adams 2004 the ethical, social and environmental reporting gap

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The ethical, social andenvironmental reporting-

performance portrayal gapCarol A. Adams

School of Accounting, Economics and Finance, Deakin University, Burwood,Australia

Keywords Management accountability, Financial reporting, Ethical investment,Social responsibility

AbstractThe purpose of this article is twofold. First, it assesses in detail the extent to whichcorporate reporting on ethical, social and environmental issues reflects corporate performance in

case study company Alpha. This reporting-performance portrayal gap is a key measure of theextent to which an organisation is accountable to its stakeholders. Alphas disclosures concerningits ethical, social and environmental performance for the years 1993 and 1999 were comparedwith information obtained on Alphas performance from other sources. Two different pictures of

performance emerged leading to the conclusion that, in the case of Alpha, reports do notdemonstrate a high level of accountability to key stakeholder groups on ethical, social andenvironmental issues. Of particular concern is the lack of completeness of reporting. Second, thearticle assesses the potential of recent standards or guidelines developed by the Global Reporting

Initiative (GRI) and the Institute of Social and Ethical AccountAbility (AccountAbility) as well asthe industrys own responsible care initiative to reduce this reporting-performance portrayal

gap and improve corporate accountability. The conclusions point to the need for other measures toimprove accountability including mandatory reporting guidelines, better developed audit

guidelines, a mandatory audit requirement for MNCs and a radical overhaul of corporate

governance systems.

IntroductionEthical reporting by companies has become increasingly prevalent since the mid-1980sand there is a comprehensive body of academic literature charting the extent to whichmultinational companies (MNCs) in particular report on ethical, social andenvironmental issues. The term ethical reporting encompasses reporting on all:

. . . those factors which are used by ethical investment funds to form an opinion on theappropriateness of an organisations business practices (see, for example, Harte et al., 1991;Rockness and Williams, 1998). This may not include much of the information on employeesthat is generally considered to fall within the definition of social reporting, but may include

other issues which are not generally considered as social reporting. Environmental

The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at

www.emeraldinsight.com/researchregister www.emeraldinsight.com/0951-3574.htm

The author would like to thank the Chartered Institute of Management Accountants for fundingthis research. The author is particularly grateful to Yvonne Laing who acted as a researchassistant on the project and who identified many of the sources of information. The author is alsograteful to Geoff Frost, Dave Owen and the participants at the 2001 APIRA conference at theUniversity of Adelaide for their comments on an earlier version of the paper, to the anonymousreviewers and to James Guthrie and Lee Parker. All views expressed are those of the authorunless otherwise stated.

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Received 13 November 2003Revised 24 February 2004

25 February 2004Accepted 26 February 2004

Accounting, Auditing &Accountability Journal

Vol. 17 No. 5, 2004pp. 731-757

q Emerald Group Publishing Limited0951-3574

DOI 10.1108/09513570410567791


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reporting is clearly a subset of ethical reporting and generally also considered a subset ofsocial reporting, but as the most common type of social and ethical reporting, warrants aseparate label (Adams, 2002, p. 247).

Some attention has also been paid to analysing what and how companies report onparticular issues and the quality of that reporting. A great deal of effort has been putinto examining why companies report what they do. Such work must continue givenhow rapidly the field of ethical, social and environmental reporting continues todevelop internationally and given the changes in the social, political and technologicalcontext in which these developments are taking place. This study, however, examinesin detail what one company does not report and how corporate portrayal of ethical,social and environmental performance compares with the portrayal of performance insources originating from outside the corporation. Such an examination allowsconclusions to be drawn about the extent to which a company has discharged its dutyof accountability to stakeholders.

Accountability can be defined as the giving of an account encompassing, for the

purposes of this article, both the account itself and the process followed in providingthat account to stakeholders. Nowadays, stakeholders are demanding the giving of anethical, social or environmental account as well as a financial account. Somecompanies instead now produce sustainability reports, but they sometimes focus onsustainability of the business rather than environmental sustainability. For example,Barry Stickings, President of the Chemical Industries Association and Chairman ofBASF, finished his lecture to the Royal Society of Edinburgh on sustainabledevelopment through innovation, with the statement:

I see the continuing debate over sustainable development as an opportunity for responsibleindustries such as ours to rehabilitate the word, profit and bring the positive role of profitsback to the centre-stage of public debate (Stickings, 2001, p. 27).

Rather than being concerned with profits and financial accountability, accountabilityas far as this article is concerned demonstrates corporate acceptance of its ethical,social and environmental responsibility. As such the account given should reflectcorporate ethical, social and environmental performance.

