Sunday, 1 May 2011

The value and limitations to business and stakeholders of Social Reporting

Social reporting is the process of communicating social and environmental effects of organisations economic actions to particular groups within society.  This involves extending the accountability of organisations beyond the traditional role of providing a financial account to the owners of the capital (Shareholders). There are many methods of Social Reporting, which can be doing by a third party of the company or on their own basis. These social reports are mainly done with a Report based completely on social reporting and non financial matters in which stakeholders may be interested in reading. For example, BP have a 50 page social report regarding everything which has happened within the year and being responsible and accounting for the environmental and economic damage to the planet. Social reporting can be shown to help a business because it is holding itself accountable for damages on the environment and putting a value on the impact they are causing by producing products. This improves the image to the stakeholders because they are taking the responsibility which therefore means that they’re reputation and brand image might be improved when stakeholders look at the business. This is because Corporate Social Responsibility is an increasing factor when choosing a company to invest/ work for or buy products from.
The EU has introduced the new legal requirements as regard to social reporting. It is said that it is required that companies should include both financial and non financial performance factors in their social report.  This is all dependants on the size of the company. If it is a small company as in it has less than 50 employees, and has a turnover of less than 5.6m then it is not required to include a business review. If the company is medium sized, which means they have no more than 250 employees, and a turnover of less than 22.8m, then it is required to produce a business review but the non financial performance factors is not compulsory. If the company is large and has a turnover in access of 22.8m and more than 250 companies then it is required by law to include both financial and non financial performance factors within their business review. Therefore BP will have to include both Financial and non financial performance factors within their business review.
Social reporting has alot of value when it comes to stakeholders and shareholders making decisions about the company. A way it has a value is that it helps stakeholders make informed decisions about the company as a public view and a view for the media. All stakeholders can make decisions about if they want to engage with the company or not. For example, BP has shown in their sustainability review the safety of employees is reviewed and revels that in 2010, No employees that are directly contracted by BP have been involved in a fatality but they have had 1,284 recordable injuries which can be a big factor for potential employees whether or not they will want to be involved with the company.  They have also a labour turnover of 15% which is just above the industry standard of 14%. These impacts will involve the stakeholder wanting to get involved within the business as well because they can judge how good the industry by how much staff turnover they have. The environmentalists will also be concerned with the impact of the organisation on the physical environment and carbon footprint, which BP has a bad reputation on within this area. This is because they have had 142 land and water oil spills and have been fined $52.5m in 2010 alone.  This was shown in the recent Shareholder Annual general meeting when protestors for the environment was protesting outside the building and tried to get inside the building and create awareness for the environment and hope to portray the anger of environmentalists and to influence the shareholders decisions about the company.

Another value to having a social report for non financial aspects is to attract and motivate retaining employees. This makes it easier, increased productivity and lower labour turnover for the company. Because the company can attract potential employees for the company and provide information for current employees working for the company in regards to safety and environment and employee statistics. BP does not really have a good reputation in regards to environmental factors as regards to the 1bn cleanup costs for the gulf of Mexico oil spill and numerous fines within 2010 as regards to health and safety and environmental breaches. However, if BP increase their reputation by making stakeholders as well as shareholders happy, then it may be able to lower the labour turnover to meet the average industry standard and will be able to gain more employees at a lower cost to the company because if they can guarantee less recordable injuries and fatalities, then the chance of BP gaining employees for less cost is more guaranteed.
As well as many values to having a social report, there is also limitation into social reporting. The first possible limitation to social reporting of information, especially providing quantifiable information as regards to comparing companies. Most large companies have to provide information about employee and environmental statistics, but in some cases, it is not good enough to make informed decisions between companies. Most companies do not make information easy to interpret. For example, BP have statistics on safety, environmental and ethical factors but do not compare them to other companies or the industry standard, therefore the stakeholder cannot make an informed decision as the social report does not make the statistics they are using useful as it is not compared to industry standards and competitors and government guidelines this shows that it is hard to measure CSR performance as they stakeholder does not know the industry standards the majority of the time, thus the lack of accurately on the report without the stakeholder finding out other facts and figures which can be costly and time consuming to measure the performance of the business. This is shown throughout the BP sustainability report.
Another limitatation in social reporting understands the data. It can be very hard to understand the data which is provided in the social report. For example. BP have shown in their facts and figures that is provided such as profit and loss of different areas in the industry and the fact that they have alot of information being given at once, which is hard for the stakeholder to understand, especially the terminology they use within the social report. This also provides a lack of justification to figures and explanations as it can also be biased and only provide information they want to. This is possibly the reason why they have not included averages and other company statistics.
Overall the value of social reporting is valuable into making informed decisions within stakeholders such as employees and potential investors and making informed decisions when it comes to being involved with the company. It is also a legal requirement for the large companies to report on non financial factors, even though these are very basic. This is shown by facts and figures within the reviews that the company makes. Although the limitations of social reporting can outweigh the benefits of social reporting because the information given within social reporting can be useless because the data cannot be compared by averages easily and alot of data is shown at once using the wrong level of detail, making it hard for the average stakeholder to make a decision and also the information that is legally required can be very basic, and therefore biased.


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