Assessing social enterprise and their impacts? Are we looking at the right stuff?

With the rapid expansion of what is now really an ‘industry’ surrounding the measurement and assessment of social impact, it may be beneficial to reflect on whether or not we are looking to assess the ‘right’ things.  Are social enterprises, in particular, focussing their energy on the things that matter?

In this blog I would like to look at two things.

The first is the seemingly dogged emphasis on ‘impact’ and not always paying sufficient attention to the performance of an organisation.  Linked to this is a lack of attention to an organisation’s approach, its values and its way of doing things that make it different from other organisations – particularly privately owned businesses.

The second is much wider and I shall argue that the accepted and traditional triple bottom line impacts of social, environmental and economic should be questioned.  Arguably, social enterprises should be aiming to impact on people, the environment and society or ‘culture’.

So taking the first…and to do this I want to look at the history of social accounting and audit.  Back in the 1990s social and community enterprises, along with voluntary organisations tried reporting regularly and in a systematic way on their overall performance against their objectives.  In the mid-2000s, there was a pendulum swing away from performance and much more stress given to the impact an organisation has on its stakeholders.  This was largely linked to the meteoric rise in Social Return on Investment (SROI) and, I believe, driven by investors and funders wanting to get a bigger bang for their buck.  Reporting by social enterprises and similar third sector organisations focussed almost entirely on the outcomes for stakeholders and not nearly so much on how well the organisation performed given the context in which it was working, or on what type of organisation it was trying to be – its approach, its shared values and so on.

There are recent signs that this pendulum swing is beginning to move back and people are now also wanting to know if the organisation is performing well – not least of all the organisation itself.  There is also a need to know if it is a ‘good’ organisation to be seen to be investing in, to be working for and to be proud to support.

With Social Accounting and Audit (SAA) an organisation is expected to report not only on its outcomes and impacts on stakeholders, but also on its performance against its overall purpose and objectives.  Again, context is important as often organisations are operating under difficult circumstances and providing goods and services in often the most challenging of situations.

In addition, and using the SAA framework, organisations are obliged to report on their internal processes and values.  This is mainly through the use of a simple checklist called the Key Aspects Checklist which prompts the organisation to consider its own approach to 6 aspects common to all organisations:

  • how the people who work for an organisation are treated;
  • how the organisation is governed and how accountable is it;
  • how surplus is used and whether or not there is an asset lock;
  • its financial sustainability;
  • how it impacts on the environment; and finally
  • how it contributes to the local economy if it is community based.

Turning to the second thing I want to look at…the impacts.  Traditionally, it has been widely regarded that social enterprises have a ‘triple bottom line’ of social, environmental and economic impacts.  I am increasingly of the opinion that social enterprise should be using economic activities as a means to an end – the end being working towards social, environmental and societal impacts (see diagram).

environmental impact

Rather than perceiving the economy as an ‘impact’, the use of economic activities is what a social enterprise does – a means. But this is different from the final ends, which are impacts on individual and groups (social), impacts on the planet (environment) and impacts on the relationship between people and groups (society).  Thus, economic activities are a means to an end and not an end in themselves.

A social enterprise has to ensure that it impacts on people and their livelihoods in a positive way ensuring prosperity and well-being.  I am defining prosperity here, as being more than money and distinct from wealth for its own sake.

All organisations and people have an impact on the environment.  At the very least, a social enterprise can monitor that it does not have an adverse or negative affect on the environment.

 In this model society is defined as the relationships between people and groups.  It includes the culture of a society – the way we do things, the rules and behaviours and the expectations of how things should be.  All social enterprises operate in a societal context and social enterprises in particular should monitor and at least account for their impact on the wider society in which they it operate – their contribution to a culture that promotes fairness, equality and the ‘common good’.

Social Accounting and Audit is not rocket science.  It is a holistic framework that enables an organisation to report on all aspects of its performance and impact, internally and externally.  It is only in having this well rounded view that an organisation can be in a position to improve and at the same time be able to prove thus evidencing its achievements and its contribution to social change.