One of the means by which companies can provide such an account is through ahard copy report. A good ethical report should be transparent and represent agenuine attempt to provide an account which covers negative as well as positiveaspects of all material impacts. To be accountable, reports need to demonstratecorporate acceptance of its ethical, social and environmental responsibility. Suchacceptance can be demonstrated through a clear statement of values withcorresponding objectives and quantified targets with expected achievement dates.Companies should then report performance against those targets. Reports should give

a balanced view of key ethical issues facing the company.Perhaps the most serious problem with current reporting, and the key one

addressed in this paper, is its lack of completeness. If reports are to be completecovering all material aspects from a stakeholder perspective, then key stakeholdersmust be consulted. The process of that consultation and the governance structures inplace to ensure that stakeholders are heard are also an important consideration inmoving towards completeness. The different goals of companies and theirstakeholders means that reports cannot be complete unless stakeholders are

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consulted. And yet the much greater power of companies in this process means that thecorporate perspective will dominate and stakeholder dialogue could become theultimate legitimating tool. If an organisation can say it has consulted stakeholders indeciding what to report it makes it harder to question the content of that report. Yet it is

difficult to imagine how reporting can satisfy stakeholder demands if they are notconsulted. It is perhaps more difficult to see how the corporate duty of accountabilitycan be discharged without involving stakeholders in the process. As such processesand governance structures should also be covered in the report. Prior work whichhighlights specific areas in which a sample of companies have failed to be accountableinclude:

. Adams et al. (1995) with respect to equal opportunities disclosures;

. Adams and Kuasirikun (2000) with respect to ethical issues in the chemical andpharmaceutical sectors; and

. Deagan and Rankin (1996) with respect to successful prosecution underenvironmental legislation.

This prior work uses information available from other sources and points tonon-disclosures that are material to key corporate stakeholders. The reasons fornon-disclosure include a reluctance to report on negative impacts (Adams, 1999) andthe social and political context at the time disclosures were made (Adams and Harte,1998). This paper examines the extent of non-disclosure in detail for one company,Alpha[1], in two different years.

The moral arguments for greater corporate accountability arise from the increasesin size, power and global spread of multinational companies and increased awarenessof the impacts of companies on the environment and local communities. This increasein awareness has been brought about by the media, the Internet and the action ofnon-government organisations (NGOs) (see, for example, Commission of the European

Communities, 2001).In the context of little ethical, social and environmental auditing, a call for

stakeholder involvement in the audit process (Commission of the EuropeanCommunities, 2001) and of a huge audit expectations gap (see, Kamp-Roelands,1999; Owen et al., 2000), the assessment of the comprehensiveness or completeness[2] ofreporting provided in this paper is intended to give an indication of the extent to whichstakeholders can rely on corporate reporting as a means of assessing corporateperformance.

The work also briefly assesses the extent to which the current voluntary guidelinesof the Global Reporting Initiative (GRI) and the Institute of Social and EthicalAccountAbility (AccountAbility)[3] might improve corporate accountability. Theseguidelines are recent and assessment of them is essential if they are to avoid the

concerns surrounding the Sullivan principles and the way in which they masked poorperformance, legitimised the corporate perpetrators and yet impressed investors(Arnold and Hammond, 1994; Patten, 1990). The GRI guidelines were selected forconsideration because of their high international profile and influence andAccountAbilitys AA1000 standard because of its unique focus on the processes ofaccountability.

The article examines the reporting of Alpha for 1993 and 1999 comparing it with theportrayal of that companys performance gleaned from an examination of sources


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external to the company. The identity of company Alpha has not been disclosed andnames of products, reports, projects, initiatives and other company specificterminology have been changed. The intention is to allow the reader to focus on theaccountability issues that the paper addresses rather then being influenced by their

own recollections of possibly biased portrayals on the part of the company, the mediaor NGOs. The constraint of not revealing the companys identity has also served tofocus the writers attention on the purpose of examining the ethical, social andenvironmental portrayal gap rather than simply revealing those gaps.

Alpha is a large, multinational company operating in an industry in whichenvironmental impacts and health and safety issues are significant. Importantly,Alpha disclosed in its environmental report for 1993 that it participated in the writingof the voluntary responsible care guidelines of the European Chemical IndustryAssociation (CEFIC).

Current developments in the field of ethical reportingThe purpose of this section is to review current developments in the field of ethical(including social and environmental) reporting and its processes in order to allow anassessment of Alphas reporting in relation to those developments. The review allowsan assessment of the extent to which those developments themselves might addressany shortcomings in the quality and extensiveness of reporting.

Whilst legislation is unlikely to lead to increased accountability in the UK, the dutyto account for ethical, social and environmental impacts is being increasinglyconsidered and captured by legislators around the world. For example, Australia,Denmark, The Netherlands, Norway, Sweden and the US all have mandatoryrequirements that companies report to the public on their environmental performance(KPMG, 1999). In the UK, only 37 of the FTSE 100 companies produce a separate

environmental report (Skorecki, 2001, p. 18) and the proposals in the final report of theCompany Law Review (The Company Law Review Steering Group, 2001) are unlikelyto lead to improvements in accountability. They leave it to directors to decide whetheror not information is:

. necessary to an understanding of the business (p. 51);

. material (p. 51); and

. necessary for an effective report (p. 51).

