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Expanding Accountability to

Stakeholders: Trends andPredictions*

JEANNE M. LOGSDON AND PATSY G. LEWELLYN

T he stakeholder concept has transformed the language of

business responsibility by making more explicit the complex

and diverse relationships that firms have with individuals

and groups in society. It is widely accepted today that executives

have to pay attention to the expressed needs and preferences of

many interest groups. Indeed, public policy often institutionalizes

requirements for reporting about and to stakeholder groups. The

prudent executive will also pay attention to emerging concerns and

new groups that may affect public opinion about business practices

and behavior.One significant trend in society’s expectations of business is the

pressure to report information about the impact that business has

on perceived social problems. The most recent manifestation of this

trend is a move toward addressing stakeholder interests and “total

stakeholder accountability,” which is spurring the creation of stan-

dards, processes, and disclosure requirements for comprehensive

social audits.

This article begins with a brief review of the evolution of account-

ing and reporting to specific stakeholder groups in the United Statesand then examines the current movement to set global social

accountability standards. This movement is farther along in Western

© 2000 Center for Business Ethics at Bentley College. Published by Blackwell Publishers,350 Main Street, Malden, MA 02148, USA, and 108 Cowley Road, Oxford OX4 1JF, UK.

Business and Society Review 105:4 419–435

Jeanne Logsdon is a Regents Professor at the Anderson School of Management, University of New Mexico. Patsy Lewellyn is a John M. Olin Professor, Accounting, at the University of SouthCarolina Aiken.*We express our appreciation to Donna J. Wood and Kimberly S. Davenport for their helpful com-ments and scholarly support throughout this project. We also thank the Alfred P. Sloan Founda -tion, and Gail Pesyna for partial funding to complete the research.



Europe, but it is beginning to affect U.S. multinationals and is being

introduced within U.S. business circles. The significance for busi-

ness and for stakeholders should not be underestimated. Total

stakeholder accountability can reduce social conflict and antagonis-

tic business-and-society relations. And it can be good for business

too, if managers see the competitive advantages of early and authen-

tic responses to stakeholder needs and preferences.

REVIEW OF ACCOUNTABILITY TOINDIVIDUAL STAKEHOLDERS

The traditional American view of management responsibility resides

in market transactions within a legal framework of private property

rights and contract law. The neoclassical economic model prescribes

management’s role as fiduciary agent for the property owners, the

shareholders. Managers are to make decisions that will increase the

value of shareholders’ property. In free and competitive markets,

this is believed to ideally create optimal benefits for consumers

because managers will have to offer “good deals” in order to sell their

products and services. Contract law exists to adjudicate disputes

when one of the parties to a transaction cannot perform as specifiedin the contract. Thus, accountability for customer, employee, sup-

plier, and distributor needs is expected to be negotiated and moni-

tored by the market participants. According to neo-classical

economic theory, the result will be Pareto optimal —every resource

will be allocated to its highest and best use, and every participant

will achieve the best outcome s/he can expect. Such an outcome

meets the ethical principle of utilitarianism.

Because of market failures—markets don’t work perfectly—

the reality of management responsibility for and to stakeholdershas expanded to include specific expectations and requirements.

Many of these are embedded in government regulation that devel-

oped as the result of a crisis or after protracted social conflict

or because of special-interest influence. The following brief

review focuses on rules that have evolved for reporting business

practices about their treatment of traditional market-based and

nontraditional stakeholders—the shareholders, employees, con-

sumers, suppliers (including lenders), local communities, and the

natural environment.1

420 BUSINESS AND SOCIETY REVIEW



Shareholders

In economic theory, investors are expected to know or find out for themselves whatever information is important for them in protect-

ing their own interests. When organizations grow large and the

number of shareholders increases, shareholders elect a board of

directors to oversee the activities of top management and to protect

their interests. However, the economic crisis triggered by the 1929

stock market crash focused attention on the inability of typical

shareholders to know the risks of their investments, and it was

clear that boards of directors were often not able to oversee the

actions of top management in the shareholders’ interest. The Securities Act of 1933 and the creation of the Securities and

Exchange Commission (SEC) in 1934 put in place governmental

authority to prescribe rules for financial reporting for all firms

that intended to sell shares to the general public.2 For the first

time, companies in general commerce were required to disclose pre-

scribed financial information in a common format, and these

reports had to be audited by an independent party. The field of

“public” accounting evolved to audit financial reports and certify

that they had been prepared according to Generally Accepted Accounting Principles. An annual report had to be made available

to all shareholders, and a prospectus with specified information

had to be filed before new shares could be issued.