Alan Kay, Social Audit Network (SAN), www.socialauditnetwork.org.uk

December 2015

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The need for social ‘audit’…

Is it me or is there a huge increase of almost epidemic proportions of social impact reporting amongst organisations and social enterprises that wish to explain the social difference they make.

This is to be welcomed, but it does raise the question of how much credibility we should attribute to these reports.  Some of them are well-researched and detailed, others are more grandiose in their claims – but surely there must be some way of ensuring they possess integrity and are a true representation of what the organisation has achieved and the social impact it has made.

Understanding what changes as a result of an organisation’s actions is important, but it is also important to know that the claims made, have integrity.  Thus, in the same way that financial accounts are given credence with an independent audit of the financial detail, it is clear that an account of the social change achieved by or organisation should be independently audited.  This would enable on organisation to be confident of its claims and would show it to be accountable to a wide range of its stakeholders as well as to the wider public.

Organisations often employ independent evaluators to assess the degree of change that has happened as a result of their activity.  This is fair enough, but it is expensive.  Should an organisation not, therefore, keep social accounts using a social book-keeping system comprising of output and outcome information – and then subject that account to a ‘social’ audit?  This would lie alongside the financial accounts and provide a more holistic picture of an organisation’s performance and impact.

The Social Audit Network (SAN) has be wrestling with these issues since the early 1990s.  Through the experience of working with grassroots organisations and believing that organisations themselves can be empowered by keeping a track of their own monitoring and evaluation, we developed a process of ‘social accounting and audit’.

Annually an organisation would produce a social account of its performance and impact.  This would then go to audit.  In the early development of the process, a single ‘social auditor’ was used and this worked up to a point.  However, a single person does not know everything and we plumped for the idea of having a panel of people – one who is a ‘social auditor’ and chairs the Panel meeting; at least one who knows the field of the organisation’s operation; and at least one other that knows the geographical area in which the organisation operates.  To keep the costs down only the chair gets paid and the others volunteer.

The independent panel meets with the organisation for one day, having received the Draft Social Accounts in advance, and goes through them in detail suggesting changes, revisions, etc.  There is a process which allows for feedback and discussion and also includes a random trail back to source materials and a checklist matching the draft against the eight social accounting principles (include here).

The Panel is not evaluating the organisation but, instead is assessing whether or not the Draft Social Accounts are credible.  Once revisions have been made the Panel issues a statement – similar to a financial audit statement – that says, in their opinion, the social accounts are a fair reflection of what the organisation has achieved in terms of its performance and impact over the last social accounting period.  The accounting process and audit is then built into the life cycle of the organisation.

In assessing the operations and activities of complex organisations over, say, a year, can be complex and result in long and complicated reports that have to be audited.  For this reason often an organisation will write a summary version that is more widely distributed.  However, this summary could not be written as an accurate document if the evidence had not been included in a more substantial report.

The social accounting and audit process is not completely fool-proof, but actual experience shows that it is effective and can provide valuable and impartial feedback to an organisation that not only wants to prove what it does but also want to improve in its effectiveness.

SAN believes that the audit part of social accounting and audit is essential. If not, we are going to get swamped with detailed reports, purporting to explain the social, environmental and cultural change that has happened as a result of and organisation’s activities…without necessarily knowing if we, as the wider public, can take them seriously or not.

The social audit should not become a way of consultants and other companies making money.  It is about subjecting what one says about the performance and impact of an organisation, is true, meaningful and based on acquired and collected information – both quantitative and qualitative.  It would re-assure the wider public of the authenticity of ‘social impact reports’ and at the same time can be used to plan focus and future actions.

These are key reasons why social audit is badly needed – particularly for organisations with a central purpose around social change.

Lastly it has to be said that carrying through with social accounting and audit is not for the faint hearted…  An interesting early quote about ‘ethical accounting’ (which has much in common with social accounting) is…

“Ethical accounting is not for softies or funks. It takes guts to hang your dirty linen in public and to walk your talk.” Jorgen Giversen, former CEO of SBN Bank

Alan Kay – Social Audit Network (SAN) – www.socialauditnetwork.org.uk