In contrast, the UK Pensions Act (1995) now requires pension plans to state the extentto which ethical, social and environmental considerations are taken into account whenmaking investment decisions. Change is slow with Friends of the Earth finding thatonly ten pension plans out of 100 contacted supplying information showing that they

had good statements on socially responsible investing, monitoring mechanisms anddirect engagement on these issues by money managers (Payne, 2001, p. 15). However,in April 2001, Morley Fund Management announced that it would vote against theresolution to adopt the report and accounts of any FTSE 100 company that did notproduce a separate environmental report (Skorecki, 2001). Similar legislation is beingintroduced in Australia and Germany. Another important development in the fieldwhich may lead to further legislation in Europe was the publication of the EC GreenPaper, Promoting a European framework for corporate social responsibility

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(Commission of the European Communities, 2001, p. 3) which seeks to bring greatertransparency and to increase the reliability of evaluation and validation.

Credibility would be added to corporate accounts of their performance if they wereexternally audited and data verified as part of the accountability process. However,

currently, few published reports are verified or audited and the European Commissionrecognises that:

Verification by independent third parties of the information published in social responsibilityreports is also needed to avoid criticism that the reports are public relations schemes withoutsubstance. Indeed such services are already beginning to be offered by a variety ofcompanies, which would seek to perform them following agreed standards. The involvementof stakeholders, including trade-unions and NGOs, could improve the quality of verification(Commission of the European Communities, 2001, p. 18).

Where assurance statements are provided, credibility would be enhanced by theavailability of generally applicable assurance principles and guidelines, such as thosebeing developed by AccountAbility (ISEA, 2002).

With regard to voluntary reporting standards, there are two significantorganisations involved in their development at an international level. These are theInstitute of Social and Ethical AccountAbility (AccountAbility), formed in 1996 and theGlobal Reporting Initiative (GRI) formed in 1997. Both are international,multi-stakeholder organisations with greatest influence coming from Westerndeveloped nations[4].

The AA1000 standard was published by AccountAbility in 1999 (ISEA, 1999a, b). Itdoes not attempt to identify issues to be addressed, but rather focuses on the processesby which companies report on their impacts. This focus is based on the premise thatunless, for example, corporate values are embedded, and unless governance systems,data collection systems, reporting mechanisms and audit processes are sound,

reporting is unlikely to be representative of performance or reflect stakeholderinformation needs. The AA1000 principles have been influenced by the principles offinancial accounting, but a key addition is the principle of inclusivity referring to thereflection of the aspirations and needs of all stakeholder groups at all stages of theaccounting, auditing and reporting process. Stakeholders are defined as an individualor group of individuals who affect and/or are affected by an organisation and itsactivities (ISEA, 1999b, p. 93). Customers, suppliers, employees and shareholders arerecognised as stakeholders by most companies. Other stakeholders of companies in thechemical industry include local communities, politicians, the government, the media,trade unions, Friends of the Earth, Greenpeace, the Pesticides Action Network, theRoyal Society for the Protection of Birds and Amnesty International. Recognising the

complexity of stakeholder identification, AA1000 recommends that stakeholders assistin the identification of other stakeholders. Thus, the development of robust stakeholderengagement mechanisms is an integral part of the AA1000 process and is encapsulatedby the principle of inclusivity, which is supported by, and infuses the operationalmeaning of, the remaining AA1000 principles. These can be divided into three broadgroups, relating to:

The scope and nature of the organisations process; the meaningfulness of information; andthe management of the process on an ongoing basis (ISEA, 1999b, p. 10).


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The principles, which relate to the scope and nature of the organisations process arecompleteness, materiality and regularity and timeliness. Those relating to themeaningfulness of information are quality assurance, accessibility and informationquality (including comparability, reliability, relevance and understandability). Those

relating to the management of the process on an ongoing basis are embeddedness andcontinuous improvement.

This emphasis on stakeholder dialogue, and the call for it to be linked withgovernance structures, is an important development. AA1000 calls for stakeholderdialogue mechanisms which give stakeholders power. In practice many (deliberately)lack this robustness and inclusivity is not achieved (Adams, 1999). Some peopleworking in this field within companies have highlighted to the writer problems ofattaining inclusivity with which they are grappling. These include lack of stakeholderawareness of, and even concern for, corporate impacts. This might be industry specificor region specific and even where there is corporate will, some companies claim to havedifficulty getting stakeholders to engage with them. Others have complained moreexplicitly of stakeholder fatigue in that the same stakeholder representatives arebeing consulted by a number of companies. One way of reducing stakeholder fatiguemight be to engage with stakeholders on some levels on an industry basis usingindustry association as a vehicle[5].

There is a plethora of voluntary guidelines and standards covering various aspectsof ethical, social and environmental reporting and the AA1000 Framework (ISEA,1999b) shows how AA1000 and several of these other voluntary guidelines are linked.

The GRIs Sustainability Reporting Guidelines first published in 2000 (GRI, 2000,2002) focus primarily on the content of sustainability reports, but incorporate some ofthe principles or characteristics of AA1000. GRI (2000) recommends a structure forGRI reports with six key elements:

(1) CEO statement.

(2) Profile of reporting organisation.

(3) Executive summary and key indicators.

(4) Vision and strategy.

(5) Policies, organisations and management systems.

(6) Performance.

