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Strategic CSR & Social Accounting
Analyzing the Problem
It’s evident that economic conditions impact social conditions and vice versa. If this is in fact the case, how can it be right to continue using conventional accounting? It only considers market transactions and ignores externalities as well as non-monetized inputs and outputs such as volunteering (Quarter, n.d.). The problem is that it relates only to shareholders with the bottom line as profit. This is a problem because shareholders are not the only people, entities, or living creatures that have interest in businesses. Although other stakeholders’ interest may be non-monetized, there is still interest, and there is still an impact on those stakeholders whether directly or indirectly. An old song by Tom Lehrer (1965) demonstrates my point through analogy, which can be viewed to the left.
Conventional accounting doesn’t take on accountability for all interest holders, direct and indirect.
Cigarette manufacturers are not required to disclose their cost to society, which is an excellent exemplar of why conventional accounting is problematic to societal interests. Everyone knows that cigarettes are dangerous, but how dangerous are they really? Below is a generic process of the cigarette life cycle.
The lyrics are:
And what is it that put America in the forefront of the nuclear nations? And what is it that will make it possible to spend 20 billion dollars of your money to put some clown on the moon? Well, it was good old American know-how, that's what. As provided by good old Americans like Dr. Wernher von Braun.
Gather round while I sing you of Wernher von Braun, A man whose allegiance Is ruled by expedience. Call him a Nazi, he won't even frown. "Ha, Nazi Schmazi," says Wernher von Braun.
Don't say that he's hypocritical, Say rather that he's apolitical. "Once the rockets are up, who cares where they come down? That's not my department," says Wernher von Braun.
Some have harsh words for this man of renown, But some think our attitude Should be one of gratitude, Like the widows and cripples in old London town Who owe their large pensions to Wernher von Braun.
You too may be a big hero, Once you've learned to count backwards to zero. "In German oder English I know how to count down, Und I'm learning Chinese," says Wernher von Braun.
Clearly, the cigarette lifecycle has interactions with many different people and things. People directly involved include shareholders, vendors, the business, employees, and customers. However, society as a whole and the environment is impacted indirectly. When a person smokes a cigarette, approximately 85-90% of the smoke goes into the air and the other 10-15% is inhaled by the smoker (Health Promotion Board, 2012). They say “sharing is caring,” but in this situation, the phrase does not apply. It is nothing short of detrimental to the environment and the living people and creatures that rely on the environment to survive. Here are some facts:
In this video, the presenter discusses stakeholder and shareholder impacts and values. She uses great examples, which further substantiate my point.
Fact is, people are paying for something they shouldn't have anything to do with, yet they are not compensated, recognized, or thanked for losing potentially years off of their life expectancy so cigarette manufacturers, their vendors, and their shareholders can profit and customers can enjoy smoking. There's no accountability. What happened to fairness, justice, and ethics? Why should we be a bunch of Wernher von Brauns? Fact: Stealing is illegal, but if its long term and intangible stealing does that make it ok? No, but yet society has accepted this—being taken from for another's pleasure and pleasuring at the expense of another.
There needs to be some alternative to conventional accounting so that things such as that can be accounted for. Those particular manufacturers may see “a pretty penny,” but it’s at the expense of society as a whole. Other people, including non-customers and non-shareholders, are reaping consequences of these products yet they are not being compensated in any way, shape, or form. Profit is not a sufficient enough indicator of success for a business or individual if that success is coming at the expense of the unwilling. If accounting can make estimates of fair value, annual depreciation expense, good will, etc., there's no reason why a business's societal impacts can't be reasonably estimated. Obviously, practice would vary across industry and business as it generally does with other estimations and techniques, but it is possible.
The world is moving toward unity—globalization—and people are making higher demands of businesses to keep up with what societal interests are. Companies ignoring these demands will eventually face loss. Currently, the most important CSR drivers are recruitment and retention pressures as well as cost management; only 21% of US companies consider saving the planet an important driver (American Institute of Certified Public Accountants, 2008). Ultimately, it is society that make profit and business possible. So, why respond to problems as they come when businesses can strategically incorporate into operations preventative measures? It overall reduces costs and increases the benefits to everyone. It can be compared to the difference between leaving a business vulnerable by not locking doors and assets being stolen versus locking doors at day end to prevent someone from walking in and stealing. It is respond versus prevent; prevention always provides the long-term benefit. Security measures such as the COSO framework and SOX are used to prevent but were created in response to malicious acts. If they were created sooner rather than later, it could have potentially prevented many of the nation’s most renowned business scandals.