The Validity of Standards

The Validity of Standards

Obviously, this level of effort in implementing standards costs money, but supporters respond by asserting that social and environmental performance monitoring and reporting is no more costly ” in terms of employee numbers or investment ” than financial reporting, and in fact, usually involves much less of an investment in infrastructure (independent auditors , accounting staff, monitoring, reporting, and report production costs), than standard financial reporting requires of firms today. And given that an ethics, human rights, employment, or environmental scandal can mean a precipitous drop in share value, investors need the information and protection that nonfinancial reporting provides. After all, no one contends that companies should be exempt from adhering to Generally Agreed Accounting Principles (GAAP) simply because they may be expensive or burdensome. Many CFOs will contend that financial reporting adds very little value to the company itself, in terms of actual help to management, but nonetheless accept the need for a consistent framework for financial reporting because it is necessary for the investment community. Advocates contend that the two standards areas ” financial and nonfinancial ” should now be seen as very much equivalent; both necessary to provide monitoring agencies and investors with a more rounded picture of a company s performance.

The ability to not report [on social and environmental behavior] is not an option any more for a leading company, says Nicholas Eisenberg, CEO of Ecos Technologies, an environmental software and consulting group . What the NGOs should be pointing out is, ˜how can a company be upset about this, when they get skewered about misstatements concerning their financial performance every single day of the year? And why? Because [that level of accuracy and information] matters. [22 ]

In fact, there have been real and important improvements in SEAAR during the past two years . First, as we have seen, certain standards, much as with Baldrige, TQM, and ISO 9000 in the quality movement, have quickly taken the lead. SA 8000, ISO 14001, and AA 1000 are all standards that are designed to be universally applied and to offer both a monitoring function (a health check) and structured framework for improvement. Moreover, as we have seen, they are increasingly becoming cost effective, because much of the process for collecting and reporting on performance can be done in tandem with the normal financial and quality information collection process taking place anyway.

All of these things have pretty much the same concept, explains Martin Ogilvie Brown from PricewaterhouseCoopers Sustainable Business Solutions Group. And that is how to improve your processes. [These] are just looking outside of the traditional indicators that you use to manage your company, and using a broader set of indicators, because at the end of the day these influence the major thing that you are worried about, which is your profit and loss. [23 ]

Moreover, it is much less expensive ” both in time and money ” for suppliers to adhere to a universally accepted standard than to continue to have multiple, often overlapping, surveys and inspections from various buying companies, NGOs, and investors, all requiring different standards and different compliance surveys. One of the most important incentives for suppliers to adopt a single, audited standard is that they are increasingly being swamped by multiple survey and inspection requests from myriad interested parties, each requiring a separate verification of their social and environmental performance.

Finally, having learned from the early struggles and eventual success of the quality standards certification process, the bodies developing SEAAR standards have been purposeful in building and modifying standards according to the concept of harmonization. This means that not only are standards constructed (SA 8000, ISO 14001, the ETI, AA 1000) in a way that makes them complimentary , but the similarities between these various certifications has been intentionally enhanced, so that any of these leading standards are now quickly becoming recognized as roughly equivalent.

The strength and influence of certification programs seem to be increasing, contends Gary Gereffi, professor of sociology and director of the Markets and Management Studies Program at Duke University. Third-party certification and monitoring may soon become the norm in many global industries. The battles over forest-product certification show that consumers and NGOs can quickly delegitimize weak standards and inadequate enforcement mechanisms, and they can also mobilize effectively for more stringent codes of conduct and more reliable monitoring. Corporations in the apparel industry are making concessions that would have been unthinkable just a few years ago as they too advocate third-party arrangements. Even the chemical industry s Responsible Care initiative is considering third-party verification in some countries . [24 ]

[22 ] Interview, August 25, 2003.

[23 ] Interview, November 6, 2003.

[24 ] Robert B. Pojasek, How Do You Measure Environmental Performance? Environmental Quality Management, October 4, 2001.