeness, materiality and regularity and timeliness. “Completeness
of activity relating to the organisation’s social and ethical performance. Materiality refers to the need to include significant information that is likely to affect one or more stakeholders and their assessment of the organisation’s social and ethical performance” (AcountAbility 1000 Framework, 1999: 22-23). It is a concept very close to the concept of completeness. What the principles of completeness and materiality will mean within this research, will be discussed later in this section. Regularity and timeliness means that the organization needs to undertake regular, systematic and timely action to support the decision making process. According this principle social accountability should be a continuously repeated process.
The principles relating to the meaningfulness of information are also divided into three aspects: quality assurance, accessibility and information quality. Quality assurance refers to the audit of the organization. According to this principle, the audit should be conducted by an independent third party. Accessibility affects the appropriate and efficient communication of the ethical and social accounting to the stakeholders. According to the management of Tana this is one of the most important aspects of any social accountability system that will be implemented at the company. The information produced by the eventual system must be easily accessible and easy to check. Efficiency refers in this context to the cost associated with the checking of the information. Information quality refers to the comparability,
reliability, relevance and understandability of the information provided by the social accounts. Comparability concerns the ability to compare information on the organizations performance to previous information.
The principles relating to the management of the process on an ongoing basis are divided into two aspects: embeddedness and continuous improvement. Embeddedness means that the social accountability system needs to integrate as part of the organization’s operation systems and policymaking, and not be treated as a one-off exercise to produce a social and ethical report. For Tana this indicates that the social accountability methodology must be treated as a management system, just like the ISO standards are considered management systems.
“Continuous improvement concerns recognized and externally audited steps taken to improve performance in response to the results of the social and ethical accounting, auditing and reporting process” (AcountAbility 1000 Framework, 1999: 24)
AA1000 comprises principles (the characteristics of a quality process) and a set of process standards. The process standards cover the following stages:
• Planning • Accounting
• Auditing and reporting • Embedding
• Stakeholder engagement.
Figure 4: The AA1000 Process Model (AccountAbility 1000 Framework, 1999)
In the planning phase, organizational values, objectives and targets as well as the purpose of the social account will be defined and reviewed. This will define the scope of the process. The accounting phase consists of the actual gathering and analysis of information against
performance targets. The auditing and reporting phase consists of a report of the information gathered. This report will form the basis for the stakeholder engagement. The report can be viewed as the actual social account. As shown in figure 4, the process is centred around stakeholder engagement. The goal of the stakeholder engagement is to capture the voice of the stakeholder and to include it in the system. The embedding of the process means that the entire process should be embedded in the business process of the organisation. The
organisation should establish “systems to support the process and the on-going achievement of its objectives and targets in line with its values” (AccountAbility Framework, 1999).
§
4.3
Social Accountability Framework
Based on the AA1000 approach, a social accountability process specifically suited for Tana will be discussed in this section. The four stages of the AA1000 process shall serve as a basis for the social accountability framework used in this research.
Before the process stages are discussed, the question on how social performance will be measured in the social accountability framework will be explained. In the social
accountability framework performance standards will serve as benchmarks for the desired social performance. These standards will be presented in the form of requirements.
eventual accountability system, an overview of the complete spectrum of the concrete aspects used for social accountability will be given.
Measurement regarding Tana´s social performance will be done using an audit of the business process. How the audit exactly fits into the entire process of social accounting will be
discussed later in this section. The audit will serve as the centre of the measurement process and the topics of a social audit will form the basis for the measurement system and thus the performance standards. Completeness and materiality in the social accountability framework thus refer to what is included into the social audit. The answer to that question forms the basis for the formulation of requirements which form the foundation for the social accountability framework.
Waddock & Smith (2000) propose a social responsibility audit. They suggest that there are four functional areas in social auditing: [1] human resources, [2] environmental practices, [3] quality management, and [4] community relations.
For the areas of human resources, environmental practices and quality management a number of topics will be discussed. These topics will define and characterize the areas. These topics will form the basis for the requirements. Topics in the areas of human resources and the area of quality management are provided by Waddock and Smith (2000). For the topic of
environmental practices, Waddock and Smith (2000) do not provide an overview of topics. The topics in the area of environmental practices are derived from the ISO 14001
environmental management system (see section 4.2.3).
The area of community relations is concerned with topics as how well respected the community respects the organization and if the organizations values match those of the community (Waddock and Smith, 2000). These are important issues which are closely related to CSR and CSP but they can be viewed as the result of social responsibility and social performance. This research is not intended to measure the resulting views and opinions of the community regarding the social performance. The goal is to measure the actual social
performance and use those measurements to influence these community relations. Therefore the area of community relations is excluded from this research and does not include the social audit.
