Social Science

Frontiers
Occasional Publications Reviewing New Fields
for Social Science Development

The Corporate Social Audit

by Raymond A. Bauer
and
Dan H. Fenn, Jr.

Russell Sage Foundation

1972
Russell Sage Foundation
230 Park Avenue
New York, N.Y. 10017

© 1972 by Russell Sage Foundation. All rights reserved.

Printed in the United States of America.
Library of Congress Catalog Card Number: 72-83832
Standard Book Number: 87154-103-3
Foreword

That business has a responsibility to society beyond the making

of profits is now a commonplace, though still far from a universally
accepted idea. Nonetheless in a climate of social responsiveness,
as evidenced strongly in the late 1960's and projected to continue
for some decades ahead,' it is important to note that the issue of
corporate social responsibility has not generally polarized around
profits on the one hand and social responsibility on the other,'
which in itself may be an indicator of the changing business
climate.
Actually the very concept of socially responsible business has
existed at least since the era of the ancient Greeks who found
offensive the notion that wealth was to be used as its owner pleased
without regard for "the interests of humanity and of social conse-
quences.'" Medieval merchants found their business ethics couched
in the language of the church: The justification for trade lay in the
merchant's intentions; if his prime objective was profit, then he

1 T. Gordon, et aI., A Forecast of Interaction between Business and Society in

the Next Five Years, Institute for the Future, R-21, April, 1971.
'Milton Friedman, Capitalism and Freedom (University of Chicago Press,
1962), notwithstanding.
3 Karen Arenson, "Background Research on the Notion of Social Responsibility

in Business" (Russell Sage Foundation, unpublished manuscript, 1971).

iii
was sinfully engaged; his proper duty was to earn enough to live
and to help the good of his neighbor. Money was only a means to
an end and commerce was to be carried on honestly and well. With
mercantilism and then industrialization, the social responsiveness
of business changed as the nature and demands of society changed.
Today three approaches to business's relationship to society are
clearly identifiable!
The first is that of "traditional" business and stems from the
early industrial era: Business operates in a competitive market and
functions to make profit, hence the businessman is required only
to deal fairly and honestly with his clients. The question of how
one makes a profit or for what purpose is not particularly germane
to the businessman qua businessman. Those who are committed
to this attitude and who do make contributions to the general wel-
fare do so primarily by serving in community or charitable organi-
zations.
The second view has been gaining ground since the turn of the
century. This approach holds that business has a responsibility to
society with respect to its employees and products, and a responsi-
bility to mirror the ideals and values of the society within its own
microcosm. Businessmen then act affirmatively to promote safety,
honesty and efficiency; to contain and eliminate where possible
those disruptions to the environment caused by their products or
processes; and to create within their own institutions the conditions
of nondiscrimination demanded by society.
The third viewpoint is an activist one. Currently it is held more
by critics of business than by businessmen. It is a primary obliga-
tion of business to use its power to promote social ends perceived
as moral-for example by refusing to sell to government unless
the government withdraws from Vietnam or refusing to deal with
other corporations whose services may further the prosecution of
the war. (Other examples are South Africa or Angola.)
Those holding the traditional view rely on "market mechanisms"
or government programs to resolve social issues. Direct action is
often considered to be inappropriate-a diversion of management
skills or a violation of responsibility to the owners. Those taking
the second view find it desirable to address social problems aggres-
sively within the scope of "normal business activities" (manu-
facturers exercising control of their pollution, minority recruitment

, See Gordon, op. cit.; John G. Simon, Charles W. Powers, and Jon P. Gunne-
mann, The Ethical Investor: Universities and Corporate Responsibility (New
Haven: Yale University Press, 1972).

iv
and training programs; financial institutions providing loans for
pollution control, for the development of black businesses). The
activist view seeks the use of corporate influence and action in
social areas not usually associated with normal business function-
ing. (The latter is usually expressed via outside pressure tactics,
such as the calling for a boycott of Gulf Oil by the United Church
of Christ. ) Within business, we find a telephone company sponsor-
ing clinics on drug abuse, or a University voting its shares of stock
on a political resolution unrelated to the conduct of a company's
business.
Accumulated evidence suggests that in the past few years,
corporate management and institutional investors, particularly,
have become increasingly sensitive to demands for "social respon-
sibility." What these social responsibilities consist of is yet to be
definitively stated, but much has been said and much has been
done. For example:
From the Bank of America has come the recognition that
business must "adjust to the realities of a new social and
economic environment"; that a bank has a special obligation
to be a catalyst to change; that the company has a "role to play
in the process of solving contemporary ills"; and that "we
expect to include such factors in our assessment of the poten-
tial performance of other companies, and we expect to be
judged on the basis of such factors in the conduct of our own
business." The Bank formed a committee on Social Perform-
ance Priorities which designated four areas for "accelerated"
action: housing, minority rights, environment and social
unrest.
Ralph Nader's Project on Corporate Responsibility (Project
GM); Alice Tepper's Council on Economic Priorities; Harvard's
Committee on University Relations with Corporate Enterprise
("to recommend ways they can work together for constructive
social purpose"); the Committee on Economic Development
policy statement; mutual funds efforts to develop a "Code of
Responsibility for Investment Companies"; the Dreyfus Fund
Survey of its stockholders; and the initiation of the Third Cen-
turyFund.

A major question remains: How does one measure a

corporation's social performance?
Much has been said about the general subject but little has been
contributed to answering this fundamental question. Thus, in

v
November 1971, Russell Sage Foundation sponsored a development
effort aimed at examining the "'state-of-the-art" and at suggesting a
program of research that would advance that state.
Raymond Bauer and Dan Fenn have provided us with a first
product-a state-of-the-art conception and description, and recom-
mendations for future development. They are to be commended for
their astute considerations and their clear thinking in the murky
pond of corporate social audits. Their effort has provided the social
science community with a point of departure for future research in
the area.
Eleanor Bernert Sheldon

vi
Contents

Introduction 1
Corporate Responsibility in the 70's: Toward
Definition and Measurement 3
The Social Audit Today 15
The Future of Corporate Social Audits 43
Needs for Research and Development 81
Introduction

This paper deals with what may be an emerging new social institu-
tion, the formal "corporate social audit." The concept, which has
a thin history, indeed, began to appear in the past decade or so,
though, of course, society has been making generalized judgments
of business for centuries. But the past year has seen a literal
explosion of interest on many fronts, some quite unexpected, all
in the context of the new attention being paid to the "social re-
sponsibility of business." In its full vision, the corporate social
audit should permit firms to report their performance on issues
of current social concern with the same regularity that they report
financial performance. But, as we shall see, there are many partial
visions being explored today.
We mentioned that the modest flurry of interest of the last ten
years is now beginning to look like a storm. From early in the
autumn of 1971 when we started on this paper to mid-winter the
change has been startling. Hardly a day goes by that we do not find
new evidence of interest in the idea, or hear of a company that is
either toying with or embarking on some project they call a "social
audit," or a major investor expressing the hope that here may lie
the answer to his worries over a "social portfolio," or a public
interest group performing an "audit." All this talk and activity goes

1
beyond the kind of criticism of business that is characteristic of
groups like Ralph Nader and his associates or Campaign G.M.
The goal of the social audit movement is the mounting of a com-
prehensive and objective evaluation of the social performance of
firms on a continuing basis.
We have no doubt about the viability of the more general issue
of social responsibility. But no one, at this stage, can forecast with
any confidence the future shape of this concept of a social audit.
We do believe, though, that the society cannot long have one with-
out the other, that our apparent dedication, or rededication, to a
new definition of corporate responsibility demands and depends
on some kind of "audit." Thus we regard the broad concept as a
potentiality worth looking at and thinking about. Consequently
we have set ourselves the task of learning from the meager and
somewhat covert history of social auditing and by speculation and
reasoning to sketch out some of the many guises it has assumed-
for the term has been stretched to circus tent proportions-as well
as the shapes it might assume and the uses to which it might be
put. In addition we have explained the problems that may be
associated with the various forms and uses.
Our ultimate objective is to outline a program of research and
development which might be undertaken if the potential of the
concept is to be developed. On the way to this goal, we will have a
number of things to say that should be of guidance to the practi-
tioner who is brave enough to try his hand at this new art form.
In particular we investigate many of the methodological problems
involved in converting what is now an abstract concept into opera-
tional procedures.

2
Corporate Responsibility in the 70's:
Toward Definition and Measurement

Underlying much of the discussion of business responsibility today,

be it cocktail party chatter or business conference speeches, is the
chauvinistic assumption that concern with broad corporate social
obligations is an American discovery dating from the late 1960's.
Although there are clearly some important new aspects to the issue
today which set it apart from earlier manifestations, this assump-
tion is demonstrably inaccurate. Even a cursory reading of history
shows that we are operating on a continuum which goes back at
least as far as the ancient Greeks. Furthermore, a look at the con-
cerns of businessmen and social philosophers of the past provides
ample evidence that at least some of the thoughts being expressed
today have very deep roots indeed.
For example, the captains of industry of Miletus and Priene
were subject to intense criticism from the upper classes of their
societies if they failed to practice a standard of morality in trade
which went beyond common honesty, or if they failed to attend
to the question of how they could use their wealth for the greater
good. The Greeks were particularly offended by the suggestion that
material gains from business were to be employed merely as the
owner wished, without regard for the interests of the community

3
and without due consideration for the social consequences of the
process by which the riches were acquired.
By medieval times, the church had been substituted for the
general climate of operative opinion as the watchdog of the busi-
nessman. The emphasis was placed on the entrepeneur's motiva-
tions as the factor determining the appropriateness of his behavior
-a point of view not much different from that taken by many of
today's activists who seek to sharpen the business executive's
sensitivities to their concerns. The church took on the responsibility
for applying its standards of good and evil and the metes and
bounds of acceptable commercial behavior. The line of demarca-
tion was determined by a man's purpose in being in trade; if he
was primarily concerned with making money for himself, he was
sinfully occupied; if, on the other hand, he was fulillling his own
immediate needs and then occupying himself with his neighbor's
welfare, he was conducting himself according to the teachings of
the church. Money thus was only a means to an end. This principle,
coupled with the requirement that commerce or trade be carried
on honestly, was operatively and philosophically accepted.
In the seventeenth century, with the appearance of mercantilism,
all this changed. Wealth was seen as a positive good in itself, and
direct concern with the well-being of society, including one's work
force, diminished. With the industrial revolution came the concept
that competition should serve as the regulator and determinant of
proper business conduct; if you survived and prospered you were,
by definition, doing "the right thing," and "in the right way." The
appeal of this view was and is compelling; it lives on today in the
often expressed conviction that "the cash register is the final
arbiter of our performance. If the customer does not like what we
are doing, we find it out soon enough." "Safety doesn't sell" said
the pre-Nader automobile manufacturer. "We give the public what
it wants," says the broadcasting executive.
Thus an interest in the proper conduct of business and its rela-
tion to the society of which it is a part is hardly a new or a pe-
culiarly American phenomenon. Nor is it true that business has
until recently operated in a world apart from the rest of society;
obviously it has always, in a rough sense, reflected the values of
the community in which it was imbedded.
But it is true that the last twenty-five years in the United States
have seen a particularly large outpouring of business pronounce-
ments on the general topic. As a matter of fact, Professor Paul T.
Heyne pointed out in 1968 "that businessmen have been among the

4
most strident proclaimers of the new social gospel, that they have
been major contributors to the literature and philosophy of social
responsibility, and that with near unanimity they have announced
their willingness to bear this burden" [Heyne, 1968]. So it did not all
start with Owen D. Young in the 1920's or Frank Abrams in the
1950's or Henry Ford II in the 1960's.
In postwar America, this discussion was carried on mostly by
businessmen and their academic kin. It was taking place against
a most comforting philosophic background: businessmen were
happily telling themselves and anyone else who would listen that
we in the United States had created a new kind of capitalism, a
human capitalism, which put the lie both to Lenin and to Jay
Gould. The Communists were wrong, we were told; the system they
were railing against in the developing nations of Asia and Africa
was, at worst, a mythical monster with Karl Marx as its Franken-
stein and, at best, a picture of a business system which was now
out of date. We had evolved, they said, a special sort of mixed
economic system-some called it a "people's capitalism"-that was
really fail-safe, and we had put a new breed of businessmen in
charge of it. The businessmen expressed pride in the fact that they
had turned their backs on the robber barons of the late nineteenth
century, and freely admitted that their forefathers had carried on
in an unconscionable way.
It should be pointed out, inCidentally, that this was also a time
when the business community was extremely active in selling "free
enterprise." Many, if not most, of the country's largest business
corporations actively, almost frenetically, promoted a great cam-
paign of inspirational speeches, car cards, ou!door posters, radio
"listener impressions," in-plant conferences, and institutional ad-
vertisements to the tune of more than $100 million anually.
But for many of the most thoughtful spokesmen, it was a new
kind of free enterprise. They were talking about building still loftier
mansions for American business and so were expressing great
interest in "corporate citizenship" and "business responsibility in
action" and "business statesmanship."
This preoccupation took many forms. One of the first was the
exploration of the relationship between business and religion.
Searching the pages of the Harvard Business ReView, for example,
one finds the issues of the mid- and late fifties sprinkled with
a series of articles in this area. One of the most popular pieces the
Review ever ran was called "Skyhooks," by O. A. Ohman [1955],
then Assistant to the President, Standard Oil of Ohio. An interesting

5
and, in many ways, prophetic statement which sold nearly 200,000
reprints, "Skyhooks" chided the business community for its failure
to give thought to the revision of its basic philosophy and purpose.
Calling for a "spiritual rebirth in industrial leadership," Ohman
went on to equate effective management with the practice of
spiritual values. (Describing an ideal executive whom he knew, he
said: "He feels that no one has a right to louse up a job-a point
on which he feels the stockholders and the Lord are in complete
agreement.") Thus were God and Caesar reunited on the pages of
the Harvard Business Review!
Another focus was business and politics. Through the fifties
there was a rush of interest, courses were set up on practical
politics, there was a torrent of articles and speeches, corporate-
supported and public affairs programs began to appear. It was
during this period that the Effective Citizens' Organization (now
called the Public Affairs Council), a kind of trade association for
corporate public affairs executives, was established. The motivation
for all this was, of course, mixed. But when Clarence Randall said
"there can be no other objective for business in politics than to
raise to the highest levels the processes of a liberal democracy," he
found a ready audience among businessmen who were interested
in their responsibilities outside the demands of the office [Fenn,
1959].
The most recent manifestations of "social responsibility" need
no reviewing here. Suffice to say that Watts and Newark produced
a new area for discussion and action. Rhetoric from businessmen
and public officials alike called on corporate management to step
in, where government had "failed," to solve the problems of Urban
America once and for all. Ralph Nader, consumerism, ecology,
minority problems, women's liberation, South Africa, misleading
advertising, Campaign G.M., student and church activism all
tumbled over one another seeking attention, to the point where
the businessman of the seventies is caught up in a confusing
turbulence of demands and charges and concerns, all marching
under the unbrella of "social responsibility."
The fact that there has been continuing concern with and a
multitude of expressions of the social responsibilities of business
over the years should not however be permitted to obscure the fact
that today we find ourselves in a situation markedly different from
anything we have experienced in recent years. For, as many ob-
servers have pointed out, we are in the midst of a great shift of
values in the United States, of which the campus revolts are merely

6
the most obvious and flamboyant manifestations. A new willingness
to speak up, a challenge to authority (not a rejection, but a demand
for credentials other than titles and salaries), a demand for a
better balance between man and nature, new awareness of human
as opposed to material values, the insistence on a bigger and better
piece of the decision-making action-these and other factors are
being isolated, identified, and analyzed.
According to George Lodge these shifting priorities have eroded
the assumption of business legitimacy, and public opinion polls
readily demonstrate that he is right. Until 1969, business was
generally supported as doing a good, well-balanced job in the public
interest; in that year, the figures tilted against the corporations, and
they have been going down ever since.
Why the appearance-or, more accurately, the popularity-of
these attitudes and concerns? This is clearly not the place for that
kind of analysis. Many reasons are being put forward: population
growth; affluence; a sudden awareness of the finiteness of our
resources despite our affluence!; the forcing on our consciousness
of the problems of those left out of our system; the impact of
instant experience and instant information through television; a
realization, stimulated perhaps by Rachel Carson, of the fact of
second- and third-order consequences; the enormous growth in
education (60 million Americans are now engaged in full-time
study); the transformation from a "privilege" to a "righf' of such
services as adequate medical care, advanced education, and
economic security.
Along with the new values-as cause, or result, or both-have
come new tools of social action. During more stable times, the
wider community affecting business in two ways: through the
market mechanism, and through the political mechanism. For
the moment, a third effective method has been found and developed
by some skillful charismatic leaders who are politically oriented
but not primarily concerned with the passage of legislation. Their
approach rests on a judicious combination of good timing, and on
the use of publicity; it mixes legal suits, ad hoc investigations,
dramatic charges, and demonstrations in appropriate proportions.
Only in a time of public disaffection would this approach work: who
listened to Stewart Udall and Congressmen Kenneth Roberts and
John Kennedy in the early sixties when they were talking about
1This realization of the finiteness of our resources despite our unprecedented
affluence was probably precipitated by the sudden demands posed by the
Vietnam War just at the time when we had resolved to turn our resources
to the solution of a wide variety of social problems.

7
clean rivers and auto safety and a consumers' bill of rights? But
today, in a changed climate that has engulfed all of us, the new
tools are operational.
This changed-or, better, rearranged-value structure and the
emergence of new tools to enforce it are now having an impact
on the American corporation in at least four specific ways: through
the investment community, employee activity, student involvement,
and customer concern. (We do not mean to neglect here the obvious
fact that businessmen, like judges, Congressmen, housewives, and
lawyers and all the rest of us are inevitably caught up in these
changes.) Let us look briefly at each of these ways, because they
are producing so much unrest and anxiety in modem board rooms.

Investment Community
More Money Managers Reconsider Their Role in Shareholder Voting;
Some Institutions Now Buck Companies on Social Issues.
Wall Street Journal, April 21, 1971.
Investor Panel Favors Social-Minded Firm with Slower Growth.
Last week, Campaign G.M.'s Moore asked the 12 largest mutual
Wall Street Journal, May 14, 1971.
funds to develop standards for measuring corporate performance in the
areas of pollution and discrimination. It also asked the Investment
Company Institute, the funds' trade association, to formulate a "Code
of Responsibility for Investment Companies."
Business Week, May 1, 1971. 2
My position with one of the larger institutions has led me to consider
the responsibilities of the institutional investor. Should he permit any
short-run earnings reduction to improve the probable long-term eco-
nomic gain of his institution and of society?
William C. Greenough, The New York Times, May 2,1971.
We are starting to pay attention to ecology because we think that the
young financial analyst who is calling on us has it in the back of his
mind. It never may become explicit in his reports, but we suspect it is
going to affect them one way or another.
Corporative executive, May 1971.

These samples from a few weeks in 1971 testify to the increased

attention to the investors' responsibilities and role. One of the
earliest manifestations of the "social portfolio" was among some
of the more liberal church groups concerned about the Vietnam
War and the problems of American cities, but it has now spread far
beyond such organizations. Campaign G.M. probably did as much
as any activity to bring the issue to a head; the recent creation of
special investment funds to channel money to "socially responsible

• This produced a statement of principles later in 1971 entitled "Corporate

Responsibility and Mutual Funds."

8
companies," the 1971 SEC ruling that requires reporting of actual
or pending litigation, and the soul-searching in college treasurers'
offices are continuing manifestations. There is no reason to believe
that social considerations deeply or widely affect investment deci-
sions by individuals or institutions yet, but they are clearly higher
on the agenda than they were only a few years ago.

Employee Interest
Current research discloses that the restlessness on college
campuses today finds its counterpart, albeit muted and more polite,
in many corporate structures. Judson Gooding found a virtual blue-
collar revolt on automobile assembly lines; a major insurance
company was troubled by the questioning its employees were doing
about the socially beneficial nature of much of its product; a utility
was under great pressure from its workers who felt that it was not
serving its customers adequately; company after company in the
defense business has ben attacked by its own employees for par-
ticipating in the Vietnam War; Polaroid faced a deeply angered
minority over its involvement in South Africa. In addition to their
concern with the quality of their own lives on the job, and their
input into corporate decisions that affect them, many employees
and managers are questioning the social usefulness of what they
and their employers are doing in American companies today.

Student Activism
The fascination of businessmen with what has been going on in
colleges during the past few years has been an often-noted but
little-discussed phenomenon. Until 1971, unrest on the campuses
would almost surely excite interest and speculation, along with
anger, on the part of executives, and articles on what the corpora-
tion should do about it appeared in many publications.
Why was this so? Perhaps for several reasons; many of the
young people involved in the upheavals were sons, daughters, or
friends of business leaders; the whole scene was so shocking as to
demand some explanation; there was a deep-seated ambivalence
in much of the corporate reaction for many felt that "those kids
really do have something"; and executives were wondering what,
exactly, would happen when this generation appeared at the desks
and production lines in their companies.
Even though we have now had two years of apparent calm
(actually, reported incidents are about as high today as they were
two years ago, but press coverage is sparse and the more prestigious

9
and attention-getting universities are far quieter), groups of stu-
dents in colleges and graduate schools are spending a considerable
amount of time thinking about and discussing corporate social
responsibility. Many of them are seeking-and getting-interviews
with top executives to present their views and, hopefully (as they
see it), persuade managers to rethink and refeel their basic atti-
tudes and motivations.

Customer Interest
We are beginning to see evidence of customer interest in the
social performance of companies. M.LT. recently shifted paper
suppliers on the basis of a pollution report; a West Coast study
[Kassarjian, 1971] reported that the impact of Chevron's announce-
ment of an anti-pollution additive was very great despite increased
costs; and corporate advertising, which is to some degree a reflec-
tion of consumer attitudes, is stressing social concerns and ac-
tivities.
But beyond specific examples, at least one marketing specialist
is reviewing the implications for the entire premise on which
modern American selling is based. In the words of Lawrence P.
Feldman [1971],

"To date, societal satisfaction has had either a residual or a negligible

influence on consumer purchasing behavior. However, there are cur-
rently numerous indications that societal considerations will assume
great importance as consumers begin to understand the resource
implications of product use."

Further:

"There are indications that a growing segment of young American

people are rejecting the idea that material consumption is an indication
of social worth. This is particularly true in regard to consumption that
involves goods associated with some adverse environmental effects. If
the trend continues, the ethic of conspicuous consumption that under-
lies much of contemporary middle-class consumption behavior will be
regarded with the same distaste in the future as today's generation
regards the lavish displays of wealth exhibited by the nouveau riche
at the tum of the century."