Over the past 50 years, the reality of management control of

information and influence over the board of directors has led to

more specific rules about how investors must be treated and

ever-more-specific requirements for reporting information relevant

to investors and to the operation of competitive stock markets. For

example, a number of rules have been promulgated by the SEC and

in state incorporation statutes about corporate governance and the

rights of minority shareholders. Regulations about reporting stock

transactions by company insiders have also become increasingly

stringent. In fact, the Wall Street Journal has regular reports on

these transactions so that every investor has access to very specific

information about inside trading.

JEANNE M. LOGSDON AND PATSY G. LEWELLYN 421



Employees

While the traditional economic model specified that employers andemployees would negotiate mutually beneficial labor contracts that

would cover pay, safety, and other working conditions, the reality

often did not satisfy the needs of low-level employees. Particularly

during periods when labor supply substantially exceeded labor

demand, such as during the 1890s and the 1930s, the bargaining

power of individual employees was virtually nonexistent.3 Some

protection of women and children in the labor force was enacted in

some states as part of the Progressive Era reforms in the early

1900s, but little more was done to reduce labor abuses. Agitationfor labor rights occurred over a long period but finally succeeded in

gaining legitimacy in the 1930s. The right to organize was recog-

nized with the Wagner Act in 1935 and subsequent formation of the

National Labor Relations Board.

Labor unions brought greater bargaining power, and the results

involved not only higher pay for union members but also an

increasing range of employee benefits. One of the most important

was and continues to be health insurance for the employees and

their families. Life insurance, disability, and pension coverage also became a standard part of the union-negotiated contracts in the

1950s and 1960s and then were ultimately extended to most

full-time workers, whether unionized or not. State legislation and

judicial decisions have, for the most part, strengthened employer

responsibility for employee welfare.

In addition to negotiated benefits, employees became protected

under a wide range of government regulations. One of the first to be

enacted at the federal level was the Minimum Wage and Hours Act

in 1938. Unemployment compensation and worker’s compensation

for injuries sustained on the job began to be enacted at the state

level, beginning in the 1930s. Worker safety standards for almost

all employers were authorized in 1970 at the federal level with

creation of the Occupational Safety and Health Administration.

Regular reporting of injuries in the workplace and occasional

inspections were instituted for all but very small employers. Most

recently, advance disclosure of substantial layoffs and plant

closings has become more common with the requirement of at least

60 days’ notice. This is intended to help workers and also




the network of local businesses and small communities that rely

on these large employers.

Fairness to women and minorities in offering employment and

setting wages came under public scrutiny in the 1960s. Criticism of

discriminatory treatment led to significant legislation to require

equal opportunity and equal pay for equal work for all members of

society. The Equal Employment Opportunity Act created require-

ments for reporting data annually on workplace composition for

employers engaged in federal contracting. Job discrimination

against handicapped employees was prohibited by federal contrac-

tors in 1973, and extended to all private employers under the Amer-

icans with Disabilities Act of 1990.

Consumers

The market encourages responsiveness to consumer stakeholder

concerns when consumers have repeat transactions and competi-

tive choices. But consumers frequently have unsatisfactory trans-

actions, object to business practices, or are subject to involuntary

harms, so both voluntary and mandated business standards

related to safety, information, and quality have emerged during thepast century.

Accountability for product safety has increased exponentially

since the minimal negligence standard of 1900. Higher standards of

negligence and expansion of the right-to-sue were put in place, and

strict liability for harms caused by products is now the

fundamental U.S. norm. Basic requirements for warranties apply

nationwide. Over time too, a number of specific regulations about

particular products, such as automobiles and prescription drugs,

provided minimum protection for consumers.Disclosure for consumer welfare is widespread. Warning labels

have virtually lost their power because they are so commonplace.

Americans tend to take for granted the availability of accurate con-

sumer information such as weights and measures, ingredients, and

nutritional content, but each of these categories of information was

controversial when mandatory disclosure was initially debated.