GRI (2002) moves the CEO statement to the vision and strategy section and removesthe separate executive summary statement requirement. It adds a GRI content indexto show where information is located in the organisations report. It gives guidance asto the content of each section. The GRI (2000) guidelines also call for reporting on thebasis of selection of major stakeholders and approaches to stakeholder consultation,

but give little guidance as to how either might be done. GRI (2002) further requirescompanies to report on the output and outcomes of stakeholder consultations.

Limited stakeholder dialogue is also called for in the OECD Principles of CorporateGovernance (OECD, 1999). However, although the principles recognise that social,ethical and environmental impacts can have an impact on corporate reputation andlong term success, their stated attention is on the governance problems arising fromthe separation of ownership and control. They call for performance-enhancingmechanisms for stakeholder participation (p. 20) and disclosure of material issues

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regarding employees and other stakeholders (p. 39), but there is little guidance on howsuch processes or issues should be determined. The World Banks CorporateGovernance A framework for implementation (World Bank, 1999, pp. 11-12) alsoaddresses the principal-agent problem, but suggests that:

. . . the corporate governance framework should encourage active co-operation betweencorporations and stakeholders in creating wealth, jobs and financially sound enterprises . . .

However, the document talks about the boards accountability to shareholders, notstakeholders. There is no recognition in either the OECD or World Bank documents ofthe conflicts that arise between stakeholder and shareholder demands, for example,when money has to be spent to protect human, animal, bird and fish plant and healthlife or provide for adequate and safe labelling of products.

Also at an international level there are the responsible care guidelines developed bythe chemical industry and overseen by the International Council of ChemicalAssociations (ICCA). The European Chemical Industry Association (CEFIC) firstpublished its own guidelines in 1993 that were revised in 1998 (CEFIC, 1998). Theyinclude 16 core indicators. Three of these are concerned with health and safetyoutcomes, one with distribution incidents and the remaining 12 with environmentaloutcomes concerning emissions and discharges of toxic substances and wastemanagement. National federations are encouraged to add further indicators reflectingnational concerns and each produces its own responsible care report (CEFIC, 1998).Each national federation collects data from its member companies for aggregation atthe national level.

Many companies are still not reporting on the 16 core indicators and in this respectAlphas reporting is superior to many others in the industry. At the CEFIC 2000Responsible Care conference held in Lisbon[6] there was a recognition that CEFIC andthe national industry federations need to find ways of encouraging small- and

medium-sized enterprises (SMEs) to report (Elghamry, 2001). There was alsorecognition that more needed to be done to facilitate reporting by Eastern Europeancompanies where there is still a significant proportion of government ownership andconcern for economic survival (Beacham, 2001). Cultural attitudes were cited as areason for non-reporting in some countries. Amongst other points discussed werewhether broader ethical and social issues as well as health, safety and environmental(HSE) issues should be included in the core indicators, the need for global reportingstandards and issues of divergence between global standards and responsible careguidelines. In particular, there was concern that any other development in responsiblecare should be compatible with GRI.

Despite having voluntary guidelines and reporting levels higher than many otherindustries, the industry still has a dirty image (see, for example, Tombs, 1993, referring

to MORI poll results). One problem may be that few companies in the industry, despitetheir high environmental and social impacts, stand out for innovative reporting. It isquite probable that the responsible care guidelines themselves have stifled innovation,with some companies focussing only on what they require. The lack of breadth ofreporting in this sector may be a case in point. King and Lenox (2000) argue thatcompanies may sign up to industry association guidelines as a form of insuranceagainst claims of negligence. Indeed, using data from the US Environment ProtectionAgencys (EPA) toxic release inventory (TRI) they found that firms with weaker


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environmental performance were more likely to sign up to responsible care. Suchfindings lead to expectations of limited accountability confirmed by research carriedout in the US by the Public Interest Research Group (PIRG) (Mullin, 1998). Druckrey(1998) head of responsible care for der Verband der chemischen Industrie (VCI), the

German chemicals industry association, argues that there is a need for regulation at aninternational level that individual national governments cannot provide. She believesthere is an ethical vacuum to be filled by responsible care and does not like it seen asthe chemical industrys public relations campaign.

There is currently a low level of reporting on issues known to be of concern tostakeholders, but which are not amongst the 16 responsible care core indicators. Theseinclude (Adams and Kuasirikun, 2000; UNEP, 2000):

. equal opportunities;

. working conditions around the world;

. policies regarding foreign direct investment;

. export of dangerous products or those banned in the home country;

. labelling and packaging of chemicals; and

. other product safety issues.

The same applies to environmental issues. Whilst the responsible care indicators areconcerned with levels of emissions or discharges, stakeholders are at least as concernedwith what is being done to reduce emissions and discharges of toxic substances, whatthe corporate targets are and why they have not been met. UNEP (2000) further raisesconcerns about the increasing use of fertiliser in less developed countries and itsimpact on the nitrogen loading. These findings apply to the industry in general whilstthe next section reports on how issues omitted specifically from Alphas reports werefound.

Background information on Alpha and research methodThe nature of Alphas business has changed significantly since 1993. During 1993, partof Alphas business was demerged into company Beta. At the end of 1993, Alpha wasdivided into a number of international businesses differentiated by product type. Sincethen, Alpha has bought more businesses and divested others.