It is important to observe that none of these channels of com-

munity pressure for more (or different) social responsibility has, by
itself, demonstrated great power or widespread effectiveness as yet.
But relying on that fact as evidence that the whole thrust is not
"for real" is akin to the Chrysler Board member who said, just a

10
few months before the Auto Safety Bill passed and a few months
after Unsafe at Any Speed was published, that the whole issue
was trumped up because "no one raised it at our annual meeting
last week." "Change in psychological motivations always precedes
economic and social change; consequently organizations will evolve
in a direct relationship to the prevailing values, motivations, and
desired purposes," says John F. Mee [1971]. The change in psy-
chological motivations is certainly present; the tools, new and old,
for the expression of that change are present; and the businessman
knows it.
So the major new element that has been built into the equation
in the last few years is this: the preoccupation with social respon-
Sibility, which has been the plaything of the business community
since World War II, has suddenly become a meaningful and im-
portant-and even angry-topic of conversation in the community
at large. This means, in practical terms, that the business manager
no longer has the sole right and prerogative to determine just what
kind of corporate behavior is socially responsible, and how much
of it he must undertake to be a business statesman. Those decisions
are being lifted out of his hands, in whole or in part.
It is small wonder then that the subject, once a soul-satisfying
one for businessmen, has become instead a carrier of great anxiety.
Under such circumstances, the business executive is more to be
pitied than censured. He never knows when or from what quarter
the attack will come, he has few tools and little experience to de-
termine the viability of this or that particular charge, and he has
no way of defending himself because no one, least of all the onrush-
ing legions, has even any really useful measurements of perform-
ance or definition of social responsibility to tell him what he ought
to be doing. More accurately, there is a wide range of definitions,
none of which is widely accepted and consequently reliable as a
guide to the practicing executive. There is, in short, no audit for an
annual report.
It has often been pointed out that this is not the first upheaval
of this kind, nor the first time that the once-accepted or even ap-
plauded practices of the business community have been swamped
by a tidal wave of changed mores and standards. A new method of
identifying such times has been supplied by E. L. Bernays in a
recent history of the public relations profession which, he says,
was started when, toward the end of the nineteenth century, "the
unionists, Populists, Christian socialists and muckrakers were
joined by the middle classes" in attacking businessmen for their

11
insensitive ways [1971]. By the same token, the next high-water
mark for the P /R consultants came with Franklin Roosevelt in
the 1930's.
But just because this is not the first such moment in our history
does not mean that it is the same as the others and will end in the
same combination of strengthened legislation and more sensitive
business leadership. It is at least possible, as some observers have
suggested, that we are, without fully realizing it, redefining the
nature and role of the corporation. In the past we have simply im-
posed new restraints on business; now, it is possible that we are
fundamentally reviewing the role of business in American society.
The American corporation has been primarily a profit-generating,
economically oriented machine because that is what we wanted it
to be. It has attracted its financial support, its managerial talent, its
public approval in direct ratio to its success in achieving the ends
that we have set for it. Thus our expectations and our ideology have
made the corporation what it is-not some inherent, inevitable,
independent decision of its own. It really is a matter of "thinking
makes it so"; and, almost magically, we will change the nature of
a corporation by thinking of it differently. If, for example, we
really took James Roche seriously when he said "profits and social
progress must go hand in hand," and treated and rewarded the
corporation as if we took him seriously, we would immediately find
ourselves with another multi-purpose organization on our hands.
The performance measurement process would change, both for
executives and companies; the product would be different, the
management style, the systems of incentives, the type of talent
recruited and skills needed would also be different. It is not within
the scope of this paper or our competence to speculate meaning-
fully on just what such a corporation would look like. The point
is that if we are either consciously or unconsciously changing the
corporation by redefining it, we had better think through carefully
the implications of what it is we are doing. If we are to take George
Kozmetsky [1971] at his word when he says "private enterprise
and creative capitalism in their evolutionary process demand that
profits become constraints rather than, as in the past, the primary
objective," then we had better study Robert Briscoe's report [1971]
of the confusion that ensued when a group of SOcially concerned
managers tried to run a successful cooperative supermarket. In
addition, given our continuing balance of payments problems, one
cannot help but wonder if we indeed have all the flexibility we
think we do.

12
 Nevertheless, current intensity of interest seems to be supported
by long-term social and economic trends. We report this as a fact
of life albeit we are fully aware that the prevailing diffuse notions
of what business should be responsible for will ultimately receive
and fully deserve tight critical review and evaluation.
Our posture toward the concept of corporate social audits, let us
remind the reader at this point, like our view of the related issue
of corporate social responsibility, is clinical and neutral. Both exist,
and to attempt to understand them does not necessitate that one
regard them as either good or bad.
There are many features of the present drive for corporate social
responsibility that are unquestionably marks of great progress.
No one can doubt that we should no longer ignore the effects of
pollution, or that women and minorities be given equal employment
opportunities, and the like. Nor, more basically, can one argue
that the great institutions of our society should brush aside the
demands that they become more responsive to the changing mores
of that society. But, there are many questions that will have to be
answered. What are the proper roles of government, business,
public interest groups, and special interest groups in defining the
social conduct of business and social priorities in general? To
what extent should business be responsive to an escalating series
of demands from groups which mayor may not reflect broadly
held societal demands? To what extent does business have the re-
sources to meet such demands without prejudicing its primary
purpose of producing and distributing goods and services? To
what extent are businessmen and business institutions equipped
to serve the purposes that are being urged on them? Running a
business has been a complicated matter under the simplest of
circumstances. Can a businessman direct his affairs in a coherent
fashion if he is pursuing a multiplicity of goals without any clear
and enduring priority between them?
We make no pretense of answering such questions. We merely
record them to document our awareness of their existence.
Be that as it may, the need for some sort of criteria for the
social responsibility of business, some kind of definition of just
what the words mean, some tools for measuring performance
against that definition, has now become a matter of real urgency,
and that fact, in our view, accounts for the lively current interest
in the idea.
The social activists need a generally accepted definition if they
are to make their charges viable; if they are to "improve" corporate

13
performance, they need something more than a vague and subjective
notion of what is "good" and a loose method of accounting. (One
could, of course, say that looseness fits the needs of the reformers
perfectly because they can evoke response from corporate manage-
ment to any charge so long as they tag it social responsibility.) If
the corporate executives are to improve their performance in this
field, they too need to know what the field is and where the yardline
markers are drawn. Even if they simply want to protect themselves
from the complaints of customers and activists, they need such a
definition. If the institutional and individual investors are to
separate the SOcially responsible from the irresponsible, if they
are to bestow white hats and black hats, they need definition and
measurement. If customers are to buy selectively from the good
guys and bypass the bad guys; if graduating students are to respond
to the job offers from the responsible and reject the irresponsible;
if students are to select their business targets with maximum effi-
ciency and level their rifles at real bull's-eyes; if employees are to
express their concerns meaningfully, they need definitions and
measurements.
As one reads and listens and ponders today, it is surprising that
we have not moved farther and faster beyond the stage of mouth-
ing the term corporate responsibility and assuming that it has
common and hard meaning. It becomes far less surprising, how-
ever, when one reviews both the literature on what has come to be
called the social audit, understood as the attempt to define social
responsibility and looks, even quickly, at the operating experience
with it. But such advances require definition and measurements.
Just what are the components of corporate responsibility, and
how do you measure a particular company's performance in those
components? How, in short, do you make a social audit of a
business?
It is precisely at this point that we reach the thicket.

14
rhe Social Audi, roday

Current Literature
There is available, of course, a great deal of written material
which includes general definitions of social responsibility. Eels and
Walton [1961], for example, interpret the term as dealing with
those problems which arise when the corporate entity "casts its
shadow on the social scene," and with "the ethical principles that
ought to govern relationships between the corporation and society."
They believe it represents a concern with the impact of the com-
pany on the individual, and also the recognized need for reconcil-
ing big business, labor and government with the deeply rooted
values of our culture and form of government. Cheit [1964] quotes
a leading oil company executive who defines the term to mean that
the manager must realize his decisions will have consequences out-
side the confines of the company, and must pledge himself to try
to make those private decisions in such a way that their conse-
quences will accord with generally accepted values. Since every
formal organization is a social system, Barnard explains, "it
should give expression or reflect mores, culture patterns, implicit
world asumptions" [1953]. In short, the bulk of the commentary
has not gone much beyond the concept that there is a need to

15
strike a balance between the interests of the corporation and the
publics, including the general public, which it serves and with
which it is associated. The implied role of the social audit idea is
to explain and define this balance in particular areas of corporate
activity and to describe the ways in which it can be achieved.
Note should be taken here of the view that this definition should
be made by the government, rather than by the activists, the stu-
dents, the investors, or the corporation itself. If corporations ought
to be doing things they are not doing now, or ought to be doing
things differently, some observers say, it is up to the government to
tell them so in legislation and regulation. There are at least two
difficulties with this approach: (1) governments are reactive, not
pro-active, and the corporations and other interested parties who
inevitably would be participants in the fashioning of the govern-
mental decisions need guidelines and measures; and (2) while
this may be the tidiest answer, the times have overtaken it since,
in fact, everybody both inside and outside the business community
is now engaged willy-nilly in playing the definition game.
Despite the growing use of the term social audit, the literature
on the subject is remarkably thin. To the press, this may look like
a simple business. According to Thomas Oliphant, writing in the
Boston Globe in late May 1971 :

Almost all of this data exists right now on some corporate executive's
desk. What is lacking is the decision to put it all together and release it
to the public in a manner modeled roughly after financial accounting
standards to ensure a maximum of information and a bare minimum
of public relations ... it [the social audit] has progressed far beyond
the status of a vague idea.

One searches in vain for evidence that this is, indeed, so.
The discussion on the general topic, whether offiCially labeled
social audit or not, falls into four categories, two of which merit
some discussion. One approach is simply to collect evidence that a
company is dong "no social harm," or is not currently under indict-
ment by a governmental body. Another is to rely on the subjective
impressions of knowledgeable and concerned people who have
collected some data and talked with many observers.
The third is to take selected specific areas of activity and review
them in detail. Probably the outstanding example of this approach
is the Council on Economic Priorities which has devised a meth-
odology for assessing a corporation's performance in such areas

16
as air and water pollution and reporting on it. But there are others.
Eastman Kodak recently ran an advertisement stating that

Currently our accountants and technical people are collaborating on

devising methods to charge against a manufacturing department its
contribution to the total output of solid, liquid or gaseous waste that
must be rendered inoffensive to the outside world. The department
superintendent whose cost-cutting lags in this added dimension may
be regarded as pathetically in the superintendent's lunch club as the
one whose material or labor costs are running away from him.

The Conference Board has devised a method for evaluating

corporate public affairs programs which rates them according to
whether or not they include some five specific components. The
Equal Employment Opportunity Commission, along with many
other private and public agencies, has worked out ways of record-
ing and reporting performance in minority hiring and promotion.
Still another example of this approach appears in one of the
earliest discussions of the social audit, an article by Fred Blum in
Harvard Business Review in 1958. Blum's social audit was, essen-
tially, an attitude survey taken at all levels of a firm to measure
progress in human relations. Both "organization" and "individua-
tion" were tested. Employees were asked to rate their overall atti-
tude toward the company, their assessment of the competence of
top management, their satisfaction with their position in the com-
pany, the fairness of the earning distribution, the adequacy of
information, and the effectiveness of the organization as a whole.
Further, they were questioned on their level of satisfaction in
working for the firm and, specifically, their feelings about personal
relations, pay rates, the use of their talents, and the nature of their
jobs. Similarly, one of us developed a method for determining
what the Boston Community thought of the social programs Boston
companies were carrying out in the area. The general public,
minority and ethnic groups, and officials of organizations, as well
as corporate executives were surveyed. The business executives
badly misperceived public expectations and assessment of their
corporate giving, incidentally.
The fourth approach that appears in current writing is the
attempt to develop sophisticated quantitative measures of social
responsibility. Three examples are particularly worth recording
for our purposes. LaPorte's measures of the impact of alternative
technologies, Sater's three-dimensional matrix, and Abt's ambitious

17
and comprehensive scheme for translating social goods into dollar
values.
Todd LaPorte, writing in the Public Administration Review
[1971], suggests a systematic study of all relevant relations in an
attempt to measure the impact of technology. He offers a scheme
for weighing technological alternatives in different areas as func-
tions of the probabilities of achieving valued conditions such as
certain political, social, psychological, and economic effects. He
would weight the desired emphasis for each of these criteria ac-
cording to social norms or expected norms, plug them into his
function and use them to compare alternative solutions or tech-
nologies for achieving different goals.
Clair W. Sater, account adviser with Fields, Grant & Co., invest-
ment advisers, was Chairman of the Corporate Rating Project of
the student-based Committee for Corporate Responsibility. Sater
proposes that some external agency audit businesses on an in-
dustry-by-industry basis to supply ratings of corporate responsi-
bility to be used by investors.
Sater lists a considerable number of dimensions along which
firms might be evaluated: consumerism, type of international busi-
ness, environmental protection, opportunities for minority group
members and women, military and defense activity, contributions,
and executive participation in community affairs. He quickly
acknowledges that the relevance of these dimensions will vary from
industry to industry, and suggests that the selection of dimensions
be made of the basis of knowledge of particular industries. As an
example, he proposes that a bank might be rated on the location,
appearance, and desirability of its buildings, and on its policy
toward lending to polluting industries.
Sater sees the difficulty in deciding how to weight a company
that does well on one dimension and poorly on another, and con-
cludes that the job of weighting should be left to the user of the
audit. He also sees that all parties might not agree on whether such
an activity as supplying munitions is a good thing or a bad thing,
and suggests that the auditor may make his own evaluation, but
conduct his ratings consistently so that the user can exercise his
own judgment.
As sources of data, Sater proposes a variety of printed sources:
government reports, local pollution agency reports, consumer
agency reports, published speeches of corporate executives, federal
equal opportunity reports, annual reports, articles in the business
press, and the like. He also advocates the design of a questionnaire

18
to be used in a fashion that is not entirely clear. Finally he would
interview corporate officers to plumb their general attitudes on
issues of social responsibility.
All of these data would be summarized in a five-point rating
for each area of concern in a "three-dimensional rating matrix for
an industry" which would make a company-by-company compari-
son according to various norms: other companies in the industry,
other similar firms in the same geographic location, local legal
requirements, and "the potential for action in areas where facilities
are located." Investors would then take this audit into account in
making their investment decisions. Figure 1 illustrates Sater's
matrix.
The Sater proposal, which raises as many questions as it answers,
is especially weak on the operational side. It is not clear, for ex-
ample, how he proposes to use his questionnaire to gather "facts
that are not obtainable elsewhere." He does not explain how the
written sources he suggests would give adequate company-by-
company coverage on all issues (for example, consumerism). At a
minimum, to do this on a widespread basis, as he proposes, would
constitute a prodigious task. We shall find that the new "socially
responsible" mutual funds are proceeding along lines not too un-
like what he proposes but on a somewhat more modest line.
Furthermore, he bypasses the whole problem of the usefulness of
such data in comparative audits.
While Sater's proposed audit is for the guidance of investors,
Dr. Clark Abt of Abt Associates, Inc. offers an audit to be used by
corporate officers in their own decision making. 3 He says it will
produce the following immediate benefits: earnings increase,
budgeting efficiency, early warning of opportunity and risk, posi-
tive public and governmental relations, and marketing improve-
ments. His list of long-range benefits is equally long, and includes
such items as "a rational basis for integrating corporate with na-
tional (including host nation) policy for maximum benefit of
both." He would construct "a balance sheet of company current
and long-term social assets and liabilities, and a statement of the
social gains and losses in the current year." ["An Annual Social
Audit."] By determining the dollar values of programs and their
results, he would make an assessment of the effect of everything

3 An early version of Abt's proposal "An Annual Social Audit" is reproduced

in the Congressional Record, January 20,1970, E111, E112. A later version
is Clark Abt [1972].

19
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the company does or produces on the environment within which

it operates. For example, he would establish what X company was
costing the educational system of the community in which it was
operating by calculating the investment the school system had
made in each employee of the company and substracting the per-

20
cent age of the corporate tax dollar which was going to support
that school system.
From the description of Abt's proposal in the Congressional
Record and Innovation, and from an undated manuscript, "How
to Save Money by Doing Good," and "Social Audit" (a game for
planning social investments), supplied us by Dr. Abt, we can piece
together much of what he proposes. It is obviously a very ambitious
plan for cost/benefit analysis of a company's actual and potential
social programs. He would compute not only the out-of-pocket costs
of social programs, but the opportunity costs of alternative pro-
grams foregone. He presumes that social programs are undertaken
because they are in the long-run interest of the company, and by
Abt's reasoning this contribution to the long-run interest can be
translated in a dollar contribution to long-term profitability. This
is what is promised in his documents.
Abt's documents are strong on the logic of his position, much
of which is familiar welfare economics, but are less strong on
making the contribution to long-term profitability-though they
take steps in that direction. In one document ["Managing to Save
Money While Doing Good"] he presents a plausible scheme for
figuring the dollar value to society of a company's contribution to
the Heart Fund. However, the merits of measuring health pro-
grams in dollar terms is a matter of hot debate in medical eco-
nomics. Furthermore, if this goal is attained and one likes the re-
sults, the measure would be one of the contribution to the general
welfare of the society. Presumably what benefits society will have
some spillover benefits to the company that pays for those benefits.
But, he does not show us how to convert such dollar benefits to the
society into dollar contributions to the firm.
In another document ["Social Audit"], he goes a step further,
and proposes that the benefits of a corporation's contribution to
building a better community can be measured in terms of such
things as reduced recruitment costs. In a small community where
the totality of the factors contributing to its increased attractiveness
could be identified, and the contribution of the company to that
total isolated, this calculation is conceivable. For more complex
communities, and/or other social programs, and/or benefits, it
would be more difficult.
There is little doubt that systematic procedures, whether or not
they be called social audits, could in all likelihood contribute to the
efficiency of a company's social programs, and/or permit it to
accomplish more with the same amount of money. As a matter of

21
fact, Abt's audit of his own company did produce specific opera-
tional changes. Whether or not the contribution could be of the
nature of magnitude of what Abt promises is another matter. We
will discuss some the difficulties in a later section of this report.
In his article in Innovation Abt presents a scheme for a "Social
Operations and Income Statement" (see Figure 2). Such a scheme
would display a considerable amount of socially relevant informa-
tion. It does not, insofar as we can see, yet relate to the profit bene-
fits accruing to the company via its social activities. As we shall see
in the next chapter, this scheme was the model on which Abt Asso-
ciates built in conducting an audit of their own firm.

FIGURE 2. SOCIAL OPERATIONS AND

INCOME STATEMENT
Measure
(all costs in $1,000)
SOCIAL BENEFITS
Employees Compensation
Increases in per capita market $
value reflecting increases in pro-
ductivity as shown by average
salary increase
% of employees participating in %
increases reflecting scope of pro-
ductivity increases
% increase in revenues per em- %
ployee, reflecting per capita pro-
ductivity increase
Fringe Benefits Affecting Quality
of Life
Health
Health insurance coverage in- actual & expected
creases insurance payments
Life insurance coverage increases actual & expected
insurance payments
Employment & disability coverage actual & expected
increases insurance payments
Education
In-house courses: number, access costs
Company-supported external pro- costs
gram
Number employees successfully number
completing courses by level & de-
grees
Recreation
Athletic program, company parties costs, in equipment
and outings space, man-hours

22
 FIGURE 2. SOCIAL OPERATIONS AND
INCOME STATEMENT (continued)
Measure
(all costs in $1,000)
Day care services costs, in space, staff
time, equipment, R&D
Food services
Breakfast, coffee & snacks, at costs, & savings to staff
at-cost lunches of at-cost lunches & staff-
time cost
Holidays and vacations cost

QUALITY OF LIFE OTHER

THAN FRINGES
Working conditions
Work space/staff fe/staff, cost difference
Internal quality of work space difference in taxes paid
between our building &
average in neighborhood
& architects' costs
Air quality cost of air-conditioning
Acoustic insulation & privacy cost of added partitions,
carpeting, curtains
Visual insulation & aesthetics cost of trees, shrubs,
grass, gardening
Parking at work total daily parking cost,
if paid by staff

CAREER ADVANCEMENT
Net promotions to positions of no., % of total, cost in
greater responsibility (e.g., promo- salaries & fringes
tions less demotions)
Reputation net increase indicated no., % increase, equivalent
by publications, and awards, public cost ($555/artic1e)
mention of staff at meetings, etc.
Satisfaction indicated by no. reduced quits. $
decrease of voluntary terminations value
Increased Employment
Added number of jobs created no. % increase in total
payroll
Employment Security
Reduced number & % of in- no., %
voluntary layoffs
Equality of Opportunity
Minority Employment
Minority employed (nonwhite & no., %, $ salary & fringes
women)
Ratio of minority total staff % , % total salary
Minority Advancement
Women given salary increases no., %, total increased
salary & fringes

23
 FIGURE 2. SOCIAL OPERATIONS AND
INCOME STATEMENT (continued)
Measure
(all costs in $1,000)
Women promoted in management
positions
Nonwhites given salary increases
Nonwhites promoted in manage-
ment positions
Total minority given salary
increases
Total minority promoted in manage-
ment positions
Ratio of minority salary increases
total salary increases
Ratio of minority promotions
total promotions
Ratio of minority managers
total managers
Environment
Environmental improvement no., %,$
(building, landscaping)
Reduced pollution no., %,$
Public
Social impact of contracts no., %,$
Contributions to knowledge no., %,$
Public education no., %,$
Awards no., %,$
Unpaid services to public interest no., %,$
institutions

SOCIAL COSTS Total Social Benefit

Employees
Staff-turnover no., %, $ cost
Staff laid off no., %, $ cost
Staff "free" time exploited no., %, $ cost
Environment
Unfinished structure no., %, $ to correct
Air pollution by power consumption % , $ to correct
Recycle paper not used no., %, $ cost
Driving to work causing air no., % , $ to correct
pollution
Water pollution % , $ to correct
Public
Exploitation of local educational no., % , $ equivalent
institutions

NET SOCIAL INCOME (LOSS) Total Social Cost

24
 A final proposal is put forth by the Public Affairs Council [1971].
This proposal, in turn, is somewhat different than the others. The
Council would also have the corporation carry out an audit with its
own resources. It states the purpose of the audit in these terms:

The "INTERNAL CORPORATE SOCIAL AUDIT" is one device to

which companies are turning to identify goals, to complement policy
and to establish evaluative standards. The long-range goal of these com-
panies is to institutionalize social concerns into the job of each cor-
porate manager. 4

The Council does not identify companies which are carrying out
this practice.
The list of matters on which a company's social policies would
be judged is long and detailed, and the criteria used for selecting
these particular items and excluding others are unstated. Its scope
can be garnered from the major topical headings: employment,
supplier policies, advertising, contributions, voluntarism, govern-
ment relations, trade association and other business-supported
organizations. This list is marked by the amazing range of things
for which the corporation would be held responsible. For example:

The company may need to allocate additional funds to the purchasing

department to help develop minority suppliers. Technical assistance
from the purchasing department is also needed to aid existing minority
suppliers.
Advertising accounts are to be placed only in those firms with affirma-
tive actions programs.
In line with corporate advertising objectives a minimum budget
should be established for advertising in black and other minority group
media.
Corporate function [sic] would be sponsored only at those private
clubs which do not discriminate against any individual because of race,
religion, or sex, etc.