In the area of human resources, topics include: 1. recruitment practices and costs,
2. diversity practices,
3. health and safety records (including violations and fines),
4. policies and procedures relating to promotions, wages and benefits, 5. grievances,
6. human rights,
The seventh area mentioned by Waddock & Smith (2000) is contractor outsourcing. The topic of contractor outsourcing is also closely related to the area of quality management and
therefore this topic will be discussed in combination with the area of quality management. The main source used for the topics of environmental practices is the ISO 14001
topics which have are applicable to Tana and together form a solid basis for environmental management, have been selected.
Topics for environmental practices are: 7. emission to air,
8. releases to water, 9. waste management, 10. energy utilization,
11. use of raw materials and natural resources
The topic of quality management is related to the actual social accountability system and therefore related to the principles of regularity and timeliness and the principles relating to the meaningfulness of information and principles relating to the management of the process. The topics of quality management are provided by (Waddock & Smith, 2000). These topics include:
12. performance measures and management systems 13. customer responses,
14. value chain management, 15. product labelling,
16. extent of independent testing and certification 17. sustainable development
18. contractor outsourcing
Based on the areas of human resources, environmental practices and quality management, 18 topics are selected, together these topics ensure the completeness of a social audit. For each of these topics a standard shall be suggested. These requirements will be based on different sources. These requirements will be discussed in the next chapter.
The internal audit will consist of the gathering of relevant data against set performance targets. The requirements will serve as performance targets. The data must be collected in such a way that it will be possible to report it.
The topics of quality management will be used for the implementation of the system. The implementation of the system will be discussed in the form of recommendations. The goal of the suggested system is to enable Tana to communicate its CSR to stakeholders. The
recommendations concerning the implementation of this social accountability system is discussed in chapter 7.
How the audit exactly fits into the process of social accounting will be discussed below. Tana’s social accounting process will be based on the AA1000 process model (see figure 4). The AA1000 model will be adjusted to fit in the requirements.
In the planning phase of the process two important aspects will need to be investigated. First, the organizational values, objectives and targets will have to be defined. Second, the purpose of the social account will have to be defined. The organizational values, objectives and targets of Tana are discussed in the second chapter of this thesis. The purpose of the social
In the accounting phase, data collection will take place. To ensure relevant data is collected a framework with social accountability areas and topics will be given in the next section. For each of these topics data will be collected. The data reflects the actual situation versus the requirements. How date can be collected and what data is appropriate for each requirement will be discussed later.
In the auditing and reporting phase, the gathered (accounted) data will be compared with the desired performance. The requirements serve as the benchmark for the desired performance. The analysis will result in the current social performance of Tana on which shall be reported. Suggestions on reporting will be discussed in chapter 7.
According the AA1000 process, stakeholder engagement is central in the model. This means that engaging stakeholders is an essential part of the process and stakeholders should be involved in all three phases. The goal is to create a social accounting process based on the voices of the stakeholders. This means that the stakeholders will have to be approached and that the different topics will have to be discussed with them. In this research, the goal is to implement a social accounting method which can prove to Tana’s stakeholders, the
organization is a socially responsible. Stakeholder involvement in this context will take place in the reporting phase. The stakeholders will not be involved in the planning and accounting phase.
The above results in the following social accounting process:
Planning
Auditing and reporting
Accounting Figure 5: The Process of Social accounting
The three steps in the process are:
• Planning: formulate, review and (where applicable) adjust the requirements • Accounting: collect measurements (in the form of data) concerning all the
requirements
• Auditing and reporting: analyse the accounted data by comparing the desired performance (requirements) versus the current situation (represented by the accounted data) and report on the findings.
As described in figure 5, the process is continuous. This means that the process will repeat itself after all stages are passed through. This ensures that Tana will keep up with
Chapter 5
Research design
This chapter outlines the design of the research. The type of research will be defined. The sources used will be described and the data collection methods will be discussed. The requirements which will be used for the social audit will be discussed. How these
requirements will be audited and how the different topics will be accounted for will be the focus of discussion.
§ 5.1
Research
Typology
The research can be described as exploratory and policy supporting research. Exploratory since the outcomes of this research are formed through the shaping of ideas (De Leeuw, 2002).
According to Malhotra (2003), exploratory research has the following characteristics: • The goal is to gain insight and understanding
• The process of research is flexible and unstructured • The sample is small and not representative
• The analysis of the primary data is quantitative in nature • The results are exploratory.
