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Leadership role for social and ethical accounting!

Kannan Iyappan 
on 12 September 2013

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Top managers provide the blueprint for what a firm’s corporate culture should be. If the leaders fail to express desired behaviours and goals, a corporate culture will evolve on its own which may not reflect the goals and values of the company. Leadership, the ability or authority to guide and direct others towards achievement of a goal, has a significant impact on ethical decision making because leaders have the power to motivate and others and enforce organization’s rules and policies. Leaders are key to influencing organisation’s corporate culture and ethical climate. An effective leader is required to balance profit-motivated entrepreneurial skills and corporate citizenship. It entails translating the personal energy and vision of an outstanding entrepreneur into the corporate energy of an enduring company.

Enduring leadership i.e. leadership that outlasts and transcends the individual ensures the long-term success of an organization.

Leaders have two jobs. One is to stimulate and drive the organization they lead so that it survives, prospers and achieves its goals. The other is to create the climate, the culture and the conditions that enable people, in the present and in the future, to contribute effectively to that performance.

SOCIAL AND ETHICAL ACCOUNTING

Social and ethical accounting is a process that helps a company to address issues of accountability to stakeholders, and to improve performance of all aspects i.e. social, environmental and economic. The process normally links a company’s values to the development of policies and performance targets and to the assessment and communication of performance.

Social and ethical accounting has no standardized model. There is no standardized balance sheet or unit of currency. The issues are defined by the company’s values and aims by the interests and expectations of its stakeholders, and by societal norms and regulations. With the focus on the concerns of society, the social and ethical accounting framework implicitly concerns itself with issues such as economic performance, working conditions, environmental and animal protection, human rights, fair trade and ethical trade, human resource management and community development, and hence with the sustainability of a company’s activities.

Principles of social and ethical accounting

The dominant principle of social and ethical accounting is inclusivity. This principle requires that the aspirations and needs of all stakeholder groups are taken into account at all stages of the social and ethical accounting process.

— Planning : The company commits to the process of social and ethical accounting, auditing and reporting, and defines and reviews its values and social and ethical objectives and targets.

— Accounting : The scope of the process is defined, information is collated and analysed, and performance targets and improvement plans are developed.

— Reporting : A report on the company’s systems and performance is prepared.

— Auditing : The process of preparing the report and the report itself are externally audited, and the report is made accessible to stakeholders in order to obtain feedback from them.

— Embedding : To support each of the stages, structures and systems are developed to strengthen the process and to integrate it into the company’s activities.

— Stakeholder engagement : The concerns of stakeholders are addressed at each stage of the process through regular involvement. The nature of social and ethical reporting is related to the size and nature of the organization. However comprehensive and clear a report is, it needs to be trusted to be valuable.

ETHICS AUDIT

The reasons for examining the state of a company's ethics are many and various. They include external societal pressures, risk management, stakeholder obligations, and identifying a baseline to measure future improvements. In some cases, companies are driven to it by a gross failure in ethics, which may have resulted in costly legal action or stricter government regulation. An ethical profile brings together all of the factors which affect a company's reputation, by examining the way in which it does business.

The following are the some of the suggested steps in ethics audit:

1. The first step in conducting an audit is securing the commitment of the firm’s top Management.

2. The second step is establishing a committee or team to oversee the audit process.

3. The third step is establishing the scope of the audit.

4. The fourth step should include a review of the firm’s mission values, goals, and policies.

5. The fifth step is identifying the tools or methods that can be employed to measure the firm’s progress and then collecting and analyzing the relevant information.

6. The sixth step is having the results of the data analysis verified by an independent party.

7. The final step in the audit process is reporting the audit findings to the board of directors and top executives and, if approved, to external stakeholders. Social and ethical accounting, auditing and reporting are in embryonic stage and the best practices are emerging and will continue to develop over the coming years. Social and ethical accounting provides a way in which companies can assess their performance and bring the perspective of stakeholders into this assessment. By bringing social and ethical accountability process into its strategy and operations, a company can measure its performance both for itself and for its stakeholders. This will help a company to address a series of risks that may otherwise arise unseen and unchecked with any of the stakeholder.

CONCLUSION:

Ethics is the first line of defense against corruption, while law enforcement is remedial and reactive. Good corporate governance goes beyond rules and regulations that the Government can put in place. It is also about ethics and the values which drive companies in the conduct of their business. It is therefore all about the trust that is established over time between the companies and their different stakeholders. Good corporate governance practices cannot guarantee no corporate failures. But the absence of such governance standards will definitely lead to questionable practices and corporate failures which surface suddenly and massively.

Reach me at iyappankannan@yahoo.co.in.

Awaiting your valuable feedback, Thanks.


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