Corporations call in ethics police

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TRAIDCRAFT, a wholesaler of Third World products, is this week being asked to pay more attention to customer perceptions of product quality, to clarify how it chooses what to sell, and to produce performance indicators on the environmental impact of its British operations.

But these are not criticisms the company would wish to ignore - they are recommendations of its social auditors.

The report, out today, is the third annual audit that Traidcraft has undergone, and it could be a trend-setter. 'We are looking for other companies who can take our methodology and work and use it in their own environments,' said Richard Evans, external affairs director of Traidcraft.

'In my viewbusiness isn't separate, there isn't a business world, it is part of the world.' As such, Mr Evans argues, all businesses should examine their impact on the wider world and this can best be achieved by a social audit.

Traidcraft's social auditor is the NewEconomics Foundation, and the audit process was devised jointly by these two organisations.

Simon Zadek, research co- ordinator at the foundation and formerly a management consultant with Coopers & Lybrand, said more companies were beginning to realise they had stakeholders to satisfy who were not shareholders.

'Companies want to know if they are fulfilling what they say they are doing, for example in their ethical relationships,' said Mr Zadek.

'They want to be able to feed back to stakeholders, such as staff and customers, and they want to improve performance and tell the world about it. The conventional wisdom of secrecy has passed. Transparency has a market.'

Social auditing can assist with strategic planning, helping management to focus on desired non-financial outcomes. It can also assist companies to justify claims that they benefit the community.

'Where a company has explicitly social or ethical policies, and most companies have now, where they have social statements in their annual reports, the most difficult thing is to say what they actually do about it,' Mr Zadek explained.

A number of blue-chip businesses, including Tesco, BT and Tarmac, have expressed an interest in the process, and the Body Shop is instigating its own.

Shared Earth, a retailerof Third World and recycled products with outlets in the North of England, released its first social audit in June. 'It has helped make us aware that our environment policies were a bit vague,' founder Jeremy Piercy said.

It is not only in Britain that social auditing is making progress. In Denmark, the FKN bank has been audited by the Copenhagen Business School. Ben & Jerry's, the US ice- cream maker that was recently launched in Britain, has signed up for the treatment as has Italy's leading retail co-operative.

It is also becoming common practice for aid agencies and other non-governmental organisations. In the future, the New Economics Foundation predicts, there could be other advantages. Businesses seeking financial aid from the public sector can illustrate the social benefits of their operations. It could encourage share purchases from ethical funds.

But, Richard Evans says, social auditing has to overcome some historic connotations. 'We are looking for another name, because the early social audits were external and confrontational. We are talking here about something which is voluntary.' He fears those traditional associations could be putting off some companies.

The first social audits, dating back nearly 20 years, were conducted by Charles Medawar, who is director of an organisation called Social Audit.

He is unimpressed by the direction that social auditing is taking, and he fears that companies paying for reports will receive what they want to read. 'They (social auditors) can't be expected to report independently and they cannot be seen as independent. Clear ground rules for their independence are needed,' he says.

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