Interestingly, the popular topic of pollution is not mentioned.

Thus the literature on corporate social audits is both sparse
and diverse. If one takes the concept to mean what it seems to mean
in the context of the present discussions-a systematic assess-
ment of firms across a range of issues of social responsibility-
then only the proposals of Sater and Abt would qualify. And even
these two are diverse.
Perhaps the most important point in all this is that no unified

• This paper was circulated solely to stimulate discussion concerning methods

of quantifying corporate social responsibility. It was not intended to be a
model for a corporate social audit.

25
concept of what a corporate social audit is emerges from this litera-
ture, nor is there even any crude indication of common trends.
And, as we turn to the next section, we shall find that firms which
have been doing social audits have similarly diverse approaches.

Human Resource Accounting

The practice-or more accurately, the developing attempts at
the practice-of social auditing has its forerunners in human re-
source accounting, developed at the University of Michigan by
Professor Rensis Lickert and now operating under the direction of
William C. Pyle, Director of the Human Resource Accounting Pro-
gram 5 though the similarity is more ideological and methodological
than it is substantive.
The core notion of human resource accounting is that human
assets should receive the same treatment in accounting as do
physical assets. One variant treats the hiring and training of per-
sonnel as investments rather than as expenses. The investments in
turn should be amortized over their expected life, which may be
assessed, either as the length of time that the employee will remain
with the company, or the length of time that a skill will remain
with the employee. This variant is employed by the R. G. Barry
Corporation which has already used such data to report to its
stockholders in a pro forma balance sheet which shows how the
company's financial performance would look with and without an
adjustment for an accounting of its human resources. The Texas
Instruments Company uses another variant of human resource
accounting, considering the replacement costs for groups of
workers within different profit centers of the company.
There are extensions of human resource accounting which have
already been tried in practice. One of them is to make social
psychological measures of a work group and trace the predictive
power of these measures over several years [Lickert & Pyle, 1971].
This approach treats employee morale and management practice
as a corporate resource. Other more ambitious extensions are still
in the programmatic stage. One approach would regard the firm's
customers as a resource in which it has an investment, and
periodically would audit the status of that resource: for example,
the amount that has been invested in developing customer loyalty,
and presumably the state of that loyalty.

• For a quick introduction of human resource accounting see Pyle [1970] and
Lickert and Pyle [1971].

26
 There is one point of apparent overlap between human resource
accounting and corporate social auditing that highlights the com-
parison that might be made between the two. Both (as least in
some versions of social auditing) would turn attention to the status
of the employees, and might in fact ask many identical questions
about their morale and management practices (see reference to
Fred Blum, above). The rationale of human resource accounting
is that this should be done because employee morale and manage-
ment practices are an integral part of the future profit potential
of the firm. The rationale of studying employee morale under the
rubric of the corporate social audit is that in this day and age a
company ought to provide a pleasant work environment and a
creative work experience even if it does not contribute to, or
despite its adverse effect on, profitability. (This is, indeed, one re-
quirement for social responsibility which some activist groups and
their adherents would establish.) It is true that there is a consid-
erable amount of waffling around this latter rationale, with one
uneasy person after another venturing the opinion that almost any-
thing done to improve employee morale will contribute to the long
(how long unspecified) range profitability of the firm. This, how-
ever, is undemonstrable.
If the intent of human resource accounting and of corporate
social auditing is so clearly different in an area of common activity
such as studying employee morale, why have we referred to the
two movements as ideologically affiliated? Because even a super-
ficial understanding of the people who developed the concept of
human resource accounting makes it clear that many of their
interests in the human side of things, and their concern that or-
ganizations serve people rather than vice versa, characterizes the
present focus on social responsibility. While studies in the "human
relations" tradition have demonstrated that the happiest employees
are not always the most productive, one senses that the authors of
such studies were most gratified when the two did coincide.
Aside from the ideological affinity of the two movements, human
resource accounting has two direct implications for corporate social
auditing. It represents an attempt to extend accounting methods
beyond traditional financial accounting, and it has established
some foothold in the accounting professions. It also shares with
some aspects of corporate social accounting the use of social psy-
chological measurement in an applied setting-though this prac-
tice extends beyond these two movements.

27
Some Current Efforts
Here we will review some of the concrete activities which are
taking place in the name of social audits. Some of the components
of these activities are, of course, familiar. Employee surveys have
taken place for decades. Firms have been judged and have judged
themselves on their hiring and advancement policies, on their
pollution policies and practices, and so on. What interests us here,
however, is a sample of instances which have come to our attention
in which someone, either in a company or outside, is explicitly
attempting the systematic assessment of firms or a firm on a range
of social performance, and where it is presumed that this may be
a recurring activity.
We should make clear that we are not including instances in
which corporations have deliberately gone about setting general
policies of social responsiveness. Rather we are looking at instances
in which the implementation of present policies is being measured
against some norm of performance, even if that norm be as sub-
jective as the judgments and expectations of corporate personnel
or of people being interviewed.
It is important to recognize that the amount of explicit activity
along these lines is still small, and even that being undertaken is in
its early stages. But the developing experience is producing both
sufficient variety and sufficient regularity to be instructive. In the
material that follows, we draw, first, on the work of four conven-
tional business firms that are conducting audits. 6 Two of the firms
are doing the audit with their own resources. One is working with
a consulting firm, Arthur D. Little, Inc. and another is using an
accountant as an outside consultant. In addition, Arthur D. Little
is conducting an audit of itself, as is another consulting firm. Abt
Associates. 7 Abt Associates has also carried out a partial audit for
one unidentified client.
At this stage, the emphasis in these audits seems to be on internal
use and decision making. The exception, Abt Associates, Inc., was
designed for inclusion in their annual report. Nevertheless, one
senses that most of these parties are entering into the enterprise
with a high degree of tentativeness. They are feeling their ways

6 For a preliminary report on one audit at ARA Services, see John J. Corson,
"A Corporate Social Audit?," a discussion paper prepared for a Conference
on The Corporation and the Quality of Life, organized by the Center for the
Study of Democratic Institutions, September 1971.
1 The Abt audit is completed and is reported in "1971 Abt Associates, Inc.

Annual Report and Social Audit."

28
cautiously in every category from the methods to be used and the
topics to be covered, to the use to which the information will be put.
Second, we have considered the experience of some other
agencies that are beginning to audit firms. Two of them are new
mutual funds created to offer investors a socially responsible port-
folio, namely: The Dreyfus Third Century Fund and The Social
Dimensions Fund. The first is already registered with the SEC;
the second was not yet out of registration as of the end of 1971.
(We have heard of more than a dozen similar efforts.) The other
two are public interest organizations, The Council on Economic
Priorities, and the Corporate Information Center of the National
Council of Churches. (The former is in the process of branching
out from the pollution focus mentioned above.)
Although we have interviewed one or more persons associated
with each of these enterprises and have read a certain amount of
public material we are handicapped in reporting on them by two
circumstances: the unevenness of our knowledge across organiza-
tions, and the sensitivity of some of the organizations to informa-
tion about their activities to this point. Accordingly, rather than
aiming at systematic, comparative coverage, we will endeavor to
put forth what we think we have learned. At points where it seems
appropriate we will identify specific findings with specific organiza-
tions.

Self-Audits of Business Firms

We may first say that the idea of a social audit is not a burning
issue for American business at large, but interest and curiosity
about the idea are widespread. And, as we have indicated, the
number of companies considering or engaging in some kind of
effort which they call an audit is clearly on the upswing.
Nevertheless, as might be suspected, at this point the social
audit is far from a standardized product. Its character is much a
function of the industry, the particular circumstances of the firm in
question, and the interests of top management. Even the two con-
SUlting firms, which have had between them one plus clients, have
conducted the audits differently for the clients than they have for
themselves.
These corporate self-audits can be compared on several dimen-
sions: the dynamics behind them; their purpose; their scope; and
their methodology. We shall now summarize what appears to be
the current situation in these areas.
Popular belief to the contrary, firms undertaking a social audit

29
are not necessarily under fire. Rather, the determining factor
seems to be the interest of a key person at the head of the organiza-
tion who has a demonstrated history of social concern and inno-
vativeness. (It is interesting to note that this is the major deter-
minant in the role companies play in social activities generally.)
This factor holds not only for the regular businesses but for the con-
sulting firms as well. In two cases there was a partial or potential
"threat" that affected the action, but that seems to have been a
minor consideration.
The fact that this willingness to experiment with social audits
is spearheaded by committed chief executives is important not
only for our understanding of its origins but also for its subsequent
progress. In not every instance are all of the members of the
executive family equally enthusiastic. The process and outcome of
the audit might take up their time and disturb regular operations;
expose deep political and philosophical differences within the firm;
usurp prerogatives (who has the right to see the personnel files?);
create anxiety that new standards of evaluation are suddenly being
applied; stimulate debate over tough issues like who should see the
data; and reveal findings that may prove embarrassing if exposed
to the public either deliberately or inadvertently. Further, in some
decentralized companies it seems to smack of "headquarters"
meddling and kibitzing. Thus in one company the work reached
what was considered a sensitive stage just when the chief executive
was about to go on leave of absence for a number of months.
The officer in charge of the audit pushed it to the back burner,
waiting until the the head man could give it his undivided attention,
because one tentative attempt to audit one substantive area had
ruffled the feathers of the heads of associated companies.
Though the origins of such projects may be with the chief execu-
tive, the motives vary. In some cases, it is simply a felt need for
data. One might think that corporate officers would have a good
idea of their areas of vulnerability. In fact, one of the purposes
cited for undertaking these audits is precisely a feeling of anxiety
at the lack of such knowledge. And some findings indicate this con-
cern is warranted. One firm which never thought of itself as a
"polluter" rather quickly realized that it was the source of a great
deal of solid waste and a major dumper of detergents into our
waters. Still another, also confident about its pollution record, dis-
covered that the incineration it was doing was creating serious
community concern. A third found that one of its operating divi-

30
sions with a previously fine safety record had slipped virtually to
the bottom of the group of several dozen companies with which it
could meaningfully be compared.
(Incidentally, with regard to the internal conflicts caused by
audits, one firm readily got safety records from one of its divisions
which must regularly report such data to the Federal government.
But, after several months, another of the divisions had not yet
supplied the requested data. )
When one stops to think about it, this lack of information is not
so surprising. There has been little reason or incentive for cor-
porate officials to report such activities or even catalogue them,
much less to pass information on their failures up the line. Since
these activities have not been relevant data for evaluation and
promotion, they have not shown up in the offices of top manage-
ment except on a very hit-or-miss basis.
A popular cynical view of self-auditing is that the results will be
used for public relations. It seems to us a better guess that in the
near future the findings will be rather closely held until manage-
ment has digested their implications and/or had the opportunity,
if they so choose, to correct their areas of vulnerability. This is not
to say that concern over vulnerability is the main motivator for
audits. Generally the purpose is stated more positively as one of
assessing the costs and benefits of social programs, employee
status, relations to customers and the wider community, and of
making trade-offs among social programs and between social pro-
grams and regular business. However, the potential embarrassment
of adverse findings coupled with uncertainties as to just what in-
ternal decisions will be made and how they might look to the pub-
lic are likely to delay the time when firms will be ready to make
their audits public. Furthermore, as we shall see, the data tend to
be pretty slippery-and subject to a variety of interpretations and
misinterpretations.
The exceptional example of Abt Associates' intention to make
its audit was noted above. This audit is reported in the 1971 com-
bined financial and social audit. The "Abt Associates, Inc. Social
Audit" consists of a Social Balance Sheet and a Social Income
Statement, which are described as follows:

The social balance sheet presents the social net assets to date,
expressed as "Society's Equity" in the social resources of the Company.
The social income statement represents the net social income provided
by company operations to staff, community, general public, and clients.

31
 The major social asset listed is the staff which is measured at
the discounted present value of the payroll weighted by the average
expected future tenure of Abt staff members, corrected for train-
ing investment less "accumulated training obsolescence." This
accounts for over $9 million of the company's estimated "Total
Social Assets Available" of almost $12 million.
Among the "Social Commitments" on the balance sheet are such
interesting items as "Pollution from Electric Power Production"
which is described in this way:

The company consumed 56,000 KWH of electric power in 1971 and

54,000 KWH in 1970. The company recognizes an obligation to society
based on the cost of abatement of air pollution created in the production
of this power. This cost is estimated at $.02 per KWH.

The issue of employment practice shows up in the Social Income

Statement under "Social Costs to Staff" in the form of $3600 which
the company estimated as underpayment to minority group mem-
bers or women in 1970. The statement indicates that these in-
equities were eliminated in 1971.
Social benefits to staff consist of conventional employee benefits
plus "Career Advancement." Costs to staff, in addition to in-
equality of opportunity mentioned above, consists of layoffs and
terminations plus a large amount of overtime worked but not paid.
Social costs and benefits to the community and the general public
consist generally of services consumed and taxes paid.
In all honesty, we do not feel that we have been able to digest
fully the meaning of this diligent and innovative effort. It is quite
unlike any other efforts at social auditing in format, and particu-
larly in its aspiration to express all issues in dollar terms. It does
not, insofar as we can see, offer a significant tool for improving
the firm's profitability although, as we have noted, some activities
were, in fact, improved.
It should be noted that Abt Associates is a small company,
manned by top officials of a like mind both on social audits and on
the issues with which the audit was concerned; that they were
aware of the profile which would emerge; that the range of issues
on which they reported was distinctive of the type of business they
are in, and that they selected the yardsticks and methodology them-
selves. It was likely that even in the areas in which their per-
formance would not look "good," the fact that the firm was con-
cerned with problems that seem to be built into their way of doing
business would portray them as foresighted.

32
 The scope of the audits varies greatly. For example, several
firms' criteria tend to focus on one of several constitutencies about
which a firm may be concerned: its employees. Others express
interest in how they are serving their several constituencies, for
example, employees, clients, and the community at large. In prac-
tice, a couple of firms are initially concentrating on internal mat-
ters, one because they decided that was the area of greatest initial
payoff, the other because the employee panels which they con-
vened chose to concentrate there. There are indications that a
third company will concentrate a good deal of its effort internally.
It turns out that internal performance is easier to measure largely
because the data are more readily available.
At least one company, however, is already covering a wide
spectrum that ranges over: employment and training; pollution;
serving the consumer's needs and providing product safety; con-
tributions and social programs. In addition, it found itself con-
fronted by the fact that some of its associated retailers were in-
volved with pornography, and that a large amount of its profit
came from the sale of cigarettes. Thus it found itself embroiled in
questions of how the goods and services it produces match the
needs of SOCiety-in short, of how its basic business affects the
community, not just the usefulness of its so-called "social pro-
grams." A bank, in addition to examining the status of minority
and female employees, is looking at its efforts to develop minority
business and middle- and low-income housing.
There is as much variety of methods as there is of content. In
one instance, panels of employees (blacks, women, young profes-
sionals, old-time professionals, and so on) were assembled and the
broad topic of the social issues which the company confronted
vis-a.-vis its constituencies was presented for discussion. As indi-
cated above, the employees focused inward. Consequently a
questionnaire is being prepared based on these discussions, and
the plan is to survey the employees as a whole. However, it is inter-
esting to note, in connection with some of our earlier comments
that this survey may never take place because of the sensitivities of
some subordinate managers about the state of employee opinion in
their departments. Apparently, they do not wish to have these
data available to either their supervisors or their supervisees! In
one company which chose to concentrate initially on its employees,
first attention was paid to its package of fringe benefits because it
felt that this area was least controversial and the information was
easiest to gather. Appropriate data were compiled from company

33
records, and an outside firm was called in to make an independent
assessment. Certain inequities were discovered: insurance benefits
were better for older employees (generally more highly salaried)
than for younger employees for whom the need was greater, for
example. In the course of this investigation a number of employees
were interviewed. It was learned that in fact the employees had a
very imperfect understanding of the benefits. As a result they plan
first to communicate the existing benefits better to the employees
and then possibly to modify the package to fit better what the
employees say they want.
Next the question of employee safety records was addressed, but
here, as we have indicated, difficulties began to appear. The next
step which was envisioned was an employee morale survey, but
here again this move promises to produce enough internal diffi-
culties so that it is being contemplated with great care and may
not, in fact, be undertaken. Another direction being considered is
a survey of stockholders to determine their support-or lack
thereof-for the company's socially responsible activities and for
a possible enlargement of them. There is a difference of opinion
within the executive group about the wisdom of this venture.
The company which covered and uncovered the widest range of
issues seems to have done so largely through record gathering and
through unstructured discussion with company personnel. Illustra-
tive is the problem of solid waste pollution with which the company
found itself involved. Since the company does business in over a
thousand communities, the task of getting some "objective" meas-
ure of performance is staggering. The response has been for the
official conducting the audit to talk to representatives of the com-
pany in a number of communities to collect their judgments.
Several auditors are interested in ascertaining the true, as op-
posed to out-of-pocket, costs of the firms' social programs. One
reports success but is not revealing how this was accomplished. The
others have found that their present accounting systems do not
permit this. One is planning to change its accounting to make this
possible by breaking out data in new categories.
Another potentially interesting development lies in the intention
of one auditor to compare the decision processes and criteria of
managers of social programs. A management team has been as-
sembled to do a social audit. Those members of the team who are
responsible for social programs have been asked to "map" their
area of responsibility, to spell out their objectives, and the rationale
for their actions.

34
 To the extent that it is possible to generalize, then, we can say
that the company-sponsored social audits that are now underway
vary so greatly as to make the term itself extremely elastic; are
modest and exploratory; use a variety of yardsticks; and employ
methods which are relatively straightforward and undemanding.
There is a considerable tendency to focus on the status of em-
ployees. This, of course, is an area of long established concern and
is novel insomuch as it is now considered as part of a broader
"audit." We sense another difference from the past in that the
present concern over employee status has a stronger tone that the
firm owes the employees decent and pleasant work conditions and
fulfilling work.

Audits by Investors 8
In its registration statement, The Dreyfus Third Century Fund,
Inc. described its purpose as "investment in portfolio companies
which, in the opinion of Management, have demonstrated concern
for improving the quality of life in America."9 It described the
following areas of "the quality of life in America" as relevant:

Protection and improvement of the environment and the proper use

of the nation's natural resources, consumer and occupational safety,
product purity and its effect on the environment, equal employment
opportunity, the health, education and housing demands of America or
in other areas which help to improve the quality of life in the United
States.

This statement was followed by the acknowledgement "that there

are few accepted standards in this area of the Fund's objec-
tives .... "
By the spring of 1972, The Third Century Fund had selected 20
industries for analysis on the basis of, in the words of one of its
officers, "time available, probability of investment, and what we
can learn by looking at that industry." The companies in these
industries were being studied by a team of 6 analysts who were
collecting data directly from the companies via interviews with
company personnel.
One infers that the long-standing relationship of the several funds
of the parent Dreyfus Corporation to such companies coupled with
8 One source (The Corporate Information Center) reported that, as of
February 1972, there were 14 mutual funds devoted to socially responsible
investment. We have concentrated on the two that were most visible at the
end of 1971.
• Registration Statement Form S5, The Dreyfus Third Century Fund, Inc.,
filed with the Securities and Exchange Commission on May 7, 1971.

35
the obvious fact that it is in their economic self-interest to get on
the "good list," gives the Third Century Fund leverage on getting
cooperation from such companies beyond that available to most
outside auditors. The evidence is that Third Century is, in fact,
more successful than most in their endeavors. It should be noted,
for example, that in the area of minority employment the Third
Century Fund asks for-and often receives-the company's
"EEO-1" report which is filed with the Equal Employment Opportu-
nities Commission. This report is ordinarily not available to the
public; the Commission reports its findings periodically but only on
an aggregated industry basis.
While the initial list of issues affecting the quality of life was
quite long and open-ended, the Fund is concentrating in its initial
cut on 4 areas; equality of employment opportunity, ecology, prod-
uct purity and safety, and occupational health and safety. Because
of the competitive position of the Fund, its precise methods are
confidential. However, it is developing what it regards as a fairly
complex weighting scheme together with a computer program for
evaluating companies. Each company will be compared on a rela-
tive basis within its own industry, a standard of comparison that
other "auditors" have also come to.
A novel and interesting aspect of the Fund's auditing is that they
are paying attention to the corporation's procedures for reviewing
the performance of the head of each operating division. A review
which judges him solely on financial contribution does not pass
their muster; his performance in areas of social concerns must also
be considered.
Certain decisions that the Fund's officers have made are of in-
terest. For instance, mere hiring of minority group members is only
one aspect of a company's performance that is examined. What is
of special interest is whether or not they are bringing minority
group members into management. Good labor relations are not
considered since it is assumed that this is an accepted standard of
performance for modern firms. Corporate contributions are rated
of low importance since "what a company does inside is more
important than its charity." More controversial issues such as in-
vestment in South Africa are being passed over for the moment.
In its "Preliminary Prospectus" the Social Dimensions Fund, Inc.,
another such effort, stated its "dual objective" as;

... to seek capital appreciation while limiting investments to those

companies which are responding to the changing social dimensions of

36
the times. A company may exhibit its response to these social dimensions
through its products or services, its marketing methods or its manner
of conducting its daily corporate life.