Policy supporting research consists of delivering concrete knowledge that is relevant for specific policy decisions (De Leeuw, 2000). The results of this research are designated for use of Tana’s management in order to satisfy a need for knowledge in the area of social
accountability. The result consists of knowledge regarding implementation and the process of social accounting within Tana.
§
5.2
Data Collection Method
This research consists of desk research, literature research and field research. Desk research and literature research focus on the use of existing data. The result of this desk and literature research is the theoretical framework presented in the previous chapter. The data has been collected by studying relevant documents and case studies about existing social accountability systems.
Field research focuses on information and data collection. As explained, an audit of the
production process will be undertaken. Auditing has many different definitions. The definition of an audit depends on what is being investigated. In this research, the audit is concerned with measurement of set criteria and is defined as a planned, independent and documented
assessment to determine whether requirements are being met.
The audit will consist of gathering relevant documents, inspection by the researcher and interviews with relevant employees of Tana. Relevant documents will be reports on certain tests that have been conducted, primarily in the area of environmental practices. Inspection will consist of personally checking by the researcher if certain requirements are met within Tana.
§ 5.3
Research
Model
All steps used for the development of the social accountability system and the relationship between these steps are visualized in figure 6.
All three steps from figure 6 will be addressed in this research. In the planning phase the requirements will be formulated. Social and environmental requirements will be formulated. These will serve as the basis for the internal audit. To guarantee social accountability is a process as described in figure 5, requirements for quality management will be formulated. All requirements will be formulated and described in section 5.4. The internal audit, the last stage in the social accounting process will give insight in the current performance of Tana regarding social and environmental practices. All aspects combined together facilitate Tana’s social accountability system.
§
5.4
Measurements
Within this research, requirements on social accountability will be used as a benchmark. An internal audit of Tana will consist of measuring if these requirements are met. For each topic, discussed in the former chapter, one or more requirements will be formed.
Together with the requirements the possibilities for investigating whether requirements are met will be discussed. An appropriate measurement will be selected for every requirement. The selection will be based on reliability of the measurement, the understandability of the measurement and the ease of use of the measurement. Understandability of the measurement is linked to the eventual end product, the social account. The social account will be used as proof to third parties that Tana is conducting business in a social accountable way. These parties must be able to understand the results of the measurements.
How each topic and its requirements exactly will be measured shall be discussed per topic and requirement in sections 5.4.1 and 5.4.2. For the area of quality management measurements will not be discussed in this chapter. In chapter 7 the requirements in the area of quality
Social Accountability System Social and environmental requirements Internal Audit
management will be discussed and recommendations on how these can be implemented at Tana will be discussed.
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5.4.1 Human Resources
Within this research, the field of human resources and its topics are related to labour
conditions and policies. One of the most important aspects concerning this area is compliance with international labour standards. The International Labour Organisation (ILO) is an United Nations (UN) specialized agency which focuses on the promotion of social justice and
international recognized and human rights. It has been founded in 1919 and became the first specialized agency of the UN in 1946.
The ILO formulates international labour standards in the form of conventions and
recommendations setting minimum standards of basic labour rights: freedom of association, the right to organize, collective bargaining, abolition of forced labour, equality of opportunity and treatment, and other standards regulating conditions across the entire spectrum of work related issues. It provides assistance in the fields of:
• vocational training and vocational rehabilitation; • employment policy;
• labour administration;
• labour law and industrial relations; • working conditions;
• management development; • cooperatives;
• social security;
• labour statistics and occupational safety and health.
It promotes the development of independent employers' and workers' organizations and
provides training and advisory services to those organizations. Within the UN system, the ILO has a unique tripartite structure with workers and employers participating as equal partners with governments in the work of its governing organs (ILO mandate, 2000)
The SA 8000 methodology discussed in section 4.2.1, is focused on the area of human resources. SA 8000 is an accountability method based on the ILO recommendations and conventions. Aspects of this methodology will serve as a benchmark for the different topics of the area of human resources. SA 8000 has released an international standard for their social accountability methodology, called the SA 8000 international standard. In this standard
requirements concerning labour policies are explained. The requirements set by SA 8000 have been modified to suit the specific context Tana operates in. First of all, the definitions set in the SA 8000 international standard have been integrated into the requirements. Additionally, some requirements set by SA 8000 have been adjusted to suit the Thai legislation and cultural characteristics. When requirements have been adjusted, the specific reasons will be mentioned in the text.
The different topics of human resources will be discussed below, for each topic one or more requirements will be formed to cover the complete topic as broad as possible.
