Stake-out at the Body Shop

Social auditing: the stakeholder is alive and living in South America as Anita Roddick's empire undergoes an ethical inspection

VISITORS to Body Shop International's pagoda-style headquarters near Littlehampton in West Sussex could do worse than read the staff suggestions book in reception. There are gripes about queue-jumping in the canteen, allegedly lavish use of tea-bags by the trolley-ladies, the absence of Body Shop lotions in the women's loo. There is also a refreshing amount of frankness. We would love to lay on cocoa-butter in the loo, says the woman from personnel, but it disappears as soon as you put it out. Like Anita Roddick, its co-founder and chief inspirer, Body Shop has never been afraid, of opening its heart in public - a trait that has undoubtedly contributed to its iconic status in the mythology of ethical capitalism. This week, it takes its candour to unprecedented lengths, with the publication of the first comprehensive "social audit" undertaken by a large public company.

To which most people will reply: social what? Social auditing is a rapidly developing discipline aimed at assessing the moral and human health of organisations - that vast area of conduct ignored by the annual financial audit. It relies on the independent canvassing and verification of the views of a group of people who, thanks to Tony Blair, the Labour leader, are now almost household names - the stakeholders. In the case of Body Shop, the term includes not only employees, customers, shareholders, suppliers and the local community but also - because of its structure and campaigning stance - franchises, environmental pressure groups and tribes in the Third World.

Body Shop estimates that 5,000 people were consulted for its first social audit. The auditors, the New Economics Foundation, a green think-tank, sent Simon Zadek, its research director, to New Mexico to ascertain the views of the Santa Ana Pueblo Indians, who supply Body Shop with blue corn for face washes. There were also scores of ''focus groups'', questionnaires and surveys of the other main stakeholders. The result, after the addition of statements on the environment and animal protection, is a 300-page 1995 Values Report.

For those concerned about the future of capitalism, the report makes fascinating reading. The Body Shop's high-profile campaigning, for instance, has made it a sitting target. Two years ago, it took a battering when Jon Entine, an American journalist, writing in the journal Business Ethics, accused it of hypocrisy and double-dealing. The audit, however, presents a more positive but also more complex picture of its social performance.

Mr Entine, for example, made much of the company's treatment of its franchisees - and, two-fifths of British and nearly two-thirds of American franchisees said they were dissatisfied over communications with head office. But the overwhelming majority also backed the company for the "effectiveness" and "honesty" of its campaigns. What emerges from the audit is a warts- and-all picture of a company that is trying hard to live up to its mission statement, sometimes fluffing it but in the main getting it right. But what is the point of the exercise? Is it anything more than a form of niche marketing, aimed at earning a few more brownie points?

Influential voices within industry are already saying that where Body Shop has ventured, others will soon follow - and some surprisingly big names are being mentioned. Dr Zadek, of NEF, which has helped to pioneer social auditing and is a partner in the newly formed international Institute for Social and Ethical Accountability, argues that it is at the same stage of development as environmental reporting a decade ago. Then, green audits were unknown. Today, two thirds of the FT-SE top 100 companies make annual reports on their environmental performance. Voluntary social reporting by business is estimated to have quadrupled in the last decade.

Why are such changes taking place? Because, say proponents, business is being forced to take its social responsibilities more seriously at the same time as it is visibly contributing, through job cuts and board- level perks, to the polarisation of society. Reconciling such conflicting pressures will mean new forms of accountability.

Social auditing, according to Dr Zadek, is a way of taking stakeholders' views into account without "major changes in ownership or structure". Comprehensive social auditing has so far been limited to a handful of small, often "alternative", organisations, but bigger names in the offing include the Co-op and Allied Dunbar. Body Shop plans an annual audit and will also be promoting the idea through the Roddick-inspired New Academy of Business. With Labour likely to take power, the stakeholder economy could well prosper.