Under the heading "Research Policies," the prospectus announced

that the Fund "has entered into an agreement with the Council on
Economic Priorities" to "produce information relating to the be-
havior of corporations and industries on matters of social respon-
sibility." It described the Council as "presently concentrating on
four major areas: minority and employment [sic 1, impact on the
environment, defense and military production and foreign invest-
ment."
This statement is an accurate reflection of the Council's con-
cerns. However, this listing of issue areas does not correspond
exactly to those mentioned by Mr. Ralph Quintar, President of the
Social Dimensions Fund, when we interviewed him in November
1971. At that time he mentioned his concern with the following
dimensions of social performance: consumerism-covering per-
haps a half-dozen areas such as nutrition, labeling, packaging, and
so on; minority employment, training, and advancement; minority
relations such as deposits in black banks, a black on the board,
black dealers and suppliers, or sponsorship of a Mesbic program
in minority entrepreneurship; community involvement in the form
of making grants or loaning people to community programs; pollu-
tion control; employee safety and other working conditions; em-
ployee benefits; and corporate giving. He placed little emphasis on
the then popular issue of investment in South Africa, and did not
mention defense contracting.
With a staff somewhat smaller than that of the Third Century
Fund, Mr. Quintar is building a data bank on the Fortune 500. This
data bank will produce "a social summary of a corporation." Mr.
Quintar thinks "the profile will always be qualitative"-a contrast
to the Dreyfus computerized weighting scheme. His methods are
more eclectic than those of the Dreyfus group. In addition to his
Fund's affiliation with the Council on Economic Priorities, he has
also developed a network of knowledgeable informants on the
social performance of business and industry. Finally, he, too, is
going directly to the companies for information, most particularly
on minority policies. He, too, seeks out the EEO-1 report. Unlike
Dreyfus, however, he is not having a great deal of success in this
effort.
In his priority of values, minority hiring, training, and advance-
ment take first place. On other social issues (pollution, for ex-

37
ample) circumstances vary widely from industry to industry, he
feels, that the minority issue, which cuts across industries evenly,
is the single yardstick that should enjoy a veto power. (One might
want to adjust this judgment by region.)
While the two funds, with essentially the same objectives, have
differences in their operations, both have come rather firmly to
two quite interesting conclusions. The first is that the quality of
a company's social performance tends to be uniform across the
board. Representatives of both funds affirm that they do not find
anomalies of a firm performing well on one or more dimensions
but poorly on others-at least for the dimensions they have
chosen. This conclusion, we shall see, will not hold up as the
range of criteria is extended.
More surprising, the representatives of both funds strongly reject
the notion that there is a trade-off between social responsibility
and profitability-again, at least as they define social responsi-
bility. This is contrary to the public view of the funds as portrayed
in the press as offering the socially responsible investor who is will-
ing to forego some profits a place to put his money.
However, it would appear that in the course of their investiga-
tions the officers of both funds are finding that socially responsible
companies are also more profitable than average. Supporting
evidence in at least one area comes from an analysis done by
Joseph Bragdon of H. C. Wainwright and Co., and Professor John
Marlin of N.Y.U. [1972]. Using the data of the Council on Eco-
nomic Priorities on pollution in the paper industries, Bragdon and
Marlin established a strong correlation between good environmental
performance according to paper industry standards and profit
performance.
The officers of both funds have come to the conclusion that the
socially responsible company tends to be one with management
whose competence is across the board. As one man put it: "Smart
is smart is smart." It should be pOinted out that neither fund be-
lieves that social responsibility is such a perfect predictor of per-
formance that it should be made the basis for the final investment
decision. In the case of both firms, getting good marks on social
responsibility merely puts a company on the list of eligibles from
which later investment decisions will be made in terms of the
financial attractiveness of the various firms on the eligible list.
Nevertheless, both are optimistic about the investment potential
of the lists which they are preparing. Both deny that they will be

38
marketing to prospective investors who are willing to give up
profits in order to be socially responsible.
Some light is thrown on this conclusion by the fact that both
firms have excluded investment in such countries as South Africa
as one of their criteria of social responsibility. When this criterion
was applied to the portfolio of Princeton University, it was found
that exclusion of companies doing business in South Africa would
lower the rate of return of the portfolio by 3 per cent [Malkiel
and Quandt, 1971]. Companies that would have been eliminated
included Polaroid, IBM, and Xerox which, by other criteria, have a
reputation for being socially responsible. Clearly the answer one
gets can depend on the criteria he uses.
This issue of the relationship of social responsibility-and of
what types-to quality of management and financial performance
is one that obviously needs further exploration.

Public Interest Auditors

The Corporate Information Center of the National Council of
Churches is one of the public interest organizations that have
sprung up recently. For two years before its founding there was a
committee whose purpose was to accumulate and disseminate in-
formation on corporate responsibility in five areas: the environ-
ment; consumer health, welfare and safety; foreign investment;
military procurement and production; minorities and women.
The Center sees its role not so much in gathering original data
on corporations but in synthesizing the work done by others in
individual areas of social concern. An example of its activities is
its October 1971 volume, Corporate Responsibility and Religious
Institutions. This is a collection of papers on social responsibility,
together with an extensive bibliography and list of people and
institutions concerned with the topic. It will have access to a data
bank that is being compiled to provide computerized retrieval of
literature on the environment, urban and public affairs, and con-
sumer affairs. They have, however, made some original attempts
at data gathering, having surveyed some 60 companies in church
investment portfolios. They have received about a 50 per cent
return.
Though churches may choose not to invest in corporations that
are using policies of which they do not approve, the Center does
not believe this is a very effective instrument for changing corporate
behavior because of the relatively small size of church investments.

39
Rather, the Center proposes to use moral suasion by getting the
churches and affiliated groups to try to influence corporations di-
rectly, and by influencing the investment policies of larger investors
such as the foundations, mutual funds, and the investment com-
munity at large-at least a scattering of which are displaying
interest in "socially responsible investment." In addition, they
are well aware of the impact of public bad-mouthing, as we have
noted in the first chapter.
During 1971, the press gave a good deal of attention to another
public interest auditor, The Council on Economic Priorities. The
Council was founded by Alice Tepper (now Alice Tepper Marlin)
and dates back to the time when Miss Tepper, working as an invest-
ment analyst three years out of college, was approached by one of
the firm's accounts, a synagogue, which asked her to put together
a peace portfolio. While its original intention was to provide data
for the guidance of investors, the Council seems to have had its
main impact via the media, and the consequent use of their findings
by groups attempting to influence corporations directly.
The areas of concern for the Council are: minority hiring and
training, and help to the minority community; the environment;
military contracting; impact of corporations on countries abroad;
and the political area (where they have not as yet done any work).
The Council is deliberately not considering such issues as con-
sumerism and job safety which it believes are being handled ade-
quately by others.
The most prominent products of the Council to date are its
journal, "Economic Priorities Report" which appears every two
months, a book Efficiency in Death [1970], and its monographic
publication Paper Profits, a detailed study of pollution in the paper
industry on a company-by-company and plant-by-plant basis. In
process at the end of 1971 were studies of pollution in the steel
industry and in utilities, minority group practices in banks, and a
Guide to Corporations, evaluating 45 corporations across the board.
The council regards the latter effort, though helpful, relatively
superficial compared to the rigorous standards they have established
for their industry pollution studies.
Methods of data collection vary by area. Military contracting,
for example, is studied by plowing laboriously through Pentagon
documents. In their major fields of interest-minority problems
and the environment-data are gathered directly from companies
via questionnaires administered to those closest to the problem. In
the case of environmental pollution technical people are utilized;

40
the head of urban and public affairs and of the EEO program is
consulted on minority policies. These questionnaire findings are
supplemented with other ad hoc sources of information. For ex-
ample, in the case of minority employment, black "headhunters"
are consulted on the reputations of firms, and the EEO-1 report,
where available, is analyzed.
In the instance of environmental pollution, where the Council
has made its major effort, it is proudest of its methods. According
to officers of the Council they begin by consulting the best Federal,
state, and corporate sources as well as independent technical ex-
perts on the state of the art of pollution control specific to the
industry to be studied. On the basis of this technical information,
very detailed questionnaires are prepared for administration to
appropriate company personnel. In addition, extensive interviews
are conducted.
One may wonder, considering the reluctance of companies doing
their own audits to make their findings public, how warmly firms
welcome such public interest inquiries. The answer is, imperfectly.
However, the Council reports that cooperation is improving, par-
ticularly as the press calls attention to companies who are reluctant
to assist. The irony of cooperativeness in the paper industry is that
it did not correlate with the Council's rating of companies' per-
formance. Many companies in the industry simply did not know
where they stood relative to their competitors.
As with other auditors, the Council recognizes that problems and
issues of social responsibility are industry specific, and it empha-
sizes that it is attempting to locate the good guys as well as the
bad guys within each industry.
The Council has established a goal of updating its studies on a
yearly basis. Considering the number of industries the Council
might consider, and the number of issues with which it is con-
cerned, one must question the workload it is cutting out for itself,
as well as the applicability of the criteria it is using in all the areas
of concern. At present it is operating on somewhat tenuous financ-
ing, relying on the services of highly dedicated young people who
are willing to work for less than their talents would net for them
elsewhere.
Finally, we turn to the relationship of the Council's work to the
finding of the two mutual funds that social responsibility is a rather
homogeneous phenomenon. The Council's preliminary findings
indicate that, on the issues of minority and pollution policies, com-
panies tend to perform either well or poorly on both. But these

41
issues, they believe, have little relationship to performance on more
ideological topics such as military contracting. One would expect
the same lack of correlation with investment in countries such as
South Africa. Clearly there appear to be two separate packages of
issues of social concern involved in the judgments being made of
American corporations, and the packages bear little or no relation-
ship to each other.

Summary
As heterogeneous and partial as these findings may be, they do
testify to the fact that programmatic proposals for social auditing
of business firms have resulted or been paralleled by some attempts
to give substance to the notion. In most cases these must be re-
garded as attempts in process. Some might fail; others might
produce some surprising results. Probably the Council on Economic
Priorities, of the institutions we have covered, has produced the
most concrete outputs, but it is held together by the extraordinary
dedication of its members and by slender financing.
The variety of criteria and approaches which have been applied
do not stem from some sort of pluralistic ignorance. Persons who
are doing things differently are often in close communication with
each other, and sometimes the same individual has done different
things in different situations. The variations seem to come from
differences in personal preference and style as well as from attempts
to adapt to the needs and resources of specific situations. The result
is that we are confronted with a variety of versions of what a social
audit can be, how it can be done, and for what purposes. All this
reflects the fact that, as a society, we do not yet have a generally
accepted set of definitions of just what constitutes social responsi-
bility. These experiences thus provide the potential for learning
about and understanding what may be a new social institution in
its inception.
Considering the ad hoc way in which these several efforts have
evolved, one must assume that they do not give us a full scheme of
what a social audit may be. And, considering their pioneering na-
ture, one must further assume that they do not touch on the full
range of conceptual and methodological problems that will evolve.
We shall try to anticipate what these potentials may be in the next
chapter.

42
"he Future of Corporate Social Audits

In this section we speculate on what form or forms the concept

of corporate social audits may take in the future. Our goal is not to
prescribe or predict a single form of audit. This is premature. We
assume that if the concept has a future, its form or forms will evolve
largely out of the experience of people and institutions in doing
audits, out of reactions of others to those audits, and out of the
mores of the community as the audits develop.
We should note that some experienced and wise observers raise
grave doubts that this kind of auditing is possible at all. In their
view, we do not yet have either the language or the tools to do it, at
least as it is currently being discussed. In a degree, this chapter is
an exploration of that very question.
The discussion will be organized around the uses to which an
audit might be put, the information needs implied by those uses,
and the problems involved in getting and using such information.
In the course of this exploration it will become evident that there
are many types of general knowledge about auditing, social re-
sponsibility, and the behavior and thinking of executives that we
need to have in order to understand the full implications of social
auditing. We shall not try to be comprehensive because compre-
hensiveness would imply at least that one knew the boundaries

43
of the problem and, as we observe the experience of others and
contemplate the problems involved in social auditing, the bound-
aries keep expanding and their locations keep changing.
Regardless of who does them, audits may have three basic con-
sequences: to influence decision making and actions within the
firm; to influence investment decisions; and to inform the public,
who in turn may either attempt to influence investment decisions or
to influence corporate behavior through government action or in
other ways.
As we have already seen, audits may be and are being undertaken
by three different types of entities: businesses auditing themselves,
investors auditing businesses, and public interest groups auditing
businesses. While the three different entities have different interests
and viewpoints, almost all of the problems and possibilities of social
audits are revealed when one considers the possibilities of business
self-audits. Two obvious differences stand out: first, outside audi-
tors may have difficulty getting access to information that is inter-
nal to to the firms they are auditing; second, business firms may
have trouble getting credibility for what they report. While business
firms may want for internal decision making some data the "out-
side auditors" might not be interested in, and while firms might
wish to ignore some matters the outside auditors are interested in,
the latter have the capacity to encourage firms to pay attention to
these matters. Hence, a fully extended internal audit for the firm
ought to be at least as extensive as an outside audit (noting, of
course, the internal difficulties we mentioned earlier). In addition,
as we shall immediately demonstrate, it is clearly in the interest of
a corporation to undertake such a self-audit. Accordingly, we will
simplify matters by concentrating on business self-audits, and treat
investor and public interest audits residually as is necessary.
To start with, the various potential users will find different uses
for the different types of audits a corporation might undertake.
Audits conducted by corporations and kept private will presumably
be designed specially for internal decision making and, to the ex-
tent that they are kept private, will be of no use to investors or
social critics. Furthermore, they will correspond to the values of
corporate leadership. Those audits done by the corporation for
public reporting will presumably be designed to mesh with the
definitions of social responsibility held by the investing community
and social critics. (Since social critics probably will be continuously
raising new issues, there will be some lag in public corporate social
reporting.) These two groups, of course, will often disagree with

44
each other, and with the corporate leadership. Corporate auditors,
for example, and investors may dispute the relevance of some
issues raised by social critics-say, doing business with South
Africa. Thus corporate-conducted audits intended for public re-
porting may not, probably would not, contain all the information
that the corporation would want for internal decision making.
Hence, taken alone, they would be somewhat weak for the latter
purpose. By the same token, those conducted for internal decision-
making may not contain all that the critics and/or investors might
want, or in the way they might want it.
Investor-conducted audits will by definition be tailored to suit
the needs of the investment community. Since the social critics are
likely to be concerned with a wider and shifting range of issues
than the investment community might consider, investor audits
may not serve the entire range of interests of the social critics.
Investor audits, assuming they are made public, may reach the
corporation a little late-after the corporation has been judged on
the first round. And they may miss items in which the company is
interested.
Audits carried out by public interest groups would in turn be
designed to fill their needs. Since they are likely to cover at least
as wide a range of issues as the investors are interested in, they are
likely to serve the purposes of this latter group. This pattern might
break down, however, if corporate or investor audits are well
developed and the public interest groups decide to concentrate
their attention on new issues or selectively attend to special issues
on which they would raise higher standards than would the other
groups. In addition, there is almost inevitably an element of
"crusading" in such endeavors which may taint their credibility
for the investor, the corporate management, or both. Finally, pub-
lic interest audits, like investor audits, will probably reach the
corporation late-after the corporation has been judged.
The above pattern suggests at least one thing: corporations have
an interest in making their own audits before they are audited by
others-a not too surprising conclusion. (We should observe here
that the very fact they audit themselves is a real plus in terms of
a firm's relations with social pressure groups; such corporate self-
scrutiny, if done honestly, is a prime objective of their efforts.)

Business Self-Audits
Business self-audits may be done either to inform investors and
the general public of the social performance of the firm or to guide

45
 the actions of the firm. While the information needs for these two
broad purposes overlap considerably, there are, as we shall see,
circumstances under which they may vary. At least some versions
of what an audit might require in the way of information for
guidance of internal corporate decisions would present broader
demands than would audits for public consumption. Conversely,
in some respects the information demands for public reporting will
be more exacting. Because audits for internal reasons are likely to
precede public audits in time, we will consider them first.
A word should be said about what may be perceived in the tone
of the passages which follow. Without our intending it, they may
sound negative, and thus align us with those who say "it can't be
done." If so, the reader has misread us. It is true we devote a good
deal of attention to the difficulties of doing many things. This is
simply because our strategy is to explore the logical idealized ex-
tension that might be implied by different versions of a corporate
social audit. It is not often in this world that we attain the ideal.
But the ideal is often worth exploring because it helps us be wiser
in the compromises we adopt. And, since in our judgment there
are some useful steps that can now be taken within the state of
the art, we would urge the reader to be patient.
Another circumstance that contributes to the tone of the passages
that follow is the fact that we have been diligent in pursuing im-
plications beyond those that are immediately obvious.
In the early stages of the development of a concept such as the
corporate social audit one moves from rather abstract program-
matic statements to the grubby problem of making them opera-
tional. We are content neither with those who say blithely that "it
must be done so it can be done," and stop there; nor with those who
would limit the discussion to the problems of measuring and
evaluating organizations, or the willingness or unwillingness of
the people involved to do so. The worlds of programmatic state-
ments and of practical operations are quite different, involving
real and complex difficulties.
Further, the early stages of a developing concept are different
than the later. What is foggy today may seem misty tomorrow,
and clear on the day after, and vice versa. We are, then, seeking to
push the investigation beyond the concept to the implementation
and, hopefully, work our way through the fog at least to the mist.
AUDITING FOR INTERNAL DECISIONS. As we have noted, the logic
of the social audit in its most elaborate form is exposed when we
look at it from the point of view of corporate internal decision

46
making. Here we can identify four (potential) reasons for doing
audits that any given person may have in any combination. In in-
creasing order of their difficulty, they are: to satisfy the conscience
of corporate officers; to anticipate and avoid community (including
employee, stockholder, and government) pressure; to solve social
problems; to increase long-range profits. Let us look at each one in
turn.
Satisfying the Corporate Conscience While satisfying his own
conscience may not be the sole motive for an executive wanting a
social audit, it is bound to be a component of any man's thinking
on this issue. The basic question he asks is whether he can justify
his and his firm's performance in terms of his own self-image? Or,
if he anticipates answering to the public, he will ask (probably
implicitly) what sort of information he needs in order to feel com-
fortable defending the actions of his firm. An audit designed to
serve this need focuses on the level of effort. "Are we doing all that
can reasonably be expected of us?" Even though he may be subject
to criticism, he should be able to justify the existing state of affairs
to himself and others.
An audit for a businessman who wants to satisfy himself and
his definition of the corporate conscience will consist of an inven-
tory of what he is doing, of what others are doing, of what the law
requires, and of what has been proposed as possible. It is then up
to him to make up his mind. (Things get stickier if he begins to
ask whether or not his programs are effective, and whether they
meet the real needs of the community. We would argue that when
he does that he is going beyond trying to satisfy his own conscience.
We will take that up later. )
An inventory of what the firm is doing mayor may not be readily
available. In large complex firms, socially relevant activities may
be widely dispersed and it may be necessary to make an internal
survey in order to assemble information for executive consideration.
This could present difficulties. We will not know for sure until a
few fairly large and complex firms report their experiences on this
matter, but our strong suspicion, from what we have seen thus far,
is that the internal survey will be very complicated in terms of both
definition and data collection. Such knowledge, which to an out-
sider seems easy to attain, frequently is difficult to trace as we have
mentioned earlier. For example, a firm with plants in a hundred or
more communities will have a considerable task enumerating all the
community activities of its executives.
A problem may lie in deciding where to draw the line on what

47
 to consider as "socially relevant." An individual businessman, for
example, may be sensitive to the possibility of sharp marketing
practices, poor product safety and the like, but not as interested in
minority matters. In our construct of the purpose of the audit we
are here describing, this is exactly where a man's own conscience
comes in.
The yardsticks, then, are determined by the auditor's own value
system. But assessing "level of effort" may be quite another matter.
One route is to look at the dollar cost of the firm's socially respon-
sible actions. We have already seen the difficulties the Bank of
America has reported in this regard. While out-of-pocket costs may
be readily available, arriving at the "true costs" is likely to be much
more difficult. What amount of executive time has gone into the
administration of the programs? Should a portion of the top execu-
tives' time spent on thinking about the dealing with social respon-
sibility be allocated? Should the "opportunity costs"-the return on
this money that might have been realized invested in the firm's
regular business-be considered? It is obvious that any attempt to
assess true costs will result in a range of estimates, each justifiable
by some reasonable rationale. Probably the wisest course of action
is to have the firm's accountants present the full range of costs for
the corporate officers to consider until the officers decide which is
most useful and viable-or, perhaps, which one simply satisfices.
Here we need some developmental work by the accounting pro-
fession and their kin to instruct us as to what is possible and desir-
able, and so that outside "auditors" to whom the data might be
reported would know the meaning of the several arbitrary conven-
tions that may emerge.
Knowing what he is doing in terms of activities and funds
committed, the businessman must then make his own evaluation
of whether or not he is satisfied. This will be largely affected by
his knowledge of what others are doing, what he thinks is possible,
what he believes is acceptable, his own goals, and what is required
of him. There are data on corporate giving, frequently broken
down by industry, though the reporting of them will prove unsatis-
factory in many ways for comparative purposes. There are the
"grapevine" reports within a particular community which can and
do serve as guidelines. On minority and female employment, there
is the EEOC's aggregate reporting; on pollution, the Council on
Economic Priorities is developing norms on pollution control for
some industries. There are laws for product and employee safety,
and so on. There are records of court and administrative agency

48
actions on many business practices. In some instances there are
norms for industry performance on employee safety. However, such
knowledge is likely to be unevenly available on all the issues for
which an executive may want to judge his behavior.
Further, if a particular top manager wants to include such cur-
rently attractive concepts as "quality of life within the firm," he
will find that comparative measurements will be very difficult. As
part of the development of the technology of social audits we need
a review of the norms presently available against which to judge
social performance. The possibility of developing new appropriate
norms should be explored where relevant.
In judging his level of effort, the top manager is likely to test
that evaluation by some conception of what the business can
"afford." Will this be what he is accustomed to? What others spend?
What he thinks he can justify to the stockholders? What will
appear acceptable to the community? What he feels "in his heart is
right"? Or is it some "rational" economic cost of the effect of these
expenditures on the growth of the firm? It is probably not the last
of these.
Generally speaking, the problems of making an audit for pur-
poses of satisfying the corporate social conscience are not so dif-
ficult if one does not set too high a level of aspiration, is willing to
exercise judgment freely, and is content with rough data in many
areas. The key to this type of audit is that the executive-or the
top management group-be satisfied that he is living up to his own
self-image. If this is his major concern he will probably be willing
to live with imprecise cost and other data and accept the uneven-
ness of the quality of the norms by which he judges the corpora-
tion's behavior. The uncertainties associated with this evaluation
are no greater than those involved in most of the regular business
decisions he has to make.
This is the least demanding type of corporate social audit. The
criterion of success is whether or not the executive (and his asso-
ciates) is (are) satisfied in their own mind (s ). Logically, this type
of audit could be anything from a contemplative reassessment of
what he already knows, through extended discussion with his fellow
executives, through the more extended type of activity we have
indicated here, to a massively ambitious attempt. Since it is his own
conscience or sense of ease that determines whether the executive
feels he can defend his firm's behavior, it should also determine
how extensive the information has to be to make this judgment.
The size of the job is proportionate to the size of the conscience.