Local Communities, Suppliers, and Other

Business Relationships

There is now a widespread expectation that companies will make

positive contributions to the communities where they operate.

Often these are voluntary philanthropic contributions of money,

employee time, and products and services. Executives serve as

board members, advisors, and fundraisers to local nonprofit orga -

nizations and lead United Way campaigns. Companies are gener-

ally eager to disclose information about these activities to support

their claims of being “good corporate citizens.”

For potentially negative impacts on communities, voluntary responses and disclosure are not sufficient. It has not been

unusual for regulations to be instituted to protect local communi-

ties, including the business members of those communities. This

has been particularly striking in banking. Throughout U.S. history,

rules have been put in place to keep control of savings and banks in

the local community or, at least, within the state because of fears

that there would not be sufficient credit for homeowners, local

farmers, and small business owners. In response to criticisms that

credit was not available in poor neighborhoods and in exchange for loosening the rules against interstate banking in the 1970s, the

Community Reinvestment Act was enacted to require banks to keep

some lending within the local community and to report annually on

these community loans and investments.4

Commitments to use local suppliers have also been common for

dominant employers and large operations, such as auto plants, but

they usually are not mandated but rather voluntary activities to

maintain good community relations. One notable exception is the

domestic content rules that ensure that more local economicgrowth accompanies large investments by foreign-owned firms.

Another is the federal requirement to use a certain percentage of

minority- and women-owned suppliers or subcontractors on large

government-funded projects.

Linking this category to the next one dealing with the natural

environment, it is now required that firms which use or store haz-

ardous materials above certain quantities must report this use to

officials in nearby communities, typically emergency personnel

such as members of local fire departments. While some limits ondisclosure have been permitted to protect trade secrets, the




general norm now is that neighbors and communities have the right

to know of exposure to risk.

The Natural Environment

Firms that produce environmental pollutants or affect the physical

environment have many rules for disclosing their activities. Envi-

ronmental impact statements must be prepared in order to build or

expand operations. Managers must obtain permits and then moni-

tor and report pollution levels for many types of air emissions and

water effluents. A particularly effective use of disclosure has been

claimed for the Toxics Release Inventory, in which quantities of haz-ardous chemicals above minimum thresholds must be reported to

the federal Environmental Protection Agency. This information is

then made available to the general public. These chemical-level and

plant-level data have been published annually since 1989 and have

been credited with quite substantial voluntary reductions in uses of

the reported chemicals.

Since about 1990, we have observed a growing trend to provide

environmental reports of company operations to the general public.

These are voluntary, at least in the U.S., and are not subject to any required format or content rules. In fact, they are only very rarely

verified by an independent party. Nonetheless, such environmental

reporting has been hailed as a major step toward a genuine sense of

stewardship. Related to the external reporting of environmental

impacts is the recent development of voluntary ISO-14000 certifica-

tion guidelines. These guidelines focus on the institutionalization of

environmental management systems within firms that want to do

business outside their home countries. Companies that become

ISO-14000 certified will be able to use this designation to becomedesirable suppliers and distributors.5

Expanding Accountability

In summary, it is clear that business has been subjected to increas-

ing accountability requirements for impacts on individual stake-

holder groups. This process has been occurring at least since the

1930s in the U.S. Note that these requirements are not substitutesfor market and contract-based accountability. They represent an




additional layer of accountability. Some of these additions, such as

employee benefits, are primarily voluntary, but many others are

mandated by public policy at the federal and state levels.

This brief review of expanding expectations and responsibilities

to an increasing array of stakeholders serves to underscore the

point that business has become so central to human welfare that its

actions are subject to intensive public scrutiny. The intermediary

roles of activist groups, government, and the media are critical in

understanding this shift in business accountability. Issues evolve

through phases of awareness, expression, and mobilization of pub-

lic opinion.6 Public policies result. Firms may participate in these

phases and have some influence on the resulting regulations. But

in a fundamental sense, they do not control the outcomes.

