According to Corporate Social Responsibility (CSR) businesses should consider the interests of the society in their activities and when making decisions, in addition to the legal obligations that they have to adhere to as stipulated in the law.
In the modern world, there is a growing demand that comes from the stakeholders of the business putting pressure on modern business organizations to report annually on how socially responsible they are. So, in addition to final accounts on profits or losses, assets and liabilities, and cash, companies are also expected to publish an annual social report that includes the social impact that a business has on the society. This is called a Social Audit.
The Social Audit is a written report on the impact a business has on the society and other stakeholders.
It clarifies whether profits have been made at the expense of stakeholder interests, what corporate social responsibility activities the company has been involved in, the pollution level the company generates and whether it uses any renewable energy sources, health and safety records regarding working conditions, sources of supplies of raw materials, customer satisfaction levels, etc.
For example, Apple publishes on its website several social reports regarding environment, inclusion and diversity, privacy, racial equity and justice, and supplier responsibilities.
Advantages of conducting Social Audits
The main benefits of social audits include:
1. Collection of all corporate social responsibility activities in one place. It gives stakeholders of a business very clear introduction into what social responsibilities the business is meeting.
2. Assistance with benchmarking against other socially responsible companies. By producing Social Audits businesses can set targets for improvement in social performance by comparing themselves with the industry leaders regarding social activities. Also, they can outline what else needs to be done in order to meet those targets to reach the level of the best-performing companies when it comes to social responsibilities.
3. Improvement in brand image. Social Audits can also act as a useful marketing tool as they can improve corporate public image which will then result in increased sales revenue.
Disadvantages of conducting Social Audits
There are also some limitations of social audits and they include:
1. May be considered as a public stunt only. Some stakeholders may not take the social report seriously claiming that the company is faking being socially responsible in order to boost its public image.
2. Lack of credibility. Any social audit presented by the business should be independently checked by a third party (the same as final accounts being verified by certified accounting firms).
3. Takes precious resources. Scarce business resources – time and money – must be devoted in order to produce a detailed social audit report, and it increases expenses lowering net profit.
4. Not quite beneficial for companies with self-interest attitudes. For strictly profit-oriented companies which believe that the role of businesses is to generate profits for investors only and it is the role of governments to fix problems in the society, Social Audits may not serve any purpose. It is because those business owners do not want to be socially responsible whatsoever, and the customers of those businesses only expect cheap goods, neither appreciate the value of ethical actions.
While Social Audits can create positive brand image for the business, currently it is not a legal requirement to produce and publish any of such audits. Yet, many companies do so on voluntary basis to show that they are indeed a good citizen.