49
 One might object that minimal efforts such as some of those
suggested above scarcely qualify as an audit. We introduced them
to underscore the point that there is no presently fixed notion of
what a social audit is and, if the adequacy of an audit is to be
judged by whether or not it served its purpose, then navel gazing
cannot per se be ruled out. This, in turn, underscores the further
point that the question of whether a social audit is "possible" is
now unanswerable because the term is still so undefined. We have
described here a version of an audit that at a minimal level is
clearly attainable. We will later describe some versions that we
deem unattainable.
However, we assume that a pure case of the above will seldom
exist. What a man expects of himself will be largely conditioned
by what others expect of him and by the temper of the times in
which he lives. "Even judges and Congressmen and regulators are
caught up in today's American Revolution," said one top govern-
ment official recently. Furthermore few men will be satisfied to
be "trying hard" without wanting some assurance that they are
actually accomplishing something. While satisfying the conscience
may be a component of every executive's motivation, it is unlikely
to exist in isolation.
Anticipating and Avoiding Pressure Firms whose motive is
simply to stay out of trouble should be taken lightly only if this is
their sole purpose. After all, Ralph Nader's main objective, laid out
explicitly in Unsafe at Any Speed, is to make corporations respon-
sive. One can hardly attack them for "doing things just to stay out
of trouble," if responsiveness is the ultimate objective, because that
is precisely the characteristic they are displaying: responding to
community demands and pressures. Even the most socially con-
scious of firms ought to exhibit this concern. Experience shows
that there is no necessarily perfect fit between the most well inten-
tioned of corporate actions and the expectations of other interested
and affected parties. This is particularly true in an era in which
the expectations of corporate responsibility are in a constant state
of change.
The reader may well ask how these concerns fit into the concept
of a corporate social audit. The answer lies in the notion of match-
ing what one is doing with what is expected of him. Clearly this
is one relevant criterion-some would even say the most valid-
for evaluating a corporation's social responsibility whether for
public reporting or internal decision making because it means that

50
a company is setting its values and actions in terms of the com-
munity's needs and concerns.
To the extent that the businessman wants to anticipate and
avoid pressure from the outside community, employees, stockhold-
ers, customers, and the government, he needs information beyond
that needed to satisfy his conscience and a higher degree of credi-
bility and precision in the data. An inventory of what he is doing
is essential. But he also needs information on the aspirations and
perceived needs of these groups, on what they expect him to do,
and on what they will support him for doing or attack him for
failing to do. He needs to know their ability to organize and bring
effective pressure to bear on him in the face of either inaction or
limited response on his part.
The sample survey can playa crucial role in supplying a big
part of this information. One can survey samples of the community,
employees, customers, and stockholders. This is standard practice
and the technology is well known. We have reported elsewhere one
activity that can serve as a partial prototype for such activities, the
survey that one of us did of the reaction of various Boston publics
to the Boston business community. Surveys of public and com-
munity reactions to corporations or the business community are
commonplace.
To understand the changing expectations of the community at
large, a firm may subscribe to one of the newer syndicated sample
survey services designed for this purpose. However, when it comes
to sampling the communities and employees of large multidivi-
sional companies operating in perhaps hundreds of communities,
the job may take on formidable dimensions. The problems may be
entirely different across divisions and across communities, and the
cost of sampling that many entities could be staggering. Perhaps
one needs an intelligence system to tell him which divisions and
which communities are potential sources of trouble or of high
diagnostiC value and which, therefore, ought to be surveyed.
Sample surveying would be an inefficient and inappropriate
method of anticipating and avoiding governmental pressure. In-
stead, good political intelligence can identify key people who
could be observed and interviewed.
While sample surveys of relevant constituencies can determine
their expectancies and preferences in the aggregate, this may not
be an adequate measure if one wants to anticipate and avoid
pressure. Aggregate opinion is not, at least in the short range, neces-

51
sarily effective opinion. Groups vary in the extent to which they
can organize and bring pressure to bear, and in the extent to which
particular issues are likely to mobilize action. If the executive
wants to allocate his resources efficiently he will want to know
which aggregate phenomena are likely to take the form of effective
pressure and gain the kind of public and press attention that makes
them viable. This is a matter for political and social analysis.
The man who wants to stay out of trouble will judge the fit be-
tween what he is doing and the enforceable demands that others
may make of him. If the fit is good, this form of audit shows that
he is doing well in this regard. If the fit is poor, he has a signal to
change his behavior.
All this, incidentally, rests on the premise that the cash register
is not the only ballot mechanism available and that reaction to cor-
porative behavior can and does come from sources other than
customers.
For purposes of public reporting the type of political and social
analysis suggested above is not needed and in fact might be inap-
propriate. Certainly the public will find the match between what
the company is doing and the expectations of its constituencies as
one relevant basis of evaluating the company's performance. The
public is less likely to be sympathetic to the idea that the company
is differentially responsive in proportion to the probability that a
constituent is likely to organize to bring pressure.
Just as we expected to find few pure conscience satisfiers, so do
we expect to find few pure trouble avoiders. However, we have
suggested here a module of a social audit which would help meet
the trouble-avoiding needs of a man whose total needs are more
complex. This module is a logical extension of what has generally
been proposed or tried-though not a drastic extension. As we
have reported, at least one of the firms presently conducting an
audit is contemplating carrying out one element of our module,
for example, surveying its stockholders to find the extent to which
they approve of present practices and might support an extension
of the company's SOcially responsible action. Surveys of employees
have been a routine matter and are a part of several proposed and
actual audits. Surveys of the general public and of particular com-
munities to learn their opinions about business in general and
about particular companies have-as we indicated-also been
routine.
We have merely suggested that some comprehensive auditing of
the expectations and opinions of a full range of a firm's constit-

52
uencies is a potential component of a corporate social audit. Gen-
erally speaking the technology is available, though the art of polit-
ical and social analysis is and will continue to be imperfect.
One can think of this environmental auditing component on
many levels of complexity and adequacy. It would be easy to extend
its ambitions to the point where it would be too expensive and
consume too much executive time and energy to meet the sensible
needs of even the largest of firms. On the other hand, one could
expect to find in any organization some rudimentary form of such
an early warning system, even though it may consist only of track-
ing stockholders' complaints to find when on a given issue they
have reached some experientially judged "critical point." Surveying
stockholders, if one is willing to live with the sample bias of a
mailed questionnaire, is inexpensive enough to be done by even a
rather small firm if it is sufficiently interested. Surveys of employees
are, of course, done and may be done on an almost infinitely vary-
ing scale of cost and adequacy. Generally, the decision to survey
the general public or specific communities involves the commitment
to a considerable outlay. This is almost always undertaken only
by very large firms, and even these studies seldom, in our knowl-
edge, go into the detail that might be implied by the above discus-
sion. The rank-and-file businessman is more likely to decide to rely
on a general perusal of published or syndicated public opinion
studies of what the public feels about and expects of business in
general. (Such syndicated services are becoming more generally
available. )
As for the suggestion of political and social intelligence and
analysis, the range of performance to which one might aspire is
again very broad, and the number of steps along the range almost
infinite.
In general, whether or not this particular module of a social
audit is possible depends more on the resources one is able or will-
ing or finds prudent to commit to it than on its technical feasibility
(granting the useful though limited inferences one may draw from
such information). To our almost certain knowledge, not even the
most gigantic of giant corporations has anything like an idealized
model of what such a system may be, and this may indeed be a
very wise judgment. But, as we have indicated, an infinite variety
of versions is possible.
Solving Social Problems We assume that the most frequent
answer we would get if we asked businessmen why they might want
to conduct a social audit of their firms is that they want to under-

53
stand (and/or communicate) what they are doing to contribute to
the solution of society's problems. Here we would like to explore
what the full information needs of such an audit might entail.
Again, we will go to extremes to see what the logical extension of
the position might be, and then see what fallbacks are available.
We will go to a further extreme and assume that a man has adopted
a policy, which some had advocated, of maximizing social con-
tribution while setting some minimal profit level as a constraint
(rather than attempting to maximize profits).
The difference between a man who wants to satisfy his con-
science and the man who wants to solve social problems is not
clear-cut. The two types blend into each other. The difference lies
in the relative emphasis that is placed on intending to do good as
compared to assuming the responsibility for doing good. The pure
conscience satisfyer will be content to do what are conventionally
considered to be "good things" or those that strike his particular
set of values. His information needs do not extend to knowing the
consequences of his actions, nor do they require an analysis of the
actual needs of the society to which he is being ostensibly respon-
sible. To the extent that he assumes responsibility for the conse-
quences of his actions and for meeting the needs of the society, his
information needs proliferate, probably beyond the state of the art
and beyond practical feasibility, and the judgments he must make
become increasingly difficult if not impossible.
To the extent that a man took literally the notion that he wanted
to tum his business to the solution of social problems, he would
need an inventory of the resources he can bring to bear on the
problems. Implicit is the notion that he would also know how 10
those resources could be brought to bear to solve those problems,
and the conviction that his resources can solve them. His judgment
of how well he is presently doing would be based on the effects of
his present programs as they were matched against what he might
achieve via some "optimum" matching of his resources to the
society's needs and priorities. Presumably this judgment would be
made in the context of some trade-off between social programs and
his regular business such that the latter should be sufficiently prof-
itable to remain in business. At any time, a firm will have the
option of considering new social programs. The probability of suc-
cess with such programs will have to be based on judgment. This
10The proposed ways of remedying many social problems are varied and
usually based on an imperfect knowledge of the social processes involved.
Any of the decisions we are talking about would depend on the businessman's
explicit or implicit model of these processes.

54
judgment will be aided by good diagnosis of the problem, assess-
ment of the firm's resources, and-where relevant-other firm
experience with similar programs.
It is unlikely that anyone would or could undertake the full job
of data gathering, analysis, and judgments implied by the above
formulation. However, any attempt deliberately to solve social prob-
lems implies some evaluation of this sort. The "optimizing" proce-
dures described above can be approximated in varying degrees.
A key consideration will be the measurement and assessment of
effects of existing programs. Socially responsible corporate actions
vary in their amenability to measurement and the degree to which
there is agreement on the criteria whereby they are to be judged.
Pollution control can be measured in terms of the level of efflu-
ence which is emitted. There is less agreement, however, on proper
performance levels or on the relative importance of different types
of effluence. To the extent that performance levels are legislated,
this ambiguity is eliminated. If the level is or is not legislated, is
the judgment to be made in absolute terms (zero pollution), in
terms of "acceptable" levels (what can we get away with? are we
conforming to the law?), in terms of economic feasibility, in terms
of industry performance? And how do you handle the trade-offs? If
rigid standards mean higher costs to the point where products are
out of the reach of the disadvantaged, is this a social good?
When one turns to employment policies, the problem appears
again. The regularly accepted measures are not unambiguous or
at least their assessment is not. The "success" of a program for
training the hard-core unemployed can be measured in terms of
numbers completing the course, being hired, and being retained
in the job. These measures will be more complete to the extent that
they can be compared with the success of similar programs on
similar populations (a difficult set of comparisons to run, inci-
dentally). However, if the program is judged in terms of the extent
to which it "solved" or contributed to the solution of a social prob-
lem the verdict may be dismal. Anyone company's contribution is
likely to affect a miniscule dimension of the problem unless it is a
very large company in a small community; and the second-order
consequences of its programs are usually highly unpredictable. For
example, are they simply "creaming" the minority community and
enabling (encouraging?) its leadership to move out either physi-
cally or psychologically, leaving behind only destructive models for
the young to emulate? Some observers say so.
There are complications in evaluating minority advancement

55
within an organization. This is perhaps best illustrated by a recent
judgment of the Civil Rights Commission that the Federal govern-
ment discriminates against blacks in the upper ranks of the civil
service. It develops that a majority of the civil servants in those
ranks are members of such professions as law, medicine, and eco-
nomics. Is the fault that of the Federal government or that of the
professions which failed to recruit blacks to their ranks? To what
extent is the business firm responsible for the extent to which the
educational system has failed the black community? To what ex-
tent can it be expected to do something about it? And, on another
dimension, is it a "social good" to give its customers poorer service
or products (including its disadvantaged customers) as a result of
compensating for society's past failures?
But these are the easy ones: other social programs are much
more difficult to measure and assess. Xerox has released a sub-
stantial number of employees to work full time on social programs.
The input, the cost in salaries, and foregone opportunities for the
company, may be measureable. But, even if the performance of
the programs can be and is evaluated, can the contribution of the
Xerox employee be isolated from all of the other factors that con-
tributed to the program's performance? One convention might be
to allocate to the Xerox company that proportion of the perform-
ance that represents the ratio of Xerox's dollar contribution to the
total budget of the program. This makes the questionable assump-
tion that the man's performance on a social program is proportion-
ate to his value to Xerox in his regular job. The matter would be
different if Xerox had contributed his salary to the program. Then,
since a Xerox dollar is like any other dollar, Xerox's contribution
to the social benefits of the program would be proportionate to its
share of the total budget.
Corporate contributions-financial and other-can ordinarily
be measured only in terms of such intermediate effects as number
of people who received a given type of service. Few social programs
can document what the delivery of their programs did for the peo-
ple they benefit, never mind the comparative worth of other projects
in which the corporation might have involved itself.
Most types of programs are not only difficult but expensive to
evaluate. Educational and community development programs are
regularly being evaluated by the Federal and other governments.
Considering the magnitude of government investment in such
programs, even imperfect evaluations are worth the cost if they
can contribute to our understanding of how to implement such

56
programs. However, it is doubtful that any given company would
very often find it feasible to make an evaluation of their contribu-
tion to such a program in terms of its measurable effects.
These difficulties in measuring and assessing the ultimate con-
sequences of corporate socially responsible actions suggest that
process audits be employed in proportion to the difficulty and costs
of making the measurements and assessments we have been dis-
cussing. For the businessman who wants to assess his social pro-
gram, the observer would develop an analytic description of what
is actually being done (there are likely to be some surprises even
here) and a statement of what the best known practice is (let us
say training the hard-core unemployed). The businessman will
compare what he was doing against the best known practice and
judge whether the comparison warrants his changing his actions.
An instance in which a process audit is very likely to be pref-
erable to a performance audit would be in the assessment of a
bank's program in support of minority businesses. To keep things
simple we will confine our attention solely to the problem of
judging the program's contribution to the society. A more ambitious
goal might be to judge the contribution of the program to the
bank's long-range profits. However, if we find the simpler task
intractable, we are unlikely to undertake the more difficult one.
To begin with, an estimate of the bank's contribution to the
success of the minority businesses which its program supported
would have to be made in the context of an estimate of the prob-
ability of success of those businesses in the absence of any action
from the bank. This estimate would have to include a further
estimate of the probability of similar action by another bank in the
absence of its own action. Such a basis for judgment of the bank's
contribution is conceivable if it were possible to develop norms for
reasonably comparable businesses not in the bank's program. But,
at best, the development of such norms would be difficult and
expensive and, as we see, would be only one element in the audit
assessment.
Next, a decision that the program had helped any given busi-
ness, and to what extent, could be made only after some reason-
able time had elapsed, since an infusion of money and other
assistance is virtually guaranteed to sustain the life of any busi-
ness over the short haul.
One would, of course, want to know the true costs of the pro-
gram. This would involve the costs of administering the program,
including such technical assistance as would be given in support

57
of the loans. Additionally, one would need to know the "oppor-
tunity costs," that is, the difference between the return which the
bank would have received by using the money in its customary
ways minus the return on the loans made via this program-
assuming that the latter is less profitable than the bank's ordinary
business. Since the return from loans in the minority business pro-
gram would be a function of both the rate of interest charged and
the rate of default, one could calculate this return with accuracy
only after the program had been in existence long enough to know
the default rate. Early in the program, informed judgments could
be made with increasing confidence as the program began develop-
ing its track record.
Now we may turn to the task of measuring the program's social
contribution. In the discussions of minority entrepeneurship,
three objectives are usually cited: retention of earnings in the
minority community, provision of jobs for minority group mem-
bers, and-less often mentioned, but conceivably most important-
contribution to the development of a viable social structure in the
minority community. It is also arguable that if the business is a
service or retail business, as many minority enterprises are, it will
serve the community better either by giving its patrons better
goods and services or by lowering prices. This would constitute a
fourth objective. There is a considerable body of literature on the
feasibility of these objectives, particularly of the first two. A best
judgment is that the first two objectives, though possible and
desirable, would under the most optimistic conditions contribute
only a small bit to the needs for money and jobs in the minority
community,11 Hence the third and fourth objectives must be given
serious consideration.
The retention of earnings in the minority community can be
calculated initially by noting the profits earned by the firms in the
program. However, since these profits are earned presumably in
competition with other business firms, at least an informed judg-
ment must be made as to where these profits were deflected from
and/or if there is any social cost in this deflection of profits.
The number of jobs created may seem to be a straightforward
matter. But a simple tabulation of the number of persons em-
ployed by minority enterprises does not answer the question com-
pletely unless it considers the number of minority group members
who would have been hired by nonminority businesses under

11Dr. Andrew Brimmer of the Federal Reserve Board has written widely to
this point.

58
alternate circumstances (for example, if a chain store in the ghetto
were owned by whites rather than blacks). One might want to
make some adjustment for some gain in morale that blacks might
experience by working for a black employer.
Apropos improvements in the social structure of minority com-
munities, there is no obvious and easy way to measure such a
phenomenon, though various behavioral science concepts, meas-
ures, and techniques could be brought to bear on the task.1 2
But, improvement in social structure is an intermediate benefit,
which is relevant only if it results in an increased ability of the
members of the community to help each other, provide role models
for young people growing up in the community, reduce social
pathologies, and the like. Data on many such matters are often
available, but with such data in hand one would have to decide
over what area the bank's program might have an effect (which
may be possible), and then judge what portion of any improve-
ment to allocate to any particular program. There almost certainly
would be a long lead time between the inauguration of a lending
program and traceable social effects in the community.
Finally, one would want to know if the firms in this program
have produced a better or poorer product or service at lower or
higher prices than would have been available in their absence.
An elaborate assessment of the sort required above may be con-
ceivable at considerable cost, ingenuity, and effort. Such an under-
taking might be warranted for evaluating something as large as a
federal social program. It is scarcely possible that it would be jus-
tified for a single firm's effort.
At this point the reader may either be intrigued by the com-
plexityof the problem, irritated by our nitpicking, or both. We
have gone through this exercise, however, to illustrate the vast
difference between the easy verbalization "assess the true costs and
the social benefits" and the actual operations that may be implied
by this verbalization. If the reader thinks we have been needlessly
detailed, he is invited to inspect anyone of the steps we have pro-
posed and judge whether or not the dropping of it might not lead to
a misleading judgment.
12Indices of social health and pathology are, of course, affected by many
factors. By virtue of broad social forces a community may be going "up"
or "down." The contribution of any social program to a community should
be measured in terms of where the community is relative to where it would
have been in the absence of the program. If statistical series are available
for the community for a reasonable period of time (and one believes the
data), an extrapolation can be made from the time the program began to
estimate where it would have been in the absence of the program at the time
of the evaluation. This has seldom been done.

59
 Similarly, some might say we have chosen a type of program for
which it is especially difficult to measure social benefits, but we
would ask whether aid to a high school, renovation of an apart-
ment building, or establishment of a day-care center would be any
easier to evaluate. At any rate, we chose this deliberately to illus-
trate an instance in which one might want to settle for a process
audit rather than insist on a performance measure.
Here we may pause for a moment to consider the implications
of the use of the audit for internal and for external purposes.
Internally, the firm may want an estimate, however crude, of the
social contribution of its program and may rely on whatever data
that are available and on informed judgment, possibly of an outside
expert, on the various items we have enumerated or even some
crude approximation thereof. If the firm is seriously assessing its
programs, this judgment will assuredly be better than no informa-
tion at all. However, if that judgment alone were used in public
reporting, it might well be suspect as self-serving. Partial data,
while of aid for internal decision making, might mislead, or be
accused of misleading, the public.
Granted the above, the public might be served (and satisfied)
as well as is feasible (or necessary, as it perceives the term) by a
process audit that would include: a statement of the bank's per-
ception of the nature and causes of the problems of minority
businesses; a statement of the actions which might be taken to
remedy those problems together with a spelling out of the rationale;
a specification of the objectives of the program; enumeration of
the resources committed to the program; detailing of the specific
actions of the program together with an explication of how the
bank's program fits into the broader remedial picture referred to
above and a description of how they plan to evaluate it. The de-
tailing of the actions of the program would include such matters
as: loan policies in terms of interest charged and degree of accept-
able risk; criteria for selecting businesses to invest in and degree of
success in meeting those criteria; supporting activities such as
technical assistance to or training programs for minority business
owners, and the like. Partial performance measures such as num-
bers and volume of loans, ratio of successful to unsuccessful loans
(if there is a reportable track record) and so on, would be reported,
but not with the implication that such partial measures were a full
basis for judging the "social contribution" of the program.
With an audit of this sort, an outsider could compare the bank's
program with that of other banks in terms of level of effort and

60
degree of sophistication and evidence of a continuing commitment.
To the extent that the outsider had a competent knowledge of the
problems of minority businesses, he could judge the probability of
its success. A program that was at an appropriate level of effort
and conformed to the best understanding of the problem would by
definition be as good a program as could be mounted. Whether any
program could attain the stated objectives, and therefore whether
or not such a program should be undertaken at all, would be a
matter of further judgment.
In principle, the process audit, like many other things, seems
straightforward. It needs to be tried so that we may find out what
its complications are. Questions that occur are: which programs
ought to be audited primarily in terms of effects, and which pri-
marily in process terms, and how may this vary by circumstances?
Or can (and should) some projects be audited by both methods?
How may knowledge of "best practice" be built into audit teams?
To what extent is such knowledge necessary? This type of knowl-
edge is presently the province of individual specialists. Further-
more, in many instances there is likely to be little agreement on
best practice. Can the process description be sufficiently standard-
ized across firms and across practices so that meaningful com-
parisons can be made? Or can the credibility of a group of indi-
viduals be so generally accepted that their "findings" will be taken
as valid?
Incidentally, a meaningful question which falls out of the
orientation toward "solving social problems" as opposed to either
satisfying one's conscience or staying out of trouble is the extent
to which the businessman takes the initiative in selecting his tar-
get as compared to following general practice or responding to the
demands made on his particular firm. Certainly the popular con-
ception is that in the past he has taken this initiative in the area
of corporate giving. The legend has it that corporate giving is
largely affected by the charitable preferences of the sitting presi-
dent's wife. On a less frivolous level, it is quite obvious that some
corporations have shown general preferences for some types of
social programs where the choice has not been forced on them by
the demands of the environment-though these preferences may
often simply reflect the personal concerns of past chief executives
now frozen into tradition. Considering the extent to which indi-
vidual social programs of businesses have had varying success,
there seems little doubt that improvement can be made in match-
ing the firm's resources to the selection of social problems to be