IMPACTS ON MANAGEMENT

Increasing requirements for reporting impacts on stakeholders

have triggered growth in corporate staff and rising costs to gather,

interpret, and disclose information. New positions and specific

responsibilities within the organizational structure have certainly

made management more complex. Public affairs, governmentalaffairs, and community relations have assumed much greater

importance in large corporations, in part because external stake-

holders expect and often require information.7

Operations and line management have also been affected by

growing stakeholder accountability. An example involves process

assessment. Quality management systems were adopted by most

major U.S. companies in the 1980s in response to the successes of

Edward Deming in improving Japanese manufacturing processes.

The systems, often called Total Quality Management, or TQM,systems, required a business to identify drivers of process quality,

to measure the drivers, and to use the resulting assessment to

improve their internal processes.8 Today, companies widely employ

quality systems and become certified by ISO standards, including

9000/9001 industry standards of quality assurance, and 14000/

14001 environmental policies.

Also, computer technology has changed the capacity for collect-

ing and aggregating information and has provided the capability

to meet growing demands for disclosure. It is noteworthy that




some of the expansion with a stakeholder focus is not regulated,

but instead is embedded in the way that businesses are managed.

For example, managerial accounting has developed a much more

strategic orientation over the past decade. In addition to the tradi-

tional production focus of cost accounting systems, analytical tools

like the Balanced Scorecard are being implemented to link cus-

tomer satisfaction with standard financial performance measures.

Astute organizations see the increasing need for providing infor-

mation to their stakeholders. Over time we have seen a variety of

metrics developed to measure the non-financial performance of

businesses. For example, in the 1980s the TQM movement resulted

in information systems designed to monitor and assess processes

and their improvements. More recently, the Balanced Scorecard, a

framework in managerial accounting that integrates data from sev-

eral stakeholder perspectives (customers, internal processes, capi-

tal providers, and organizational learning), has gained widespread

support within the business community.9 Now we observe the

emerging collaborative efforts to standardize measurement of social

behaviors and report them to the general public. The issue of exter-

nal verification of accuracy has been raised for social reporting, just

as it was for traditional financial reporting.

TOTAL STAKEHOLDER ACCOUNTABILITY

Social reporting is an effort to aggregate various stakeholder infor-

mational requirements and expectations. Social reporting has its

roots in the early 1940s, and interest was renewed in the 1970s.

Most recently, a vigorous movement has emerged among large firms

in Canada, Scandinavia, and western Europe toward more compre-

hensive corporate reporting.

Emerging Expectations for Social Accountability

Social accounting and reporting embrace the notion that the corpo-

ration is responsible and accountable to the public for its actions

beyond financial performance. The social report, envisioned first in

the 1940s, remained theoretical until attention was renewed during

the 1970s.10

Some large corporations (such as Bank of America,General Motors, and Migros of Switzerland) began to provide such




reports voluntarily, but the movement lost momentum. Calls for

greater social accountability have re-emerged in the late 1990s con-

currently with the popularity of the “stakeholder” concept. This

trend is predictable, given the history of how information needs and

demands have evolved.

A growing number of companies, large and small, are implement-

ing social measurement and reporting. The Body Shop, UK, was a

1990s pioneer in this arena. It released its first social report to the

public in 1995. A flurry of controversy erupted about the report and

some allegedly intentional misinformation that it contained.11 Such

allegations, criticisms, and skepticism are foreseeable reactions to

new attempts on the part of corporations to communicate with a

broader audience. Following the lead of the Body Shop, other corpo-

rations have publicly released various non-financial performance

reports—Levi Strauss Corporation and Ben & Jerry’s Homemade,

Inc., are notable for their detailed social reports.

Many of the 1970s experiments in social auditing ran aground on

the lack of common standards for content, measurement, and

reporting format. In some cases this resulted in consecutive reports

that were not comparable, generating stakeholder concerns. Migros,

for example, observed in its first report (1976) that there was a large

wage discrepancy between male and female employees. In the sec-

ond report (1978), no comparable measures were included and the

issue was not even mentioned. Employees were distressed and

insisted that management provide the desired information plus an

analysis of the causes and possible solutions to the problem.12

Migros management responded in the third report (1980).

Social auditing in the 1990s has not yet solved the problems of

measurement and reporting consistency and accuracy, but the

mistakes of the past have become opportunities for current learn-

ing and improvement. Lack of consistency in what is measured andhow it is reported has spurred several initiatives toward standard-

ization, and these are discussed in the next section.