Alpha produced its first environmental report in 1992 and has continued to produceone each year. The first report was 16 pages, only available in hard copy and sent to allshareholders. The report produced in 2000, covering the calendar year 1999, is packedwith data and available on the Internet. A distinct hard copy format is no longeravailable. Prior to production of a separate environmental report, Alpha covered somehealth, safety, environment and community involvement information in its annual

report.The report produced in 1992 incorporated data on wastes to land, air and water for

1990 and 1991 and a commitment to reduce these wastes by 50 per cent using 1990 as abaseline, by 1995. The report produced in 1996 reported progress on that objective andlaunched the Environment Plus Challenge 2000 which expanded the previous focus onthe environment by also setting targets for safety, health and product stewardship. In1996, Alpha launched its approach to measuring environmental impact. It involvesassigning a factor to each individual emission reflecting its impact in various

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environmental categories such as global warming, ozone depletion, etc. The factors aretaken from scientific literature. The environmental impact of emissions is thencalculated for each environmental category by summing the weight of each substanceemitted multiplied by its potency factor. The intention of this is to allow Alpha to

identify its most harmful emissions and provide stakeholders with a better assessmentof Alphas environmental impacts.

The 1990s were therefore a decade of change for Alpha with regard to both thenature of its business and the development of ethical, social and environmentalreporting. The selection of 1993 and 1999[7] offers the opportunity to determine theextent to which Alphas increased experience and expertise (as evidenced, for example,by the development of an approach to measuring environmental impact) have resultedin reporting which addresses stakeholder concerns and reflects performance. The year1999 was selected because it was the most recent reporting year at the time of datacollection and 1993 because it was one of Alphas early separate reports thus allowingthe company to learn from its earlier reports, and its publication followed the demergerof Beta.

Initial searches for data from non-Alpha sources were conducted on all years in the1990s that Alpha produced a separate report finding critical stories in each year. Thiswas followed up with more detailed and extensive searching for and collection of, datafor the two years 1993 and 1999 in order to ensure that the data set was complete as faras possible. The view was taken that where impacts were reported in non-Alphasources as occurring in a particular year they should, if the reports were to demonstrateaccountability, be reported in Alpha sources covering that same year. Where they werenot, a check was made of the following years Alpha reports where impacts weresignificant.

A wide variety of sources including databases, reference books and Internet siteswere consulted in building up a picture of Alphas ethical, social and environmental

performance[8].The search covered information on all ethical, social and environmental issues

identified in Adams and Kuasirikun (2000) as being relevant to the industry. Inreviewing media reports, issues that were either not covered at all in Alphas annualreview, annual accounts or environmental report or for which a different portrayal wasgiven were identified[9]. Coverage was found on some of the ethical, social andenvironmental issues identified in Adams and Kuasirikun (2000) and mentioned at theend of the previous section, without specific reference to Alpha or other particularcompanies. Some of the criticisms in connection with these issues were directed atMNCs in general and others at the chemical industry as a whole. Only articles andpress cuttings that specifically mentioned Alpha were used. Lack of reference to Alphain the media in connection with reported chemical industry issues could indicate that

Alphas performance on them is considered satisfactory by journalists. It could alsomean that poor performance is widespread and therefore that Alpha in particular hasnot been singled out.

It should be noted that Alpha does not claim to be accountable for all of theseimpacts, its 1993 separate report, for example, being called an environmental report(ER). That is, of course, not to say that it should not be accountable. It should also benoted that the non-Alpha sources of data serve to fill different information needs fromcorporate reports. However, if the company reports were intended to represent


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performance fairly and address the concerns of key stakeholder groups, one mightexpect similar issues to be covered by both sources. There may remain somedifferences in portrayal and emphasis due to focussing on concerns of different keystakeholder groups and some media reporting may be inaccurate. With regard to

Alphas own reporting, the annual review and financial statements were reviewed aswell as the environmental report.

An earlier draft of the paper was sent to the former company secretary, formermanager responsible for external communications and the manager responsible forexternal affairs. Discussions took place with the manager for external affairs and thevice president responsible for the environment in which Alpha were specifically askedto point out any inaccuracies in that draft of the paper.

Analysis of resultsThis section reports on issues reported in the sources identified in the previous sectionwhich were either not mentioned in the Alpha reports or where the portrayal by Alphaand those external sources differed. The issues are reported by year, 1993 and 1999.

1993Alphas environmental report for 1993 is 15 pages long. It covers health, safety andenvironment and is distributed to all shareholders. The 21 page annual review for 1993contains one half page of information on health, safety and the environment and onehalf page on staff and Alphas community (Table I).

