Economics: Social Audit of firms: Ethical investing faces self-serving business annual reports that hide anti-social practices

The Christian Science Monitor runs a regular feature on Ethical Investing in its Work and Money section. Today the feature carries a delicious article by G. Jeffrey MacDonald, "A seal of approval for companies' social progress." MacDponald notes that "Almost 1 in 3 of America's top 100 companies reported on their social progress this year, according to a June survey from accounting giant KPMG. That's a huge surge from the handful issuing them five years ago. But only 1 in 100 did so with verification from an independent auditor." This compares quite unfavourably with what he reports for Britain where 71% of major corporations report, and 50% + provide outside verification by social-auditing specialists whose reputation and income are on the line. I've seen nothing in my present sources on what's happening in these regards among Canada's businesses - but I do recall the shame of Talisman Energy Corp in Sudan , and today Nortel Networks and Nexus, both communcations firms on the make in China. These are Canada's outstanding trio in recent times of sociopathic businesses. You may have info regarding others Canadian businesses well below the mark regarding basic societal co-reponsiblity. If we turn to the USA, we can easily list a host of others. MacDonald mentions in passing the terrible industrial morality in "the late 1990s" of Nike and Kathy Lee Gifford's clothing line; hopefully, the resulting publicity ferreted out by nongovernment organizations (NGOs) has helped change the situation in these two cases, as it has in regard to Canada's Talisman which eventually stopped its oil extraction operations and sold its holdings in the Sudan - where it was charged by NGOs and tribal peoples with contributing to the enslavement and genocide of the black Sudanese of the South (not to be confused with the black Muslims of Sudan's Western region of Darfur, now in the news). China, a partner of Talisman in Sudan, is still operating its oil interests there, I add in passing.

Leaving aside the naming of names, we find from MacDonald that there's actually a huge variance in the quality of the new social auditing firms themselves. Social auditing in a globalized economy requires an examination of business that is outsourced, as well as the function of branches and subsidiary companies of a North American corporation which wants very much to put some social auditor's stamp of approval in the NA corp's annual report.

MacDonald reports:

"You've got a whole set of commercial suppliers that are out there [getting into social auditing] but it's very easy for them, frankly, to get hoodwinked by suppliers in developing countries," says Conrad MacKerron, director of corporate social responsibility [CSR] for the As You Sow Foundation in San Francisco. Because it can be easy for factory managers to steer auditors away from problem areas, he says, the best audits might be those from organizations with a history of digging deep to bring trouble spots to light. "If they're not going the extra mile to talk to workers in a safe spot," Mr. MacKerron asks, "are they going to be able to find problems that were missed" by internal reviews?

Among the industries where social auditing helps companies desperate to establish credibility are tobacco, oil, agriculture, especially coffee and cotton at its processing end of textile manufacture. and perhaps surprisingly coffee. We can regard textiles as a leader among industries, when it comes to development of social auditing.

In textiles, the first stop for a concerned investor might be the Fair Labor Association. Its licensees and member companies identify those that have agreed to let accredited monitors bring International Labor Organization standards to bear on factories in their supply chain. [FLA's] Monitors note issues such as sanitation, child labor, and compensation rates.

In coming years, the association aims to draft standards for use in monitoring other industries, particularly agriculture, according to monitoring program coordinator Roopa Nair. In the meantime, investors concerned with crop-growing and processing conditions can look for a label increasingly familiar to upscale coffee drinkers: Fair Trade.

Investors who see the Fair Trade label on a company's products have assurance from social audits that, for instance, coffee was grown in shady conditions that bode well for the land. What's more, everyone in the supply chain actually got paid as promised, according to an audit that reviews the transactions. Those who are audited ultimately foot the bill, and they need to keep showing progress to retain the label.

I've begun looking for the label when I shop, but since I buy my groceries only at No Frills, and Basic Foods cheapo supermarket chains, I haven't yet seen it once. - Owlb