Development of Standards

At least three relatively independent initiatives are focusing on the

development of accountability standards. The most comprehensive

effort at this time is that of the Institute for Social and Ethical Accountability (ISEA). A second effort is the Global Reporting




Initiative (GRI), which is sponsored by the Coalition for Environ-

mentally Responsive Economies (CERES) and emphasizes business

impacts on the physical environment. The third effort, SA8000,

concentrates on developing consistent standards for labor and

workplace practices of suppliers and is championed by the Council

on Economic Priorities Accreditation Agency (CEPAA).

Established in 1996, ISEA’s primary mission is to develop stan-

dards for social accountability that will be widely embraced and

consistently applied. Its agenda prioritizes the development of a

framework for accountability that includes principles, processes,

and process standards for reporting social and ethical behavior.

Also, the organization proposes to develop tools, formats, and indi-

cators for reporting social behaviors, and is in the process of devel-

oping appropriate training and certification of independent social

auditors.

At its second conference in 1998, ISEA distributed a draft of rele-

vant concepts and terminology. In January 1999, ISEA and the

Association of Chartered Accountants (UK) announced the initiation

of a social reporting award, underscoring the increased visibility of

corporate social accountability. In response to the proliferation of

attempts to develop standards regarding non-financial performance

that have emerged in recent years, ISEA developed the AccountAbil-ity (AA) 1000 standards and process model, around which existing

and emerging accountability standards can be organized. The expo-

sure draft, distributed in November 1999 and summarized in Table

1,13 also provides for an independent verification process for commu-

nicating social and ethical performance.

The principle of stakeholder accountability (as opposed to share-

holder) is central to the framework for social auditing. In contrast to

financial accounting, which assumes a one-dimensional business

value—wealth creation—the AA1000 framework expands the relevant values to include performance targets relevant to a broad array

of stakeholders, multidimensional assessment of performance, and

extensive communication of results. By focusing on stakeholder

engagement throughout the processes of accountability, the frame-

work is intended to link social and ethical issues to business strat-

egy. That is, by articulating business values that are aligned with

those of stakeholders, management determines the relevant mea-

sures of business performance and creates the information and





Hierarchy of Characteristics:

Accountability: Transparency, Responsiveness, Compliance

Inclusivity: All Stakeholders

Scope and nature of process

Meaningfulness of information

Management of process

CompletenessMateriality

Regularity/timeliness

Quality assurance Accessibility

Information quality

EmbeddednessContinous

improvement

AA1000 Process Standards

Planning

P1-Establish commitment and governance procedures

P2-Identify stakeholders

P3-Define/review values

Accounting

P4-Identify issues

P5-Determine process scope

P6-Identify indicators

P7-Collect information

P8-Analyze information, set targets, and develop improvement plan

Auditing and reporting

P9-Prepare report(s)

P10-Audit report(s)

P11-Communicate report(s) and obtain feedback

EmbeddingP12-Establish and embed systems

Source: AccountAbility (AA 1000). Standards, guidelines, and professionalqualification [exposure draft], (London, Institute of Social and Ethical

Accountability) 1999.

TABLE 1. AA1000 Principles



reporting system to manage, measure, and report on a broader set

of issues.

A second effort is the CERES Global Reporting Initiative (GRI),

which also released an exposure draft of Sustainability Reporting

Guidelines in 1999. The GRI Reporting Guidelines were created to

standardize the measurement and reporting of non-financial perfor-

mance. More narrow in scope than AA1000, the GRI Guidelines

are currently being “test-driven” by a group of non-governmental

organizations and companies representing a variety of industry seg-

ments, and will be revised in 2000 to incorporate refinements sug-

gested by the pilot study. Several companies have recently released

sustainability reports that are based on the GRI reporting format,including Bristol Myers Squibb, Procter & Gamble, and General

Motors. In contrast to AA1000, GRI guidelines are substantive and

specific in terms of form and content for reporting on the “triple bot-

tom line,” a term used to define sustainability of business in terms of

financial, environmental, and social performance.14

The third effort to develop accountability guidelines is being

championed by an American organization, the Council on Economic

Priorities Accreditation Agency (CEPAA). Modeled on ISO 9000 qual-

ity control and ISO 14000 environmental management standards,the CEPAA SA8000 system provides standards for assessment,

monitoring, and influencing social accountability of suppliers and

vendors. SA8000 is a certification program that verifies the exis-

tence of a minimum level of performance in the following areas: child

labor, forced labor, health and safety, freedom of association, dis-

crimination, disciplinary practices, working hours, compensation,

and management. SA8000 certification provides evidence to poten-

tial customers that the vendor/supplier is managing human

resources according to established international standards, regard-less of geographic location or local social values.