61
tackled, and in designing better ways of meeting the chosen objec-
tive. Such an analysis should follow from the findings of a social
audit. However, this does suggest that one of the elements of the
audit ought to be an assessment of the wisdom of the choices the
firm has made in the objective it has pursued. This will involve
delving into the question of just how the decision to embark on the
program was made so that the rationale of that choice may be
compared to the rationale of other choices. By and large, the
evidence suggests that companies "fall into" these programs rather
than select them rationally from the hundreds of alternatives
presented to them.
Increased Long-Range Profits The final potential objective we
have attributed to the businessman's acceptance of social respon-
sibility is that he wants to increase profits. Certainly the most pre-
vailing stated justification for socially responsible actions is that
they "contribute to long-run profitability." In most instances this
is an exceedingly complicated calculation to make. In some in-
stances it is not. If the socially responsible action has been legis-
lated, and the penalties of violation (either direct or indirect) are
higher than the benefits of evasion, and the chances of enforce-
ment are sufficiently high, then the answer is clear. Or, certain
actions may be necessary to ensure survival in a community,
though operationally this may translate itself into a question of
how much community pressure the manager himself can person-
ally tolerate. If we assume that he or someone reasonably like him
is essential for running the firm, then we may further assume that
the response is necessary for the survival of the firm, and thereby
contributed to its long-range profitability.
Let us assume, however, that the purpose of a social audit is to
enable management to take steps that will increase the company's
profitability either by raising or lowering their investment in
socially responsible action and/or by choosing more "efficient"
social programs. Again, simple straightforward situations might
be found. One consulting firm found a company that was sub-
sidizing an athletic team to the tune of tens of thousands of dollars
annually without even the benefit of being identified with the team.
About half that sum would have made a considerable contribution
to cleaning up the town's water supply. However, such gross cases
are obviously not particularly interesting. We will first look at what
would be required to "optimize" profitability and then consider
some more modest objectives.
An audit designed to meet the objective of optimizing profit-

62
ability would have certain information needs that are easy to
specify. They are: the true costs of present programs, the dollar
contribution to profitability over some specified time period of each
of these programs; the true costs of alternate programs that might
be considered; and the dollar contribution of each of the alternate
programs. 1B In then making the calculation of the optimum pro-
gram package one would, of course, take into due consideration the
increased uncertainty of the estimates of costs and contributions
of as yet untried programs, together with the interactive effects of
all plausible packages.
The logic of the above passage is impeccable. Its operational
feasibility is at best dubious.
There are several ways in which a corporation's socially respon-
sible activities may contribute to its profitability. It is said that
social responsibility is a precondition for survival, if not of the
individual business firm, of the business system as a whole. It is also
argued that social responsibility makes it possible for a firm to at-
tract a superior type of employee. Social responsibility makes a firm
attractive to at least some investors. Social responsibility may at-
tract some customers to a firm's products or services. Finally, so-
cially responsible actions should contribute to making the local
community and the society at large a better place in which to do
business.
Informed judgments on all these potential contributions can be
made. And such judgments may be extremely valuable for internal
decision making. However, the question facing us at this point is
the extent to which such contributions can be expressed in terms
of dollar contribution to profits.
Certain of these contributions may in fact be converted into
reasonable dollar estimates. For example, a survey of consumers
might reveal what proportion were patronizing the firm's goods or
services because of its image for social responsibility.14 If, how-
ever, the firm's social programs added to the prices of its goods and
services, an estimate would also have to be made of the propor-
tion of potential customers who were lost because of this circum-
stance. The same might be done with investors. Such information,
which could reasonably well be converted into estimates of dollar

,. These parallel the requirement for "solving social problems" except here
our performance measure is "dollar contribution to profitability" rather than
"social contribution."
H If the experiences of black businesses which had counted on preferential
treatment from inner-city customers is any guide, this number is likely to be
painfully smalll

63
contribution to profits, would be rather expensive to come by if
precise sampling methods were used.
Except in extreme cases (e.g., a plant might be threatened with
being shut down because of violating a local ordinance, or be
closed down temporarily by picketing militants), it is difficult to
comprehend the full dimensions of "survival." While the dollar con-
sequences of failing to survive might be calculable if the time of
future demise were known, the contribution of anyone firm to the
survival of the American business system (one of the benefits that
presumably flows from social responsibility) would not.
With a good deal of work, it seems credible that one might be
able to estimate the dollar benefits accruing from recruiting supe-
rior employees. This might be complicated by the circumstance
that being "socially responsible" would include hiring employees for
whom at least the initial training period would be more expensive
than for other employees who might be hired-a figure that would
have to be balanced off against the higher profit performance the
company could expect from the improved caliber of its executive
recruits. But even without this complication, it strikes us that
measuring the increased corporate benefits achieved by hiring
Mr. P. B. Kappa as opposed to Mr. Gentleman's See could be a pretty
messy accounting problem.
Finally, we consider the dollar value of contributing to a more
viable community or society. We have previously seen how diffi-
cult it can be to measure the social contribution of at least some
of a firm's social programs. To convert such social contributions
into dollar contributions to the firm would be doubly difficult. There
can be no doubt that a firm profits by doing business in a prosperous
and healthy community and society. But, to trace the effects of its
own actions through the chain of social causality, except in the
simplest of situations, seems about as impossible as anything we
can imagine.
The full task of conducting a social audit for "optimizing" a
corporation's profit15 would be formidable and is not likely to be
undertaken in the near future by a well advised firm.

,. Such an audit would obviously be made in the first instance for internal
decision making. It is interesting to speculate on what the reaction would be
if the results were made public. Certainly there would be some attraction in
revealing them to stockholders and potential investors or lenders. Such an
effort would communicate the image of an enlightened and probably profitable
company. It is by no means certain that the general public would react
favorably. If the audit worked as it was intended, it would reveal such things
as a decision to shift funds from program A to program B because the latter
contributed more to the firm's long-range profits. Is this "social responsibility"?

64
 But, once more we have taken the task very literally and out-
lined the logical implications of what would be meant by conduct-
ing an audit to optimize a firm's long-range profits. The use of the
heroic term "optimize" ought always to be suspect in such contexts.
Few executives have the illusion that even their regular business
decisions are "optimal." If we set ourselves the more modest goal of
"improving" profitability, the task becomes somewhat more feasible.
But, since a firm might well choose to forego foreseeable profits
in the interests of some socially responsible policy, we propose that
the goal of making financially better advised decisions be em-
ployed. This goal is certainly attainable, and attainable at varying
levels of modesty or ambition.
Most firms probably cannot display even the out-of-pocket costs
of all of their activities that could fall under the rubric of social
responsiveness for the appropriate executives to contemplate. Few
firms know the true costs of their programs even approximately.
Probably many firms would benefit from a review of the decisions
to enter the programs they presently have ("how did we even get
into this?").
While we have taken a discouraging view of getting a definitive
measure of the social contribution of some (or most) types of so-
cially responsible programs, we have also pointed to the possibility
of partial measures and/or informed judgments. We have little
doubt that almost any firm would benefit from having available
for its officers' contemplation a more systematic display of partial
measures and informed judgments on the worth of its programs
both from the point of view of the society and the interests of the
firm. How far it should go with this is, in turn, a matter of judg-
ment as to what costs and efforts are justified at a particular time.
Added to the above, any knowledge of the expectations of various
publics and of their perceptions of what the firm is doing, would
aid executive decisions.
Auditing for Internal Decisions-Summarized The various
types of audits that might be conducted to serve various corporate
motives are in a sense cumulative. One could stop at various points
along the line. The audit to satisfy the executive's conscience is the
least demanding. By definition it is complete when his conscience
is satisfied. Whether the audit to anticipate and avoid pressure or
that for measuring one's social contribution should be next in line
is moot. But, it is clear that making financially better advised
decisions would benefit from the information of all of the preceding
types of audits. One might argue that a diligent attempt to improve

65
one's social contribution would include making financially wise
decisions. However, logically they are separable, particularly if one
includes the possibility that an executive might, if making a fi-
nancially better informed decision, decide to lower his social con-
tribution. We treated them separately for this reason, and also
because we wanted to explore the more ambitious possibility of
auditing to optimize long-range profits.
With the exception of the audit to satisfy the corporate con-
science, we found the logical extension of any of these audits (or
audit modules) to be demanding and expensive if indeed they are
possible at all-so much so that the logical extension would seldom
be pursued. But in each instance we also found that there are
many fall-back positions of varying degrees of adequacy. Consider-
ing that it is generally conceded that business decisions apropos
regular business matters could be almost universally improved, it
seems highly likely that any increased systematization of the
newer, more muddled area of decisions concerning socially re-
sponsive actions would be beneficial.
Since the auditing we have been discussing is intended for in-
ternal decision making, the degree of adequacy, the costs one is
willing to incur, and the extent to which one is content to rely on
various forms of judgment are appropriately up to the discretion of
the executives of the corporation.
There is, of course, no one answer as to what is the appropriate
level of effort except in the context of the situation of a particular
firm in a particular industry with a particular set of programs and
executives at a given level of development of the art of social audit-
ing. It can only be anticipated that individual firms that attempt
social auditing for internal decision making will go through a
period of trial and error in which they find certain procedures use-
ful, and certain levels of effort appropriate. The fact that one must
now, and perhaps forever, rely on approximations of the measures
we would like ideally, or on process descriptions in the absence of
output measures, need be cause for no concern at this stage. If
social auditing does in fact grow, we may expect it to parallel the
history of regular financial accounting in which imprecise meas-
ures were sorted out, and the surviving measures retained because
of their utility which, in turn, was enhanced through usage.
For various reasons not everything that might be used in audit-
ing for internal decision making would be appropriate for public
reporting. Whether the true costs of social programs should or will
be reported to stockholders is a matter that may evolve out of

66
negotiations (probably implicit) between the parties or out of cor-
porate officers' sense of their responsibilities to the stockholders.
Many of the judgments that officers may be willing to rely on for
their own decisions would not be accepted as adequate by the
public-though we suspect this is less true of the process audit.
Finally, as we have hinted (in footnote 14), information used and
decisions made to increase the financial wisdom of corporate social
policies might be of interest to stockholders, but might backfire
with the general public if, as is likely, the corporation's social con-
cerns were revealed as tempered at least in part by financial con-
siderations.
AUDITING FOR PUBLIC REPORTING. The most challenging of the
visions of the corporate social audit sees the day when business
firms will regularly report their performance in areas of social
responsibility as regularly as they do financial performance. This
vision is illustrated by the following passage from The Wall Street
Journal of December 9, 1971:

D. S. Langsdorf, senior vice president and comptroller of the Bank of

America, predicts that within three to five years annual reports will
be required to include data on a company's social outlays. Some
authorities foresee complete "social audits" of firms by outside con-
sultants within a decade, just as outside accountants conduct financial
audits today. Business and Society, a biweekly newsletter that reports
on corporate social involvement, predicts that eventually ratings of a
company's "social performance" will be as readily available as ratings
of its credit-worthiness.

The Journal itself hints at an even more ambitious objective

when it asks:

How, for instance, can a profit-and-Ioss statement be made to reflect

the good a company does by assigning some of its personnel to advising
minority businessmen struggling to succeed in a ghetto? How can the
installation of pollution-control devices at a factory be shown at the
bottom line as a positive accomplishment rather than a drain on pro-
ductivity?

The notion that somehow social performance will be integrated

with financial performance envisions that a baby which has not
yet started to crawl will some day run. We will look at the prospects
of its walking. We may at this point note that the baby has at least
begun to crawl inasmuch as quite a few corporations are presently
discussing their social programs in their annual reports, in their
advertising, and in special publications. Such reporting, however,

67
is by no means universal, nor is it comprehensive (in that it covers
the full range of issues in which the public is interested), nor is it
always credible, nor is it always interpretable even though it may
be believed.
We shall be able to say that public corporate social audits are a
fait accompli when such auditing is widespread, periodic, reason-
ably comprehensive (you can't please everybody), credible, and its
meaning is reasonably clear. This will depend on the degree to
which corporations are motivated to make their social record pub-
lic, how the data gathering and reporting are done, on the answers
to certain technical questions, and on the cost and effort of making
audits that will satisfy the requirements of the public. It also
depends on the coalescence of public attitudes around some gen-
erally accepted yardsticks.
A corporation may well be in a quandary as to whether or not
it wants to make its social record public. Most of those presently
attempting audits clearly want to evaluate the picture that emerges
before they decide to publicize it. However, this question may be the
one which is most easily resolved.
Corporations have not been particularly successful in hiding from
the public any key aspects of their social performance (costs are
another matter). Much is open to direct public scrutiny: composi-
tion of a sales force, pollution of air and water, military contracts,
sales or investments in South Africa, and so on. Beyond this,
public interest champions have succeeded in opening up a con-
siderable portion of material that the firms they have attacked wish
was not public. The Council on Economic Priorities seems to find
out most of what it seeks to find or successfully embarrasses the
firms that will not cooperate. And, in general, there is now a fair-
sized group of newsletters that publish information on corporate
social responsibility or irresponsibility as the editors define it.
Additionally, reporting requirements imposed by the government
might increase. As we have indicated, the SEC, in its ruling of
July 1971, compels firms offering new stock issues to revealif they
are under indictment for pollution or for employment discrimina-
tion, or if they have pollution problems that would involve con-
siderable capital expense to correct. The Equal Employment Oppor-
tunity Commission gets regular reports on the employment status
of women and minorities from government contractors and might
be persuaded to make these reports public. Finally, some percepti-
ble, though not precisely definable, portion of the investment com-
munity is interested in the social performance of the firms in which

68
it invests. (One cannot help but assume that those responsible for
many institutional portfolios, like universities and churches, tem-
per their choices by such concerns whether or not they explicitly
admit it.)
The idea that firms would or could resist disclosure for long is
not self-evident. Obviously the reluctance still exists and may per-
sist for some time. However, unless public concern diminishes or
the public interest "auditors" (including the less systematic one-
shot gadflys) somehow fall out of public favor or lose their zeal,
the motivation for and possibility of concealment will atrophy.
On the issue of how data should be gathered and reported, it
seems a reasonable guess that over the long run-if the corporate
social audit is taken seriously-there will be pressure for this task
to be undertaken or certified by outside auditors. (This may mean
auditors in the current sense of the term, or perhaps a group of
professionals in social programs. One can speculate, for example,
that the process audit might become the province of a new pro-
fession.) Already, too many people are circulating the story of the
anti-pollution ad that featured the picture of a river taken up-
stream from the polluting plant, or of the automobile company
that proclaimed that it was "voluntarily" complying with the
California state law. Nevertheless, one must not rule out the
possibility that audits self-done and self-reported will gain credi-
bility. This depends on how they are done and on what issues.
We cannot foresee how this balance will work out and, to a
large degree, it depends on the performance of business itself.
Most probably the first public audits will be made without such
outside certification. We must observe the response.
There are those who are skeptical that even independently cer-
tified public audits will be credible. They take this position on the
grounds that the information contained in them would be designed
more to influence the public than to reveal any true state of affairs.
One must assume that companies would not needlessly cast them-
selves in a bad light, and we may look at the parallel in financial
reporting, which is already known for its flexibility for represent-
ing a firm's financial status in a positive fashion. But the account-
ing profession is constantly striving, under the stimulus of public
pressure, to tighten up its standards for financial reporting, and the
important point is that the existing system which has evolved over
a long period of time, continues to be generally accepted despite its
imperfections. It is not too much to expect the same, ultimately, of
the social audit.

69
 If public corporate social auditing is to become a regular proc-
ess, we would of course expect the development of standards to be
evolutionary, and we would expect that evolution to take many
years. It will probably be argued that data pertaining to social per-
formance are less "hard" and therefore easier to fudge than are
financial data. But, it could be equally plausible to argue in return
that the evidence for social performance is more accessible to those
who dig for it than is financial data. And, of course, we have plenty
of evidence that there are those who are digging for it. As a result,
the presence of public interest auditors would be a source of pres-
sure for honesty in reporting, and a source of correction where
reporting was not honest. Considering these offsetting circum-
stances, it is not possible to say whether social auditing-in what-
ever shape it finally emerges-would shape up more or less rapidly
than financial auditing.
All this assumes, of course, that we can conquer the kinds of
problems cited in this chapter. The technical aspects of a publicly
reported social audit involve most of the complexities of one made
for internal decision making. It is, after all, the identical thicket.
But there is an additional consideration here which puts a strain
on many of the compromises a firm might make for internal use, a
strain we have hinted at in an earlier discussion of the internal
decision-making audit. We refer to the tricky question of what the
public wants reported and how much detail they require.
Take the question of the financial wisdom of specific social pro-
grams, for example. As we have suggested, the general public
would be least likely to demand or be interested in close calcula-
tions on this subject. The investing public, one could assume, will
react positively to the inclusions of at least some data. The evidence
from the Boston study we have cited would indicate that the gen-
eral public, while not caring about detail, would react positively to
evidence that the company had made such calculations. It would
strike them as being a serious, businesslike approach and, since
they assume (with approval, not cynicism) that a company will
ultimately act in its own self-interest, they would likely see in a
positive determination of the corporate benefits of Program A as
opposed to Program B a guarantee that the company will maintain
it and handle it seriously instead of casually.
The point is, though, that both the investing community and the
general public are likely to be satisfied with fairly minimal account-
ing along these lines. This means, in our view, that because this
type of auditing is most demanding, the task of the ultimate social

70
audit suggested by The Wall Street Journal-an integration of so-
cial and financial performance-is not likely to be addressed for
some time.
By the same token, if a firm does the sort of political and social
analysis we suggested as a possibility for anticipating and avoid-
ing pressure, it will presumably not wish to show it. But here again,
it is conveivable that the public will want evidence that it has sys-
tematically reviewed its constituent's concerns, both internal and
external, and adjusted its course accordingly. If that proves to be
the case, the corporation will be forced to-and maybe even find it
advantageous to-make its findings available.
There is another possibility: that the public will demand more
data than a company needs for its own purposes. In our previous
discussion we raised many technical problems, inherent in deter-
mining the true cost of existing programs, let alone in measuring
and evaluating their effects. Time after time, we pOinted to fall-
back positions, most often turning on the substitution of informed
judgment when data were not available, or the use of partial data
supported by judgment when complete data could not be developed.
Many of the compromises which one might willingly make for his
own decision making could fall short of what is required for
credible public reporting. One must guess that the public will
stress "objectivity" and "completeness" in what is reported to them.
At first glance, the probable public demand for more objective
and full reporting might seem to place an insuperable demand on
social auditing. We believe, however, that the public is likely to be
quite satisfied with measures of social performance which fall far
short of many of the idealized audits we have previously discussed.
For example, while the corporation may indeed want to know what
the true costs of corporate giving programs are, the public may well
only be interested in the out-of-pocket costs, since this is the meas-
ure of what is "given." The public is likely to want to know the
causes to which the corporation has given money, and those in
which it has involved itself, and to be content with evidence that
the corporation is making some kind of continuing effort to assess
whether or not these "causes" are effective in serving their avowed
purpose. It may well not require the evaluations themselves. After
all, the public will in all probability have made its own judgment
on this matter, a judgment that mayor may not correspond to
what a more sophisticated assessment would invoke. Moreover, in
many areas, the public will be content with a statement of what is
being done, as contrasted to what is being accomplished (e.g.,

71
mortgage loans in the ghetto). I (; Here is where process audits would
come in. Finally, in some areas it is easy to produce objective and
apparently complete measures of performance (if not useable com-
parative data)-such as minority and female employment prac-
tices, and pollution abatement. And, measures of performance are
likely to be demanded in such areas.
We would point out that we have here made fairly educated
guesses as to what standards of reporting the public will respond to
favorably in various social areas. But they are, at best, guesses. This
is a question susceptible to research, and such research should be
done.
But the issue goes beyond the kind of reporting the public will
find acceptable and informative. One cannot except the matter of
the context in which the public will evaluate what is reported.
Particularly pertinent are the norms against which a firm's per-
formance is judged, a matter to which we have already alluded.
We have cited Sater's suggestion of four types of norms that he
would include in an audit: performance by other companies in the
industry, by similar firms in the same geographic location, local
legal requirements, and some norm of what is possible in a given
location (e.g., minority employment as a function of the propor-
tion and education of minority group members in the area). One
can well imagine that the inclusion of such a set of norms would
enhance the interpretibility of a firm's reported performance. How-
ever, as we have indicated, such norms are sparsely and unevenly
available. Probably if social auditing matures, it will be accom-
panied by a gradual accretion of more adequate norms. Local
(and state, and national) legal requirements are of course avail-
able, and the task is one of assembling and presenting them. Some
norms on corporate giving are available and could be improved.
For example, norms on minority and female employment are avail-
able in aggregate forms for firms that file EEO-I forms, but they
might be better assembled in different categories for the sorts of
judgments that would be made of a social audit. Pollution laws
vary and are unevenly enforced. Anti-pollution performance for
industries is weakly developed, but may become more adequate as
a result of investor and public interest audits. Other types of
norms, such as for mortgage policies of banks and insurance com-
panies do not, insofar as we know, exist in any form, nor do they
,. There is evidence to show that the public has confidence in a company's
ability to select worthwhile activities and carry them out. What they want is
proof that businessmen are concerned and committed enough that they are
doing the selecting and implementing with skill and care.

72
exist for aid to education or "corporate responsiveness" or "quality
of life in the workplace." As with many other aspects of social audit-
ing, we would expect the development of norms and the eventual
selection of those which are most useful for audit evaluations to
develop over time via various routes.
There will also be ad hoc circumstances that would or should
affect the public judgment of a firm's social performance. For
example, two paper mills, one with a fifty-year-old plant, and one
with a brand new plant, would be judged differently if they had
similar pollution records. We assume that such ad hoc circum-
stances cannot become part of a regular reporting ritual, but
rather will be introduced as descriptive modifiers by each firm in
commenting on its own performance.
Finally, of all the broad "technical" problems associated with
public reporting, we turn last to that of coverage. What areas of
social responsibility should a social audit include? As the reader
no doubt expects, we take refuge in two of our favorite forms of
evasion: the lack of any single clear answer, and the necessity to
rely on evolution.
From the earlier sections of this report and from his own ex-
perience the reader knows that the list of candidates is very long,
and the consensus as to what is essential is unfirm. At the end of
1971, minority and female employment practices, protection of the
environment and, less often, corporate giving were on almost
everyone's list. Mter that, the consensus weakens. We present the
following list from an internal corporate memorandum as illus-
trative of how far the list might be extended:

1. Charitable giving-art, education, poverty, health, and anti-

discrimination.
2. Employee benefits.
3. Community improvement.
4. Efforts to influence legislation, which might include political
activity.
5. Minority hiring.
6. Protection of environment.
7. Method and type of advertising.
8. Standards for providing good and safe products for customers.
9. Method of selection of business the corporation conducts, for
example, napalm and business in South Mrica.
10. Health and safety of employees.
11. Make-up and duties of board of directors.
12. Matters relating to shareholder democracy such as methods of
soliciting proxies and methods of nominating directors (including
among methods of soliciting proxies) might be the extent to which

73
 a corporation provides machinery for pass-through voting by
fiduciaries and nominees.
13. The extent of reporting on matters that are not financially material
within SEC standards but are of social significance.