Pollution, discharges and finesThe Alpha reports give the impression of a company that is trying hard and whichwants to do better. For example, the chief executive, notes that he is particularly proudof Alphas reductions in hazardous waste, the company gone beyond its 1995 target of

a 50 per cent cut. He was however disappointed by the number of times Alpha wasprosecuted and fined for accidentally breaking environmental laws and regulations(Environmental report, p. 3). Performance with respect to non-hazardous waste, such asbrine and gypsum, which accounts for 95 per cent of all Alphas wastes was not sogood. Alphas target of a 50 per cent reduction is was described as very demanding anddifficult to achieve (Environmental report, p. 7). On page 4 we are told that hazardous

Content 1993 (pages)

Overview of company 1Chief executives review 1Policy statement 1

Progress towards objectives set in 1990 to beachieved by 1995 2Reducing pollution 1Product development and stewardship 2Environmental expenditure 1Problems, solutions and mistakes 1Involvement in bodies aiming for a cleaner world 1Data on waste and emissions 2.5Data on fines, complaints and awards 0.5

Table I.Breakdown of content ofAlphas environmentalreport 1993 (in pagesincluding text, picturesand graphics)

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wastes are 64 per cent and non-hazardous wastes 23 per cent lower than in 1990. Thetarget of a 50 per cent cut in waste by 1995 was set in 1990 and is the only one of thefour objectives which is quantified. The other three are concerned with theenvironmental impact of new plants, an energy and resource conservation programme

and recycling. However, some quantified information is provided on the successes inconnection with both waste reduction and energy and resource conservation. In thecase of wastes, comparative figures are given in the form of bar charts for thepreceding three years, but detailed emissions data is given for 1993 only. Targets arenot given.

The section on initiatives to reduce pollution stresses the cost savings resultingfrom the companys efforts. For example, an Alpha plant in Australia reduced the costof waste disposal by A$2.4 million and reducing waste saved A$4 million in capitalexpenditure. Recycling at an Alpha factory in the UK reduced costs by 300,000 p.a.This emphasis on cost savings was presumably intended to justify environmentalexpenditure to shareholders, a stakeholder group with a keen interest in profitabilityand share value. The company also provides an indication that there are limits as tohow far it will go in achieving environmental improvements that incur a financial cost:

In common with all companies, and indeed all countries, spending on environmentalimprovements has to be balanced by environmental benefits achieved.

As we continue to improve our environmental performance, to comply with the law and tomake effective products in a clean and efficient way, it is inevitable that an increasing numberof situations will arise where only small improvements can be made, for a proportionatelyhigher cost. The challenge is to set the right priorities and make the correct decisions, so thatwe can continue to improve our performance and remain profitable (Environmental report,p. 10).

Action taken by Greenpeace against discharges into the sea was not mentioned in

Alphas reporting. Greenpeace prosecuted an Alpha business for discharges ofchemicals into the sea under the Water Resources Act 1991. Greenpeace claimed tohave found 100 organochlorine compounds in samples from 34 outflow pipes taken inSeptember 1992 that the company had no consents to discharge. Chemistry andIndustry (1993) reported that a scientist from the National Rivers Authority thoughtthat some of the compounds found may have formed as a result of other chemicalsbeing present rather than being discharged by Alpha[10]. Indeed this legal action dideventually fail, the levels of pollutants found not to be high enough to causeenvironmental damage (European Chemical News, 1994). A point worth noting here isthat rather more media coverage was found of the announcement of the prosecutionsthan of the finding in Alphas favour. Nevertheless one might have expected thatinclusive, complete reporting on the part of Alpha with the objective of discharging the

companys duty of accountability would have carried some discussion of it and theissues which it raised.

Five directors of an Alpha subsidiary and the company itself were charged fordischarges into a river and a total of 36 offences under the Fisheries Act by CanadasFederal Ministry for Environment (see Greenpeace Business, 1993a). The Guardian hadearlier reported (The Guardian, 1993a) that Alpha had been accused of abandoning itsCanadian manufacturing base and shifting its production elsewhere in reaction to theprosecution by environmental authorities. The reporter interviewed spokespersons


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from the environmental authority and from Alpha. The parties had different views ofthe effort put in by Alpha in preventing pollution indicating perhaps that more opencommunication may facilitate the achievement of improvements in performance andbuilding trust with key stakeholders.

The environmental report mentions the pollution of another river in Canada thatresulted from a decision to use cheaper and less pure sulphuric acid at a fertiliser plant.

Alpha informs readers of its environmental report that it was prosecuted 11 times in1993 for breaking environmental laws. The amount and reasons for these fines arebriefly outlined in the report. The National Rivers Authority also publishesinformation on fines giving the amount of the fine and nature of the offence.

Alpha was the first household name to be fined under provisions of EnvironmentalProtection Act 1990 for two breaches of the duty of care incurred in June 1992concerning a consignment of waste which caused explosions putting operators at risk.One of the breaches concerned a failure to take reasonable measures to prevent anyother person from contravening the act in respect of the treatment of controlled wastein a manner likely to cause harm to human health. The second concerned theinadequate description of the waste. The fines were 1,500 for each offence plus 5,890costs (ENDS Report, 1993b). The health and environmental impacts of breaches fromwhich fines follow are not discussed in Alphas reporting. Whilst many shareholdersmay be concerned only with the amount of the fines, stakeholders, in this caseemployees, their families, consumers and those living in the local communities will bemore concerned about the safety issues and measures put in place to ensure norepetition.