These three standardization efforts are independent and focus

on different specific content, but they are ultimately complemen-

tary. ISEA’s aim is to develop a process standard for social account-

ability that would result in dialogue with all relevant stakeholders

and a means of communicating effectively with them. The

CERES-sponsored GRI is a content standard, analogous to Gen-

erally Accepted Accounting Principles (GAAP), emphasizing what to

report, and how, in terms of environmental impacts. CEPAA’sSA8000 is a normative standard, promoting a certification program




for suppliers and vendors to verify that suppliers in a company’s

value chain are not seriously violating human rights in the

workplace.

All of these efforts, like the ISO standards, are voluntary, not

mandatory. Each is important to its particular domain of stake-

holder impacts, and together these kinds of approaches to stan-

dardization are likely to become more common and much more

accepted. By themselves, however, they will not have the impact of

regulatory requirements, and in global business there is no institu-

tion or body that can effectively enforce mandatory requirements.

However, voluntary standardization efforts may create conditions

and pressures among stakeholders that will enhance business’s

social reporting and social performance. And, proactive managers

will become familiar and more comfortable with the implementation

challenges of total stakeholder accountability. Firms will begin to

position themselves as suppliers of goods and services that do not

harm the environment, use child labor, and so forth, and they will

need some accepted source of approval to attest to the validity of

their claims.

WHAT TO EXPECT AND HOW TO RESPOND

As relationships between firms and a broader range of stakeholders

become more developed and commonplace, the nature of their com-

munication might be transformed into genuine dialogue. Current

tools and practices for measuring nonfinancial performance (e.g.,

the Balanced Scorecard) generally solicit input from various stake-

holder groups. We contend that stakeholder groups will be unwill-

ing to participate in one-way communication over the long- term.

Expectations for feedback, influence, and evidence of corporateresponsiveness to social/environmental issues and concerns will

likely increase.

Greater dialogue between business and their various stake-

holders will logically result in greater mutual understanding,

respect, and longer-term commitment in support of mutual welfare.

Greater transparency will likely engender greater levels of public

trust for business. As with disclosure of financial performance,

managers’ concerns about public scrutiny and fears about loss of




competitive advantage are likely to abate as standards and mea-

sures of social behavior become consistent.

Increased dialogue between business and stakeholders, com-

bined with modern electronic communications, will result in accel-

erated learning by external players. No longer able to rely on

traditional marketing campaigns to successfully sway consumer

preference and opinion in the absence of complete information,

companies will face challenges of increasing communication and

information available to and among consumers. Likewise, growing

consumer adoption of information technology will require more

sophisticated business information systems that can respond to

increasing informational demands by stakeholders.

For the general acceptance of measures of social performance

to come about, more sophisticated measures and tools must be

developed. Financial reporting standards evolved in a series of

negotiations and compromises. Similarly, collaboration between

executives, scholars, accountants, and various stakeholder groups

is a desirable incubator within which nonfinancial metrics and

reporting standards can be developed. A good model of such collab-

oration is the diverse expertise represented on the ISEA Council,

where many perspectives and varied backgrounds are being

employed in the development of social accountability standards. What will likely be the effect on organizations that resist the

movement toward social accountability? It is conceivable that, as

the public comes to expect more and more transparency from busi-

ness, organizations that fail to comply with the informational

demands of their constituents may well risk public criticism, skep-

ticism, and ultimately, loss of reputation. Research on corporate

reputation supports the logical correlation between corporate repu-

tation and financial performance. Companies whose long-term

objective is sustainability should not ignore this link. We havedescribed an evolution from the classical economic model of the

firm to a stakeholder model. It is not a huge leap to propose that

comprehensive transparency will become a critical competitive

factor for business organizations of the future.




