When companies take a good look at themselves

More businesses are seeking a social audit, but what exactly can you expect from this lengthy process and do its benefits always outweigh its costs? Paul Gosling reports

Social audits have been commissioned by some of the UK's largest and most successful companies, including Shell, Diageo and Camelot. But it is less clear whether for SMEs the resource costs involved are too great to justify, despite the valuable management information obtained through social auditing.

Social audits have been commissioned by some of the UK's largest and most successful companies, including Shell, Diageo and Camelot. But it is less clear whether for SMEs the resource costs involved are too great to justify, despite the valuable management information obtained through social auditing.

Henry Stewart, chief executive of Happy Computers - an IT training company with 40 staff and a £2m turnover - is convinced that its social audit nine years ago helped to set it on the right track, not just in achieving the social aims his business is committed to, but also in contributing to the bottom line. "It was actually incredibly useful," recalls Stewart. "But it was also incredibly time consuming for a small business."

For Happy the direct cost of the social audit was bearable, as it was done on a swap basis by the New Economics Foundation - one of the first providers of social audits, but which no longer conducts them - in return for free training by Happy, valued at between £5,000 and £10,000. But the high level of staff commitment, equivalent to one worker's time for three months, has meant that Happy has not repeated the exercise.

Social auditing is a system of reviewing a company's operations, to examine its social impacts and to compare outcomes against any social objectives the organisation may have. This makes it a highly suitable process for charities and social enterprises, businesses which trade to achieve social purposes, but also for large companies which have suffered reputational damage which they are keen to correct. One of the core elements of a social audit is to survey various stakeholders - from staff to customers, sub-contractors to shareholders - to establish how the organisation is regarded. The audited body itself will often collate a large amount of information from them.

When Happy had its social audit, the results led to fundamental changes in the way the company operated and was marketed. "It was very helpful," says Stewart. "We have definite social objectives. The audit told us how the market saw us. This had a major effect on our direction. One conclusion was that we did not need to hide our social objectives. Previously we had three brochures: one each for charities, the public sector and for the commercial world. The social audit told us that one of the reasons corporate bodies liked us was our commitment to support charities and that we would get more business if we marketed that fact."

Since then, Happy has ended what Stewart calls the approach of "social responsibility by stealth" and has been comfortable to say that it pays the wages each year of two or three staff to go to African countries for two to four weeks to provide free IT training to local people.

Maria Sillanpää of AccountAbility, which sets down standards for social auditing, says that the widespread acceptance of the principle of corporate social responsibility (CSR) has led to much greater interest in social auditing. "Increasingly the expectation is that CSR should lead to social auditing," she says. "And in the corporate space, increasingly it does."

She says benefits from social auditing will typically include improved risk awareness particularly of emerging risks, better risk management processes and greater recognition of market opportunities. But their full value will not be felt if companies fail to use adequately the huge amounts of information gathered for social reporting to change their management processes.

Many SMEs have now become aware of these potential gains and are interested in conducting social audits, says Sillanpää. But she concedes that the amount of information collated involves a heavy commitment. "It can be very resource intensive," she says. "After two or three cycles, an organisation can be fatigued."

The Soft Touch community arts co-operative - which has nine staff and a £350,000 turnover - is in the process of a social audit, largely as a defensive measure to show its social value to public sector funders after some funding was lost. There are already gains in showing funders how well the group's activities are valued and the co-operative has changed processes to improve communication between directors and other staff and with external stakeholders.

But Soft Touch has found the process very arduous. Helen Pearson from the co-operative says: "It has needed a huge injection of time and energy, which has cost us money as a company." In its case, the cost of the social audit itself was paid for through an EU funding programme, so the resource commitment has solely been through workers' time.

Happy Computers, despite the benefits of its initial social audit, has not repeated the exercise because of the staff resources it demands. "Since then we have done a stakeholders review, more informally," says Stewart.

Alan Kay is a social audit adviser with Community Business Scotland and is working on Soft Touch's. Kay concedes that the resource commitment may be too great for many SMEs. "Most people reporting back say they find it a lot of work in the first year, but less in future years," says Kay. "But others suggest it cuts time because the information obtained can be used in the annual report."

Kay says that on a cost-benefit basis, social auditing is most likely to produce gains for big companies, larger SMEs and charities and larger voluntary sector bodies. "I am not sure this is of benefit to organisations of perhaps 10 staff," he admits.