Environmental impacts of productsTwo of Alphas products, Yeganam and Zetok, and their marketing of them receivedpress coverage during 1993. Zetok (see below) is not mentioned in Alphas reporting

and Yeganam is described as a well-established alternative to refrigerant.Greenpeace made five complaints to the Advertising Standards Authority against

Alpha relating to its claims about the environmental impact of its product Yeganamand in particular the extent to which the product would contribute to global warming(see, Greenpeace Business, 1993b, for detail of the complaints). The claims were made inan advertisement in The House magazine, distributed to members of parliament andparliamentary staff. The Advertising Standards Authority upheld four out of the fivecomplaints made by Greenpeace (reported in ENDS Report, 1993a; European ChemicalNews, 1993; Financial Times, 1993). The Greenpeace action was not discussed in Alphareports.

An Alpha business in Malaysia placed an advertisement in the Malay Mail on 15April 1993 for its product Zetok without mentioning its potentially harmful effects on

human beings, instead promoted it as environmentally friendly. The Global PesticideCampaigner claimed in November that the advert contravened the UN Food andAgriculture Organisations (1986, amended 1996) International code of conduct on thedistribution and use of pesticides. Zetok has been banned in some countries and agroup campaigning against its use protested about expansion of Alphas Zetokproduction facility the UK. The capacity of the proposed $58 million plant would be8,000 m/t per year (Chemical Week, 1993). Both the World Health Authority and the USEnvironment Protection Agency are reported to be concerned about Zetoks safety and

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contamination potential (Multinational Monitor, 1992; see also, Utusan Konsumer,n.d.).

Consumer Currents (1993) quotes the Malaysian chemistry department as reportingthat in the period 1978-1985 Zetok accounted for 66 per cent of 1,442 reported pesticide

poisoning cases in Malaysia. Toxic Trade Update (1993) quotes a 1981 report puttingthe number of deaths at 1,200 per annum and reports that the Malaysian womensorganisation and the Pesticide Action Network found extensive acute Zetok poisoningamongst female pesticide sprayers in a 1991 survey.

Employment issuesThere were reports of job losses in the press with The Guardian (1993e) claiming thatthe company had already cut 7,000 jobs that year and reporting city estimates that theworkforce would be cut by 25 per cent by 1995, a loss of 24,000 jobs. Alphas 1993annual report states that:

. . . the number of staff worldwide has fallen by 25,700, or about 28 per cent, since December

1990. Divestments have accounted for nearly 30 per cent of this reduction. In 1993 staffnumbers fell by 8,200, of which divestments accounted for 3,500 (p. 3).

Other ethical, social or environmental issuesNone of the following issues were mentioned in Alphas 1993 reports.

Prices. The Guardian (1993c) reported on the negative reactions of Alpha and othercompanies selling pharmaceuticals to the Medicines Information Bill that proposed theremoval of section 118 of the Medicines Act. This section made it an offence to discloseanything about drug licensing or reactions suffered by patients, even to their doctors.The drug companies claimed that removal of section 118 would damage them, whilepeople who claimed to have suffered permanent damage from tranquilliser usesupported it.

The Guardian (1993d) reported on the forthcoming talks between the financialchiefs of Alpha and other drug manufacturing companies and the Department ofHealth to renegotiate the pharmaceutical price regulation scheme that determines theprofits that companies make from selling drugs to the NHS. Profits are related tocapital employed so the companies were reported to have invested inpost-marketing surveillance trials whereby doctors switch a patients drug to onethe company is selling, monitor its performance and record any adverse reactions.They describe this as safety research rather than promotion allowing them to includethe cost in capital employed thereby increasing their profits. A former healthdepartment official was reported as telling The Guardian that their people just gotwalked over in the negotiations. The outcomes of the negotiations are kept secret andany appeals are settled by the industrys own lobbying group, the Association ofBritish Pharmaceuticals Industry.

Alphas and Glaxos US subsidiaries were criticised in a US Senate report forincreasing drug prices faster than inflation despite promises to the contrary (TheIndependent, 1993a).

Alpha told this researcher that issues regarding pharmaceuticals were excludedfrom their reports because of the demerger of the pharmaceuticals business to Beta.The resolution to give effect to the demerger was passed at the extraordinary generalmeeting of the company on 28 May 1993, after the above press reports were published.


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Animal testing. Outrage (1993) refers to reports that Alpha supplied beagles forexperiments which induced osteoarthritis in them. The Ethical Investor(1993) reportedthat Alpha provides animal testing services or manufactures products commonlytested on animals.

Arms trade?Alpha was reported to have contracts worth more than 5 million withthe Ministry of Defence in any one of the previous three years (EIRIS, 1993). The natureof these contracts is not disclosed.

Political activities. The Independent(1993b) reports on a challenge made by Alpha tothe EC proposal to hold companies liable for environmental damage. A month laterThe Guardian (1993b) carried an interview with Sean Hamil author of Britains BestEmployers (Hamil, 1993) who reportedly claimed that the primary reason for Alphaimproving its environmental performance appeared to be the potential threat oflegislation, particularly from the EC.

Summary for 1993

In comparing Alphas own portrayal of its ethical, social and environmentalperformance for 1993 with the portrayal in other publicly available sources, the reportsgive the impression of a company trying hard, making progress, recognising a need totry harder where progress has not been made and regretting mistakes. This istempered by a message in Alphas reports that environmental improvements will bebalanced against financial costs and benefits.