SUMMARY AND CONCLUSION

This article is intended to describe an increase in accountability of

business practices with respect to stakeholders. This phenomenon

is not new. It is rather an evolution of increasing expectations and

corresponding competence in accountability. It is hoped that this

article provides scholars and practitioners with a platform for con-

structive dialogue in dealing with changing stakeholder expecta-

tions. Progressive responsiveness is evident. For example, in the

1970s, the idea of environmental accountability seemed both radi-

cal and impossible. In the 1980s, companies in pollution-intensive

industries began to experiment with internal environmental audit-ing. In the 1990s, environmental measurement had become more

routine, and companies themselves were championing voluntary

environmental reporting to the public.

In the future we predict that the expectations currently being

written into voluntary accountability standards will seem common-

place. The emerging tools of total stakeholder accountability will be

added to the familiar tools of financial measurement after a period

of testing and negotiation. Business would do well to participate

actively and positively in these efforts. The ultimate result requiresthe cooperation of firms to achieve sustainability via the triple bot-

tom line—an integration of financial, environmental, and social

performance.

NOTES

1. For a thorough explanation of neoclassical market theory, see LaRue

Tone Hosmer, The Ethics of Management , 3rd ed. (Chicago, IL: Irwin, 1996),esp. ch. 2.

2. Prior to the 1930s, companies in certain regulated sectors, such as

railroads and public utilities, were required to follow uniform accounting

standards and provide specific financial performance data. Bankers often

required an independent audit of financial data before granting or

extending loans. Stock exchanges encouraged voluntary disclosure of

financial performance. Annual independently audited financial reports

were not required by stock exchanges until 1933 and then mandated by the

SecuritiesExchangeAct of 1934. See JohnCarey,The Rise of the Accounting Profession: From Technician to Professional 1896–1936 (New York: AICPA,




1969); also Robert Chatov, Corporate Financial Reporting: Public or Private

Control? (New York: Free Press, 1975).

3. For an excellent explanation of bargaining power disparity and other

rationales for government regulation, see Alan Stone, Regulation and Its

Alternatives (Washington, DC: Congressional Quarterly Press, 1982).

4. Edmund Burke, Corporate Community Relations: The Principle of

Neighbor of Choice (Westport, CT: Praeger, 1999).

5. A recent report on voluntary environmental reporting by corpora-

tions is the KPMG International Survey of Environmental Reporting 1999 ,

available at www.wimm.nl/ukindcx.htm. For information on ISO 14001,

see Christopher Sheldon (ed.), ISO 14001 and Beyond (Sheffield, UK:

Greenleaf Publishing, 1997).

6. Steven L. Wartick and John F. Mahon, “Toward a Substantive Defini-

tion of the Corporate Issue Construct,” Business & Society 33(3) (1994),

293–311.

7. James E. Post and Jennifer J. Griffin, The State of Corporate Public

Affairs: Final Report (Washington, D.C., Foundation for Public Affairs,

1997).

8. A historical overview of the Total Quality Management movement is

found in Robert E. Cole, “Learning from the Quality Movement: What Did

and Didn’t Happen and Why?” California Management Review , 41(1) (1998),

43–73.

9. Jeanne M.Logsdon and Patsy G. Lewellyn, “Stakeholders and Corpo-

rate Performance Measures: An Impact Assessment” in J. Logsdon and D.

Wood, Research in Stakeholder Theory 1997–98 : The Sloan Foundation

Minigrant Project (Toronto,Clarkson Centre forBusiness Ethics, University

of Toronto, 2000).

10. David H. Blake, William C. Frederick, and Mildred C. Myers, Social

Auditing: Evaluating the Impact of Corporate Programs (New York: Praeger

Publishers, Inc., 1976).

11. Values Report 1997. The Body Shop International PLC, England.12. Migros Social Report (1976, 1978, 1980).

13. AccountAbility (AA1000): Standards, guidelines, and professional

qualifications [exposure draft], (London, Institute of Social and Ethical Ac-

countability, 1999).

14. Global Reporting Initiative, exposure draft. March 1999. Coalition

for Environmentally Responsible Economies, Boston, MA. (The final draft

was issued in summer 2000, after this article was written.)


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