It is amusing that despite the apparent diligence with which this

list was compiled, the writer does not mention female employment!
If it were worth the effort we could go back to some of the criteria
suggested by the Public Affairs Council and the Dreyfus Third Cen-
tury Fund and expand the list considerably. But there would be no
point.
At this juncture, any company attempting a social audit will
have to make a judgment of what it considers relevant to its
peculiar circumstances, taking into consideration what it thinks
the public to whom it is reporting thinks is relevant, and make a
choice from the almost endless list of items that have been labeled
"socially relevant." Hopefully, over time some consensus will
emerge as to what a company in a given industry should report.
However, evolution will not be only toward consensus as to
what should be reported. We must expect that there will also be an
evolution of expectations. If one takes the recent past as a basis
for predicting, he would have to guess that expectations will ex-
pand, that new standards of performance will be raised, and that
new issues will be introduced. The content of audits may change
over time not only because new issues arise, but because old issues
become less relevant. Thus in the 1970's good labor relations are no
longer much of an issue. Similarly, if pollution laws are made
strict and are enforced, pollution control will not be a meaningful
measure of corporate social performance unless either violations of
the law or performance appreciably above legal requirements are
sufficiently frequent to be of diagnostic value. Social responsibility
is a moving target.
One issue that has concerned some writers on the subject of
corporate social audits we would dismiss summarily. This is the
notion of weighting areas of social performance to produce a com-
posite index of social responsibility. The reason is simple but
powerful. Such weights are matters of value judgments to be made
by individuals. And individual preference schemes vary so widely
that anyone weighting scheme would deprive the users of audits
of the opportunity to do what is proper-use their own weights.
For one reader, involvement in South Africa is so heinous that it
outweighs all that Company X is doing in its community. For an-

74
other, minority employment programs are so generally accepted
that Company Y gets no gold stars for that; the issue is internal
democracy. We regard, then, the attempt to reach a determination
as to whether this corporation or that is socially responsible as a
waste of time and a misuse of the social audit concept.
Audits for Public Reporting-Summarized If one were to pose
the question simply, "what are the cost/benefits of a corporation
making its social performance a matter of public knowledge?" the
answer would probably be that the benefits would outweigh the
costs providing the costs did not involve the price of preparing the
report. The reasoning is simple. As it becomes increasingly difficult
for the corporation to keep its social performance from the public,
it becomes increasingly advantageous to be the agency for making
the performance public both to demonstrate the corporation's
good intent, and to insure that the record is presented in the most
defensible terms. However, the only cost is not the social cost of
having one's record known.
No one can answer what it costs to prepare a social audit be-
cause, as we have demonstrated, a social audit may mean many
things. The Wall Street Journal article of December 7,1971, quotes
a bank executive as estimating the costs as "... about $75,000 in
consultant fees plus 'an awful lot' of in-house time. You could go
through a lot of expensive wheel-spinning and end up with nothing
of value, he says." This may be regarded as illustrative of the
money costs. If the reader wants to make a stab at what "an awful
lot of in-house time" involves, he may imagine five to ten executives
meeting at fairly regular intervals, clerks scurrying around gather-
ing records, and quite possibly a revamping of the accounting sys-
tem so that true costs can be determined. As we have often indi-
cated, a more modest effort is possible, but this is what may be
involved.
However, there is still another type of cost that we have not
discussed in this chapter, but which we mentioned earlier: the
internal consequences to the firm of doing the audit at all. Because
the very act means invading the domain of corporate officers, and
because the findings constitute a judgment on the performance of
corporate officers, especially along a dimension on which they have
not been measured heretofore, the conduct of an audit can and has
generated internal friction. More fundamentally, attempts to con-
duct a social audit may surface deep philosophical differences
among corporate officers. Our guess is that this internal cost may

75
in some instances be considerable enough to slow up or stop the
auditing process, or the prospect of it may be sufficient to dis-
courage a firm from undertaking the effort.
The issue of internal organizational cost is likely to loom high-
est early in the history of corporate social audits for two reasons.
The first is that early auditing attempts are likely to be clumsy and
therefore consume more corporate energy and cause more cor-
porate dislocation than might be true after the art of auditing is
better developed, and all this in a climate where many executives
will grump: "What's all this got to do with our business, anyway?"
This is especially true in today's climate where the public demand
for and interest in such an audit, though increasing, is a long way
from being demonstrably irresistible. Thus the effort in a company,
as we have said, still tends to be pretty much the plaything of the
topman.
The second reason is that if social auditing becomes relatively
well established, the rationale for a particular firm doing it will be
easier to communicate, and therefore there will be a greater dis-
position to be willing to pay the organizational costs. We would, in
any event, expect the early history of corporate social audits to
proceed in fits and starts. Internal corporate friction will contribute
to this.
While we have dwelled at length on the technical difficulties of
developing social audits, we assume that they can be resolved if not
solved-though we do not know when, how, or at what cost. Our
reasoning is again simple. An ideal solution of all the technical
problems, particularly at an early stage, is a manifest impossibility.
What has to be striven for is that which is feasible and useful.
Thus, the early difficulty will not be in the need for quickly solving
all of the technical problems, but in reaching an agreement between
auditor and user as to what is feasible and useful. This is a matter
of social communication and the establishment of social trust.
Considering the state of trust between the business community and
the general public, this may be where the problem lies.

The Future of Investor and Public Interest Audits

The role of investor and public interest audits may eventually
be regarded as ancillary to that of corporate self-audits. They pro-
vide evidence that is not readily available from the corporations
themselves, and if the information becomes increaSingly available
from the corporations the role of investor and public interest audits
will wane or change. At the present time, one of the most important

76
consequences of investor and public interest audits is to serve as a
stimulus for the development of corporate self-audits. In this con-
text, it must be added that public interest gadflys, while not con-
cerned with broad continuing evaluation of firms' social per-
formance, have an equal stimulus value.
However, investor and public interest audits have the more im-
mediate tasks of providing investors with knowledge of the social
responsibility of firms in which they might invest, and providing
the general public with information on the social performance both
of specific firms and of business in general (though the latter
chiefly by implication). To the extent that the general and invest-
ing publics continue to be interested in the issue of businesses'
social responsibilities the requirement for such information will
continue.
One must assume, even if the practice of corporate self-auditing
grows, that it will be a long time before it becomes sufficiently
regular, systematic, and widespread to serve the needs of the gen-
eral and investing publics. Hence we must anticipate that investor
and public interest auditing will be with us for some time over the
foreseeable future, unless there is a surprising drop in interest in
corporate social responsibility.
The ranks of investor auditors may be swelled. If the present
socially responsible mutual funds prosper, others may join their
ranks. At present, a number of major foundations, churches, and
universities are examining the social aspects of their investment
policies. They may set up their own auditing facility. Individual
officers of a number of large brokerage firms are doing some form
of social auditing. Trust officers of banks are being asked to assem-
ble "clean" portfolios. The market for investor auditing will grow
in proportion to the number of large investors who are interested in
socially responsible investment. There is a probability of pooled
auditing in the case of nonprofit institutions such as foundations
and churches which are not in competition with each other. We
assume that mutual funds and brokerage houses will do their own
auditing for competitive reasons.
While we may guess that investor audits may increase over the
near future, we can be less confident of what will happen with
public interest audits. To the extent that a public interest auditor
is tied to a particular constituency, such as the National Council of
Churches, it will probably be assured of continuing financial sup-
port. However, th,' future of an organization such as the Council on
Economic Priorities, dependent on pluralistic support from sub-

77
scribers and sponsors, is less certain. If one uses as a model the
success of Ralph Nader in financing an ever-widening collection of
activities, he would be sanguine. But, any such organization is
dependent on the zeal of dedicated people and their willingness to
continue to work long hours for little money. This may not be the
deciding factor in the end; after all, our society is populated by all
kinds of special-interest groups that struggle and survive. The
crucial question is public interest, confidence, and acceptance.
Without that, the groups may continue but their leverage will be
gone.
Over the near future the contribution of the public interest
groups will probably be to develop new issues and test the degree of
public interest in those issues, which the more systematic auditors
mayor may not add to their portfolio of concerns.
We can see no force at work which would push investor and pub-
lic interest auditors to uniformity of coverage or methods, or
toward any other form of comparability of standardization, in the
immediate future. Hence, we may expect continued heterogeneity
dependent on the interests and resources of the auditor.
The investor and public interest auditors, by and large, share
the technical problems of corporate self-auditors in all save that of
credibility in public reporting. However, the public interest and in-
vestor auditors may not share some of the concerns which corpora-
tions might have for internal decision making. As we have indi-
cated, public interest auditors may have no desire to know true
costs of social programs except to the extent that this measure
might develop as an index of corporate commitment. Investor
auditors, while having a potential interest in true costs, and the
cost/effectiveness of social programs, are likely to be content with
the record of overall financial performance without knowing to
what extent this is dependent on cost/effective social policies.
However, the investor and particularly the public interest audi-
tors have additional technical problems stemming from that of
access to information internal to the corporation. (Not that the
internal audits are totally free of that problem, as we have noted!)
The access of investor auditors will vary according to the amount
of leverage the auditor has on the firms it wishes to audit. For
example, a socially responsible fund that is affiliated with well
established regular funds is likely to have better access than a new
unaffiliated fund concerned with SOcially responsible investment.
However, the example of the public interest auditors and of the
public interest groups indicates that ingenuity and diligence can

78
do a great deal to conquer the problem of access. Furthermore, it
is difficult to see any trends in the future that will increase the
difficulty of this problem. If anything the government may extend
reporting responsibilities of corporations, and corporations may
find it less and less viable to refuse to respond to inquiries.
In sum, our best guess is that the investor and public interest
auditors will be with us in the future barring that eventual millen-
nium in which regular corporate auditing will displace their
function, or an unanticipated change in the atmosphere, making
them either unacceptable or uninteresting to the public. Their con-
tinued activity will continue to make that day more likely, but
scarcely inevitable.

79
IIeeds for Research and Development

We have repeatedly recorded our uncertainty as to the future of

the concept of the corporate social audit. However, if it develops
along anyone or combination of the lines implied in the preceding
chapters, the course of that development may be facilitated by the
acquisition of certain understanding, knowledge, and skill which
we will try to identify in this chapter. For practical purposes, all
new social innovations have grown to date on an ad hoc basis
without the aid of such social research and development. It is our
faith that the deliberate development of such knowledge and skills
could enable an innovation like this one to evolve in a more orderly
fashion.
The concept of and interest in the social audit is a concrete
indicator of a much larger phenomenon: the changing role of the
corporation, with specific reference to the increased demands that
it be more socially responsive. If it were not for this change, there
would be no call for a social audit. The program of research and
development that we propose is cast in this broader context, since
it is only in this context that we can understand what is expected
of the corporation, what the consequences of those expectations
may be, how the corporation responds to social demands, and
thereby the purposes that an audit may serve, and the changes that

81
may take place in corporate and public responses as a result of
auditing.
Our proposed program of research and development will begin
with matters central to the corporate social audit itself and proceed
in later sections of the chapter to issues of the broader context of
the audit.

I. Developmental History of Social Auditing

The idea of a corporate social audit may be akin to a number of
other recent business fashions such as operations research, manage-
ment information systems, management by objectives, sensitivity
training, PERT, and the like. Such innovations have a character-
istic history both across and within firms. These developments
pass through stages of: getting acquainted, trial and enthusiasm;
disillusionment over the difficulties and failure to produce utopian
results; and then consolidation and equilibrium. The accompany-
ing literature goes through similar waves. The early literature suf-
fers from what has been labeled "tense error." Enthusiastic pro-
grammatic notions are presented as though they were descriptions
of presently ongoing systems. This is followed by a wave of de-
bunking literature, and then by a wave in which the innovation is
treated realistically. The early history of such innovations is
marked by acute organizational and technical problems, as well as
by unrealistic expectation.
RESEARCH TOPICS. The developmental history of the corporate
social audit ought to be tracked closely, partially as a matter of
social history, but equally importantly for the identification and
diagnosis of the organizational and technical problems that arise.
In general, when such innovations have been attempted, organiza-
tional problems have been given a back-of-the-hand treatment,
largely because they have been promoted and developed by persons
competent and interested in their technical features who are not
particularly competent, interested in, appreciative of, or com-
fortable with organizational matters. There is, therefore, reason
to pay careful attention to the organizational dimensions of the
social audit.
The early history of this innovation could be tracked by follOwing
the literature, establishing broad contacts with persons involved in
the movement, and by as detailed a case study of particular audits
as is feasible. Feasibility will be conditioned by problems of access.
Most of the firms presently trying audits exhibit a considerable
amount of shyness.

82
 Perhaps the auditors within the firm can be persuaded to keep
a diary. Or, they can be debriefed at regular intervals. Each of these
procedures has its drawbacks. Keeping a diary may be an impossi-
ble addition to a busy person's workload. Debriefing involves the
bias of selective recall, but nevertheless does offer some opportunity
to learn. Eventually one would hope to have an observer who could
monitor several audits on a relatively continuing basis, sitting in on
meetings, observing procedures, and the like.
Many firms which are not conducting an audit on a formal,
across the board sense, are executing components of an audit:
monitoring the firm's advertising; reviewing corporate giving;
evaluating manpower programs; and the like. These programs, as
well as the public interest and investor audits, should be studied
for what they can teach us about auditing. Priority should be
given to those components for which there is at least accumulated
experience. It may also be anticipated that even the execution of
individual components of an audit will reveal organizational prob-
lems.
From this monitoring would come a picture of the corporate
social audit as a social as well as a technical process. It would also
be a very good means of continually reassessing the research and
development needs of the concept, as well as of ideas for better
implementing it.

II. The Auditing Process

A series of activities can be foreseen which would facilitate
the development of social auditing per se. They would scarcely be
called "research" in the ordinary sense. Here, too, the word
"development" is more appropriate.
RESEARCH TOPICS. 1. As we have noted a number of times, as-
certainment of the true costs of social programs is an important
component of a social audit both for understanding the wisdom of
various resource allocations, and as a measure of the firm's level
of effort in a given area. Whereas direct costs are readily identifi-
able, the allocation of indirect costs associated with a social pro-
gram is ordinarily much more difficult because most accounting
systems are designed not to permit their isolation. Furthermore,
more than one convention for allocating indirect costs is likely to
be plausible. Even in the area of regular financial accounting there
is more than one reasonable way of allocating overhead. Appro-
priate methodologies for identifying indirect costs should be de-
veloped, and alternate conventions of allocation explored. These

83
explorations should be made in terms of the various uses to which
they would be put. For example, one procedure might be more use-
ful for making internal cost/benefit decisions, while another might
be judged as presenting to the public a "truer" indication of the
level of effort. One method might be appropriate to some industries,
but not to others.
Additionally, concepts should be developed for assessing the
costs of alternate programs and the opportunity costs of alternate
uses of the money, and methods appropriate to these concepts
should be devised. Attempts at ascertaining "true" and "alternate"
cost should proceed in two steps. The first should consist of under-
standing the problems and alternate procedures as well as possible.
The second would be to develop practical procedures which were
transferable and repeatable by others in different settings.
2. Relatively little attention has been paid to the task of audit-
ing a firm's conduct of its regular business in a systematic way for
its social consequences, though much of the criticism of business
has been on this score, and the critics of business have been very
capable in "auditing" business on this score in an ad hoc manner.
We refer here to product safety, performance, durability, and to
marketing and advertising practices, to the social desirability of
products themselves (cigarettes, feminine hygiene deodorants) and
so on. There are no proposals as to how one would go about such
an audit in a systematic fashion or what norms should be used
(other than compliance with the law). A checklist which might be
followed is: the social utility of the firm's product line (a concep-
tually very difficult issue); quality of performance on their primary
functions; secondary adverse (e.g., safety) or beneficial (e.g.,
aesthetic) effects; reasonableness of costs; advertiSing and market-
ing practice.
Exercises could be undertaken in auditing firms from a range of
industries presenting a variety of different issues. For example,
lending policies would be relevant for banks; product safety for toy
manufacturers, reliability and safety for appliance manufacturers;
exploration and exploitation practices for oil companies; and the
like. Again, the aim would be to develop procedures that could be
used by others.
3. In the body of this report we built the case for process audit-
ing in instances where performance measures are extremely hard
or expensive or where the effects of an action may be deferred be-
yond the point at which an evaluation has to be made. We need to
develop experience in process auditing to decide for which types of

84
programs process audits are most appropriate, what types of
evidence are available and appropriate, how it might be presented,
what is credible and useful for the audience for which it is intended
-whether it be for internal decision making, or for public re-
porting. Such a process audit would ascertain the following: the
reason for undertaking a particular program, the goals of the pro-
gram, the rationale for the action, a description of what is actually
being done, and intermediate measures of performance if they are
available.
4. While we have been skeptical of some more elaborate pro-
posals for assessing the overall dollar contribution to the firm of all
its socially responsible behavior, we concluded that more modest
objectives are possible and may be desirable. Attempts should be
made to do this. We suggest three reasonable candidates: improved
recruiting as a result of the firm's socially responsible image; im-
proved consumer acceptability; improved investor acceptability. It
is quite widely asserted (and apparen dy believed, if we take the
wave of advertisements claiming social responsibility as evidence)
that these benefits accrue. One of the reasons for which social
audits are advocated is that the most responsible firms will re-
ceive the benefits from their behavior. If this is true, it should be
ascertained, if it is possible to do so.
5. Specific dollar contribution to a firm's profits as a result of
its social programs will be impossible to determine in most in-
stances. However, some programs, or some ways of executing the
same programs, may be more efficient than others. By efficiency is
meant the relationship between the cost of a program, in dollars
or executive time and energy (which may be a scarer resource than
money) and the amount of "good"-however measured-that is
done. Even though such assessments may in part be judgmental,
they ought to prove valuable to a firm in deciding where to put its
efforts. Such exercises should be undertaken.
6. The range of issues involved in present conceptions of cor-
porate social responsibility is highly diverse. Even if we bypass the
more politico/philosophical issues such as investment in South
Africa, producing munitions, lending money to Portugal, and so on,
we are confronted by air, water, and noise pollution; black capital-
ism, hiring and training of minorities, employment and pay status
of women; community development; physical rehabilitation of
cities; support of various levels of education, day-care centers,
drug abuse; crime; mass transportation; the impact of plant loca-
tion on population distribution; consumerism; advertising and

85
marketing practices; contributions to various forms of charity; em-
ployee safety; employee benefits; product safety; and so on.
Each of these topics has its own area of expertise, its own norms
of performance, and the like. No one person is in a position to give
good advice as to what sort of program is most advisable for a
given company in more than a few of these areas, nor is anyone
person entirely competent to judge a company's performance in
more than a few of these areas. Ideally, one might envisage a
"Handbook of Social Responsibility" that would offer uniform
guidance to corporate officers to make wise decisions, to auditors
to make appropriate audits, and for investors and the general pub-
lic to make informed evaluations. This is probably an impossible
task, and might be very inefficient to undertake at this point. How-
ever, a modest version-the beginnings of a series of short volumes
-may be practical and useful,17 For example, there is a body of
experience of what works and what does not in business aid to
public education, in day-care centers, in housing ventures, in aid
of all sorts to minority business, in affirmative action and training
programs. By the same token, there are people with expertise on
consumer activities, on corporate organization for social programs,
on project selection. This material could be pulled together in
operationally useable form.
7. As the history of social audits unfolds, it is reasonable to
expect that some issues will prove to be both relatively salient and
relatively difficult. If there is the continued monitoring of the de-
velopment of social audits, it is likely that from time to time social
auditing will be in need of specific "technical assistance." Some
agency should be prepared to respond to this need, whether it be in
the form of convening a conference of people who need help and
can offer help, the preparation of a monograph, the compilation of
a list of resources to whom one can turn, or whatever seems in
order. This may be an appropriate role of the Russell Sage Founda-
tion itself.
8. We have stressed ad nauseam the variety of directions which
the social audit might take. Furthermore, we have intuitive reserva-
tions concerning the probable consequences of firms contemplating
any ambitious version of an audit at this time. These reservations
are dual. The prospect of an ambitious audit is likely to appear so

17An example of what such volumes might look like is Jules Cohn's The
Conscience of the Corporations: Business and Urban Affairs, 1967-1970, The
Johns Hopkins Press, Baltimore, 1971. In our judgment this book is not as
penetrating as it might be. It does, however, attempt to pull together business
experience in one area of social responsibility.

86
formidable or threatening that the probability of attempting an
audit will be low. And, an ambitious audit attempt stands a high
risk of failure for both technical and organizational reasons, thereby
producing no positive results and reducing the possibility of any-
thing being done at a later date.
There is, however, a very modest version of an audit that is
reasonably demanding but which should prove valuable at a low
risk to the firm. It would consist of four steps; development of an
inventory of the firm's activities that have a social impact; explora-
tion of the circumstances ("reasons" may be too dignified a term)
that generated these activities; an informal evaluation of those
activities for which expert opinion is relevant (e.g., a minority
hiring program); judgmental assessment of the fit of these ac-
tivities with the objectives of the firm and the society.
Carrying a few firms through this exercise might be a good
vehicle for doing some of the research we have advocated (e.g.,
on understanding the rationale of existing programs) while giving
the firms a motive for cooperating. It would also provide better
understanding of the problems of making an inventory of social
programs (such as deciding what to include, how to gather data on
executive community activities, and the like), relating social pro-
grams to business plans, and so on.

III. Reporting of Audits

In general, we do not know what form of public reporting is
credible to the relevant publics for audits, how they will interpret
the data, what norms they will consider relevant, and so on.
RESEARCH TOPICS. 1. Experiments can be conducted with al-
ternate forms of reporting (performance, process, level of effort)
for various social programs. As we have pointed out previously,
technical feaSibility may favor one type of audit over the others.
Hopefully there would be some reasonable fit between technical
feasibility and public acceptability. Different forms of data dis-
play, different norms, and the like should be tried. The relative
credibility of the same data reported directly by a business firm
and certified by an independent auditor should be explored.
Many observers believe that independent social auditing by some-
one such as a CPA will lack credibility. This viewpoint does not
reflect the incomplete credibility of regular financial auditing. Spe-
cial attention should be paid to the relative credibility of social and
financial information when independently audited.
A good investigator will think of more variants than we have

87
been able to anticipate. However, the four criteria against which
they should be checked are the following: Is it believed? If it is
believed, does one feel he can interpret it? (For example, a report
of anti-pollution measures may be believed, but in the absence of
some norm, the reader may not know what to make of it.) If he can
interpret it, what conclusions does he draw from it? (A firm may
meet a given norm, but the consumer of this information mayor
may not think this is "good performance.") Is it useful to him? (He
may be able to draw firm conclusions from the evidence, but be
interested in something else. He might be interested in the level of
effort-true cost-while we are giving him a process audit.)
In investigating ways of reporting audits special attention should
be paid to the distinction between the general public, the investing
public, and the social critics of business. They are likely to use
different standards.
A parallel effort should be made for audits designed for internal
decision making. All the criteria suggested above would be relevant.
However, in addition, one would also want to look at the effect of
different auditing and reporting forms on the content of the deci-
sions which were made.
Reporting for both public and internal use could, of course, be
done with simulated data. A virtue of doing this would be to explore
the necessity or lack of necessity for getting difficult-to-obtain infor-
mation, such as sophisticated measures of performance. If the pub-
lic were satisfied with simpler measures and confused by more
complex ones, and if businessmen could make the same decisions
with either, clearly the effort of getting the more complex data
would not be warranted.
2. One of the key elements in the way a social audit will be re-
ceived and interpreted will be the norms that are available and per-
ceived relevant for interpreting a corporation's social performance.
The norms which people prefer, and the ways in which they would
use them, ought to emerge from the investigation of various ways of
reporting audits suggested above. However, a separate effort should
be made to identify the norms that are available for assessing the
various areas of social performance, their quality, the levels of ag-
gregation at which they are available (by industry, by region, by
city, etc.), which norms ought to be available that are not, which
ones might be appropriate even though the public does not pres-
ently see them as relevant, and what would be required to develop
more appropriate series of norms where this would be desirable.
Some of this work is, of course, being done. Government report-

88
ing of EEO-l reports in aggregate form by SIC category will, for
many purposes, serve as norms on employment practice. The Coun-
cil on Economic Priorities has developed or is developing norms of
performance on various social practices for various industries. The
Conference Board gathers and publishes information on corporate
giving. It is intended that the work discussed here will be designed
to complement what is being done by others. Perhaps special atten-
tion should be paid to the problem of updating norms developed by
organizations such as the Council. Perhaps, if social auditing be-
comes prevalent, the development, updating, and dissemination of
norms should be separately institutionalized.
3. In connection with the development of norms for social audit-
ing, it would be worthwhile to do a number of intensive industry
studies in order to understand what the special problems of social
responsibility may be in a given industry and how this may vary
from company to company depending on such things as the struc-
ture of the firm. When we speak of an industry we ordinarily think
of a single product market, such as paper, steel, or electronics. In
fact, a "company" in such an industry is highly likely to be a division
of a firm that is active in several or many industries. In a given in-
dustry some businesses may be all or part of an integrated com-
pany, others may be divisions of a more complex company. (This is
true, for example, of the paper industry.) This may have varying
consequences for the "industry" companies. A divisionalized cor-
poration may be sensitive to the behavior of its divisions on its
overall company image, it may inject a broad point of view or a
more sophisticated attitude toward technology than those of tradi-
tional firms in the industry, or it may penalize social responsibility
by judging the performance of its divisions on strictly financial
criteria. Variations in the location of firms within an industry may
pose different problems and opportunities. For example, a firm in
one community may be confronted with a large population of hard-
core minority unemployed, while one in another community will
have access to well educated minority group members. While the
public is likely to regard such circumstances as irrelevant in mak-
its evaluation of the social performance of firms in a given in-
dustry, most sophisticated observers will find them of relevance
in judging the phenomenon of social responsibility.
What we are proposing in the way of industry studies may be
viewed as a slight variant on Sater's proposal. One difference is that
at this stage of the development of the technology of auditing it
may be advisable not to identify specific firms. This should be left

89
to the public interest auditors. Another, and more important dif-
ference, is that the studies we are proposing would concentrate on
intra-industry factors that might affect the comparability of report-
ing across firms within an industry.

IV. Social Responsibility within the Firm

The previous sections were concerned with the social audit per
se. In this and the subsequent section we broaden our scope, first to
a consideration of social responsibility within the firm, and then to
the overall social role of the firm. We do this in the belief expressed
earlier in this chapter that the corporate social audit cannot be un-
derstood apart from this broader context. The evolving social role of
the firm and the problems of social responsibility within the firm
will affect what is audited and how it is audited. The audit, in tum,
will affect social responsibility in the firm, and presumably also
affect the role which society assigns to the firm.
Business firms are, of course, the object of continual study. Yet
our comprehension of how they go about and might better go about
their traditional tasks is highly imperfect. In the past ten years or so
our knowledge of these phenomena has been increasing quite rap-
idly under the impact of anew, behaviorally oriented approach.
While a high portion of these studies have been done by scholars
not primarily trained in the social sciences, the studies have been
heavily influenced by social science methods and concepts, and
would benefit from greater influence by these disciplines and a
wider participation by formally trained social scientists.
This approach has generally been grounded in detailed case
studies, has featured some simulation, and more recently some
quantitative statistical approaches.
Our knowledge about how firms handle issues of social responsi-
bility is much more sparse. If we view the social audit as a key
mechanism in which a firm takes stock of its social performance
and reports it to the public from which it in tum receives signals of
approval or disapproval, then we need to understand how the corpo-
ration handles the broad issues of which the social audit mayor
may not become an integral part. Specifically, we need to study how
the corporation perceives social policies and activities, and how it
selects among the demands those to which it will respond, how it
implements social policies inside the firm, and how it takes social
concerns into account in the conduct of regular business decisions.
RESEARCH TOPICS. 1. There are a limited number of studies of
"environmental scanning," of how a business firm gathers and

90
processes information relevant to its regular business concerns
from the outside environment. There are, to our knowledge, no sys-
tematic attempts to understand how this is done with respect to
social demands and opportunities. A good beginning would be a
limited number of case studies of firms whose practice may be as-
sumed to be relatively advanced. The methodology ought to involve
a comparison of the way in which social or political information is
handled relative to regular business information such as that for
finance and marketing. Researchers should look for: the location of
the environmental sensors in the firm; the channels for reporting,
and the biases and filters in these channels; the type of person do-
ing the scanning and his perception and reception by others in the
organizations, and so on.
Existing studies of environmental scanning involve no system-
atic use of knowledge from the field of cognitive psychology. The
deliberate introduction of this point of view would enrich such
studies.
Many of the difficulties that corporations have fallen into in re-
cent times might well be viewed as organizational failures, as fail-
ures to detect, report, understand, or make correct decisions about
events in the environment. These failures begin with detection and
reporting. Even if the social audit matures, the problem of detecting
and reporting new issues in the environment will continue to be of
importance, both with regard to reactions to audit reporting and to
detection and evaluation of new social issues.
2. Despite a proliferation of hortatory literature on how regular
business decisions are and should be made, close examination
shows that the process, more often than not, has little to do with
the textbook versions. In many instances, such an examination re-
veals that the textbook prescriptions are not even addressed to the
relevant problems. While the inquiry suggested in the preceding
paragraph was directed at understanding the flow of socially rele-
vant information from the environment to the point of decisions, it
is also necessary to concentrate on the point of decision. There is
little or nothing beyond anecdote to tell us how business decisions
in the social area are made, although there is a good deal of busi-
ness school case teaching material that can be screened for a pre-
liminary conceptualization of this process.
There are many questions one might ask. One obvious area is a
study of the factors behind the adoption of specific corporate social
action. It is alleged (and acknowledged) that corporate giving is at
least to some extent aimed at pleasing specific outside parties rang-

91
ing from the president's wife to important customers. In addition,
as we have indicated in previous chapters there are others: to
satisfy personal or corporate conscience, to make the firm attrac-
tive to certain kinds of personnel, to avoid or reduce specific out-
side pressures, to solve social problems, for calculated business rea-
sons (perhaps), and so on. A mere enumeration of such purposes
would probably prove uninteresting. It would be of interest, how-
ever, if they had some patterned relationship to the welfare of the
society or the firm or if suggestions arose from the data for a proc-
ess of selection of social programs which would bring them into a
more orderly relationship to the goals of the firm and the needs of
society.
In addition to the motives behind the adoption of socially rele-
vant policies, we need to understand the accompanying reasoning.
How did an executive anticipate that a given action would accom-
plish an intended effect? How does he sort out those of his firm's
actions, or those components of his firm's actions, that are socially
relevant and those that are "regular business?" For example, are
product policies on marketing and advertising practices seen as
part of its socially responsible behavior? Is any attempt made to
bring social policies into rational relationship to the firm's regular
business activities? How does an executive decide what his firm can
"afford?" When has an issue become suffici~ntly "live" to deserve
attention? Is it, as in the case of one large corporation, when letters
are received from some arbitrary percentage of the stockholders?
Feasible procedures for more orderly decision making on social
policies should be devised and tried out. Perhaps games could be
devised as training devices. Clark Abt's "Social Audit" game is such
a game. Despite our reservations about the attainability of some of
his objectives, it serves as a model.
3. Social responsibility like all other policies of a business firm,
must be implemented through a complex organizational structure.
The structure of most large firms is very complex. About 85 per cent
of Fortune 500's, accounting for a very large portion of the social
consequences of American business activity, are multidivisional
firms consisting of a more or less tightly knit bundle of separate
businesses. If the top corporate officers of such a firm decide on a
social policy, how can they make it effective (or can they)? Divi-
sion heads are typically rewarded on the basis of financial perform-
ance. This puts a strong pressure on divisional officers to avoid
any socially responsive behavior which threatens their financial
performance. Some multidivisional firms now claim to have ex-

92
tended their criteria for judging divisional heads beyond straight
financial performance. How does this work? To what extent is this
window dressing? Are there ways of compensating for the bias of
the structural features of such firms?
The pattern is apt to be quite complex. We will illustrate this by
drawing on some actual corporations which we know. It is possible
at this point to identify three different classes of socially responsive
policies each of which poses quite different problems. The first is a
policy such as centralized corporate giving or released time for ex-
ecutives or involvement in a housing project which is under direct
control of corporate officers. If the top managers are committed to
such an undertaking, it is relatively easy to implement, at least in
the short run, simply because it is under their direct supervision.
However, the corporate staff of such a large firm tends to be sensi-
tive about the size of the corporate budget since it is seen as an
overhead drain on the divisions "which produce all the money."
Corporate officers are tempted to try to assign the budget to the divi-
sions while maintaining control over the programs at the corporate
levePH Is this viable? What complications would it produce?
The second type of policy is one that is firm-wide, but initiated,
monitored, and enforced at the corporate level. An example is a
minority hiring program which assigns specific targets to each of
the divisions and even to their subunits. Typically, this will be done
without lowering financial targets for the divisions. Minority hiring
and training programs characteristically cost money, at least in the
short run, and may lower quality of service temporarily. The
division heads are caught in a vise. What gives?
The third type of policy is a more general one in which top man-
agement urges a posture of social responsibility onto the divisions
with the expectation that each one will respond in a way that is
suitable to its particular circumstance. One may have warehouses
or sales offices in a number of small communities so its involvement
is through support of groups like 4-H clubs or leadership in civic
enterprises of many types. Another company may be located in a
number of large cities with typical urban problems. It may be devel-
oping training programs, working with the local school system, run-
ning free courses on English as a second language, rehabilitating
dilapidated housing, working with minority businessmen, or cre-

,. While this paper was in final preparation one of us met an official associated
with public broadcasting who, unprompted by us, mentioned how difficult it
was to get corporate sponsorship of public broadcast programming, because
"the money is all down in the divisions and not at the corporate level, and
the divisions don't want to do it."

93
ating a day-care center. A third may have pollution problems or
product safety accusations to face. The problems of monitoring, as-
sessing, and enforcing the corporation's broad social policy in such
a situation is different from that in the first two instances. As indi-
cated, much will depend on the "control" system that is employed,
the criteria whereby the divisional officers are evaluated and the
degree to which they are systematically sensitized to corporate con-
cern in this area. In this connection we would note the Plans for
Progress program, an early effort in fair employment, which failed
because the top corporate leadership did not or could not transmit
their concern with discriminatory practices to those down the line.
All of the above situations will exhibit themselves in modified
form depending the relative power of the corporate staffs and
of the heads of the divisions or affiliated companies.
Contending that corporations should be socially responsible, and
proposing that a social audit be made to determine whether in fact
corporations have been responsible, assumes that the corporation
has the capacity to implement social policies. This is in varying de-
grees true, and with varying consequences for the internal life of
the cor.poration. Hopefully, additional knowledge will suggest ways
in which this implementation can be facilitated, with lessened ad-
verse effects on the firm.
Again, accumulated knowledge on this problem in the written
literature is likely to be sparse, except for general knowledge of the
effects of structure on problems of control. Case studies are obvi-
ously called for.
4. Information relative to how firms take issues of social respon-
siveness into regular business decisions is both extensive, and dif-
fuse and unstructured. Here we are concerned not with decisions
specifically involving social problems but with regular operating
decisions which mayor may not have, or mayor may not be per-
ceived as having, social dimensions. Certain things are obvious.
Firms that have been under fire by consumer groups, or other public
interest groups, or the government will show improved responsive-
ness. Some firms have more enlightened leadership than others.
Probably, firms in highly competitive industries are less responsive.
POSSibly, if some of the reasoning we introduced above is correct,
the divisions of divisionalized firms may be less responsive. On the
whole, however, our knowledge of that which is not obvious is scant.
We might profit from a review of the existing literature (most of
which will be found in journalistic reporting in newspapers and

94
magazines) which attempts to give some conceptualization to it.
Another approach that should be considered is that of structured
case studies. One might, for example, take a particular class of de-
cisions such as the decision to introduce a new product and study
them in contexts which varied according to the competitive position
of the firm in its product market and the degree and type of social
pressure on it-say in regulated industries, in industries which have
been under heavy consumer attack, and in industries which are
neither regulated nor under consumer attack. One would expect the
firms which had the most advantageous market position would be
most likely to take social issues into consideration, that those in reg-
ulated industries would show a high degree of concern with a nar-
row range of issues, and those under consumer attack would be
alert to a broad range of issues in a diffuse fashion or to a few
highly selective issues if the consumer attack were highly focused.
Findings which confirmed these expectations would not be highly
valuable per se, but a study of the process whereby these firms
reacted would give us knowledge of something about which we have
only vague notions.
5. Contrary to popular myth, systematic long-range planning in
business is not well developed. Many firms are in the process of de-
veloping such planning mechanisms. The planning systems seem to
have a common developmental history in which the range of con-
siderations taken into account gets progressively widened as the
systems' capacity to handle them enlarges. A data bank at the Har-
vard Business School on corporate formal planning systems makes
it possible to identify systems in varying stages of development. Us-
ing these data, one might identify planning systems which are likely
to be on the verge of incorporating broader social issues and isolate
these planning systems for case studies. It would be useful to under-
stand how this transition takes place, what stimulates it, how the
broader social data are incorporated, and how they are used. Past
experiences indicate it would not be surprising if such information
-even if incorporated in planning documents-went largely un-
used. We ought to understand why this is so.

V. The Social Role of the Corporation

It is obvious that the society is demanding that the corporation
change its role though it is too soon to ascertain whether this shift
is to be basic or Simply a matter of incremental functions and con-
cerns. This is a demand that should be made judiciously. The Amer-

95
ican corporation has shown that it can do some things very well. In
the course of doing this, it may have done some things less well, and
it certainly has produced some side effects that were unintended or
undesirable. We are now asking the corporation to continue to do
well what it did before (supply goods and services), do better what
it did less well (improve product safety and reliability, afford better
job opportunities to minorities and women), avoid its side effects
(pollution), and additionally to help in the effort to correct many
social woes to which it may have made little direct contribution, and
sometimes none (offset personal disadvantages, improve educa-
tional systems, oppose governmental policies, reform transportation
systems, and so on).
There are a number of risks involved. The social activities that
firms undertake reflect an implicit set of priorities which result
from the interaction of the social preferences of the investing com-
munity, articulate public interest groups, and corporate executives.
Whether this set of priorities is the same that might come out of the
normal political process is a moot question. Whether, if the set of
priorities is different, it is preferable or not, is equally moot. There
are those who contend that the setting of such priorities should be
reserved for the political process. Businessmen, business skills, and
business institutions will have distinctive contributions to make in
many or all situations. But their net advantage mayor may not out-
weigh feasible alternatives.
Some tasks might be better accomplished by other means.
Whether a business executive can make a better contribution to a
social program than a college professor or a trained professional is
worth examining. It may be that a businessman who seeks his sense
of self-fulfillment in this manner is better advised to increase the
efficiency of his company so that it may produce goods or services
more cheaply, or be more profitable and pay more taxes. Enjoining
"business responsibility" may be less preferable than enacting and
enforcing laws. This is especially true when being "socially respon-
sible" produces a competitive disadvantage. Pollution control is an
example.
Finally, we may be overburdening the decision capability of the
firm. Most public discussions of the social responsibility of corpora-
tions see the main demand made on the corporation as one on its
resources of money and people. This is, of course, a factor. Another
factor that is seldom considered is the difficulty of corporate officers
managing to maintain any coherence of effort if they try to accom-

96
plish too many objectives simultaneously,l~ The end result could be
a diffusion of effort and an accompanying internal disorganization
that would benefit no one.
There is a good deal of expository writing about the changing role
of the corporation, and an enormous amount of reporting of busi-
ness firms' responses to social demands. But there is very little ana-
lytical thinking and virtually no empirical research being directed
at any of the issues we have just raised. Any program of research
and development which aided the development of corporate social
audits, without an accompanying assessment of the implications of
what was being demanded of corporations in the way of social per-
formance, could be the instrument for producing consequences that
would in the long run prove undesirable. Many observers of the
present scene concur in the desirability of redefining the role of the
corporation. But, if this is done, it is imperative that this redefinition
be evenhanded and considered.
RESEARCH TOPICS. Three types of studies are required.
1. One is a review of recent experience of business attempting to
respond to social problems together with some hard thinking as to
whether business is the preferred institution for meeting these
needs. This inquiry should consider not only the effectiveness of
business in solving individual problems, but also the social priori-
ties that might be reflected in the mix of activities that result from
business responding to the demands on it as suggested above.
This inquiry should be conducted by someone or combination of
persons who not only understand business but the range of relevant
social problems and their complexity.
2. The second type of study would concentrate on the internal
consequences of business firms attempting to serve multiple objec-
tives. The issue on which this type of study would focus is not the
now familiar one of whether business firms should maximize prof-
its or serve social purposes. It is rather the one suggested above of
whether it is possible to maintain coherence of effort when a firm
serves multiple objectives. Continued behavioral studies of execu-
tives grappling with these problems would be ideal.
In addition to the broad question of the overall role of the corpo-

1, It is difficult to know just what form this strain on the decision structure
would take. Here we have assumed that it might arise from trying to pursue
several objectives simultaneously. It may also occur from efforts to respond
to even one social demand on a crash basis when the signals are not clear.
We have been told of such semibreakdowns of organizational processes in both
the detergent and automobile industry.

97
ration, there is the matter of the specific issues to which the corpo-
ration is being asked to respond. From the perspective of early
1972, this appears to be a constantly evolving phenomenon. Two
issues are central at this time: environmental pollution; and hiring
and employment status of minorities and women. However, legisla-
tion, regulations, and enforcement proceedings are moving fairly
rapidly on these two issues. It may be that within a relatively few
years, the discretion of firms on these matters will be as drastically
narrowed as it is in the field of labor practices, which might have
served as an index of social responsiveness two or three decades
ago. Performance on these issues may have little diagnostic value.
Unquestionably other issues will emerge.
3. Third, the pattern of evolving social demands should be under
continued scrutiny, both for their individual significance, and for
their broader implications for the role of the corporations. In addi-
tion to the broad scrutiny, specific developments might be singled
out for more detailed inquiry. Two current examples suggest them-
selves. One is the changing regulatory requirements for truth in ad-
vertising, and the generally growing notion that advertising be
socially responsible. (Some of this may be reflected in the work of
the newly established Advertising Review Board. ) Another is regu-
latory pressure that T.V. programming be more socially responsive.
COMMENTS ON METHODS. The set of activities proposed here
represents applied social science in a literal sense. A good deal of it
is development rather than research. While a fair amount of what is
involved in process audits or in ascertaining true costs would mean
gaining some new knowlege, the objective is to produce a set of
procedures that others may use which, in the course of use, will be
successively revised and refined.
The same considerations apply to a work agenda that would ex-
tend our knowledge of such organizational processes as making
decisions to undertake social programs, enforCing social poliCies in
complex firms, and the like. They will have served their purpose if
they indicate some plausible course of action which will improve
organizational performance.
This means that traditional social science concepts of validity
may not be applicable in the way that most social scientists usually
think of it. Obviously any findings must have face validity in the
sense that they are congruent with what we already know or must
cause us, in some credible way, to revise what we had previously
thought. That is, they must have face validity in some larger frame
of reference. But the primary test of the new knowledge is its util-

98
ity. Does it suggest some plausible course of action that promises
improvement?
The work called for taps the skills of a variety of disciplines, and
of specialties within disciplines. It would further one interdiscipli-
nary trend already in process, namely the relating of the skills of
the accountant to the more general task of organizational control.
Within the traditional social sciences it calls on the methodological
skills of systematic observation and experimentation, as well as the
substantive knowledge of many social and organizational problems.
Much of the work demands fairly sophisticated knowledge of the
actual functioning of business organizations.
What is proposed here closely reflects the present state of our
knowledge and capabilities apropos such phenomena as social re-
sponsibility and social auditing of business. As a result there is a
call for a considerable number of case studies, a method of explora-
tion that is particularly relevant at early stages of development of
an area of knowledge. As we learn from such case studies, more
systematic work of a surveyor experimental nature may be called
for. But this will not always be necessarily so.
Much of what we have to learn from case studies pertains to the
development of models of complex organizational processes, many
of which are context-determined. What one learns in one context
may suggest comparable case studies in contrasting contexts. They
will also suggest courses of organizational intervention that, if use-
ful, will constitute a form of validation. Systematic large-scale study
of complex social processes is an art that is very little developed,
and would probably be exceedingly expensive. It is likely that in the
foreseeable future the most likely and fruitful method of develop-
ing systematic knowledge of such processes will be in a complex
iterative process in which the models of such processes are first
checked for face validity, their context determinants specified,
other case studies done in different contexts, the process models
checked in practice, with earlier formulations constantly being re-
vised under the impact of subsequent findings, and so on.

99
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