Strikingly, the comparison of the two portrayals, by external stakeholders on theone hand and Alpha on the other, highlights some omissions from Alpha reports ofinformation which is undoubtedly material to key stakeholder groups and which doesnot reflect well on Alphas performance. Indeed, the sources consulted indicate thatAlphas performance on a number of ethical issues was widely regarded as poor. Lowlevels of fines failed to act as a deterrent and John Majors conservative government

could even be accused of colluding in unethical practices by awarding a director ofAlpha a CBE for his services to environmental protection (The Guardian, 1993f).When Alphas reporting is compared with current guidelines, other deficiencies can

be identified. First, the report does not mention any governance structures to ensureenvironmental values are embedded. Second, there is a lack of quantification of targetsand outcomes. Third, there is limited coverage of the background to and broaderimpacts of, for example, the significant job losses or the pollution incidents. Finally,there is no indication of the problematic relationship Alpha has with stakeholders suchas Greenpeace or Friends of the Earth or of the controversy that surrounds some of itsproducts and processes. It should be noted that these guidelines were not available atthe time when Alpha produced its 1993 report and that report reflects the lack ofdevelopment of ethical, social and environmental reporting at that time.

1999Alphas corporate vision in its annual review and accounts and form 20-F 1999 givesthe impression that ethical, social and environmental concerns are not embeddedwithin the organisation. At the end of a list of other goals, all stated positively, comesthe negative: We must . . . never compromise our commitment to safety, health and theenvironment. There is no other mention of safety, health and the environment in themission statement. Indeed, there is only about a page of information on the

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environment and health and safety in that document which discusses progress to date.Specific incidents or problems are not mentioned. The two pages in the 1999 annualreview gives a similarly unproblematic impression of progress though it mentions a2,000 fine for two losses on containment in 1998 (p. 24) (Table II).

Alphas environmental report for 1999, although much longer than the 1993 version,is written in the same glossy style, with more reporting on performance, and with thesame recognition that more needs to be done. A new addition is some limiteddiscussion of the reporting process. An organisational diagram shows that the CEOs ofthe international businesses are responsible to the Alpha board. It also shows theenvironment and health and safety department, but its role is not explained.Businesses report to the board through a process that was verified by a big four auditfirm. A new management system is mentioned, but the way it fits into the governancestructure is not explained. The report does state, however, that the system is designedto allow compliance with the US and UK responsible care requirements, ISO 14001 andthe ICC business charter for sustainable development. There is also a brief mention ofthe self-assessment management system concerned with product stewardship. There

were more quantified targets than had been previously set and the report quantifiesprogress against those targets. There are therefore some noteworthy improvements inreporting.

Pollution, discharges and finesIn reviewing Alphas environmental report for 1999 the ENDS Report (2000b) carriesthis caution:

In fact, all these data have to be taken with a pinch of salt for the time being at least. While thereport says that [Alpha]s policy is to make clear the extent of changes in its releases whichwere due to acquisitions and divestments by altering each years data back to the baseline,what it does not reveal is that the company is still in the midst of a process to determine

precisely what the impact of the business changes of the past few years has been (p. 20).Reports in The Guardian (2000a, b, c) present a different portrayal of the impact ofchemical X on the local communities than that in Alphas environmental report for1999. The Guardian describes the stress on the 1,000 strong population of the town, the

Content 1999 (pages)

Home page/index 1Chief executives review 1Responsibilities and management systems includingproduct stewardship 5Targets and objectives 1

Verifiers statement 2Safety and health performance 4Environmental performance 16Sustainable development 10Safety, health, environment and product stewardshiparound the world 4Community and wildlife issues around the world 2.5Links to previous environmental reports 1Electronic feedback form 1

Table II.Breakdown of content of

Alphas environmentalreport for 1999 (in pages

including text, picturesand graphics)


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weekly public meetings and the jamming of the special health phone line. Because ofthe poisonous nature of chemical X, which causes liver and kidney cancers, lowersfertility and shortens lifespans, Alpha offered to buy out the 22 homes found to becontaminated (see also ENDS Report, 2000a, b). The immediate offer to buy up houses

led to suspicions about what else was in the tip and what Alpha were looking for whenthey dug the boreholes in the first place. In the section on sustainability thecompanys environmental report discloses that 22 homes near the Alpha site werefound to have a presence of chemical X in the air as a result of disposals over a periodof 50 years which stopped around 25 years ago. Alpha reports that it is working toresolve the situation as chemical X may cause harm to health. When discussing anearlier draft of this article with Alpha, this researcher was directed to a Web site formore information on Alphas work on this and the local press. These sources are noteasily available to non-local stakeholders, the Web site not (at the time) being linkedfrom Alphas site. A link was added following a discussion with Alpha staff on thisissue.

Hydrochloric acid from an Alpha plant in the UK contaminated a wintering groundfor birds on 17 February 1999. It was the sixth such serious incident since 1997 andMichael Meacher, the environment minister, summoned senior managers from Alphain the following week to express his concerns (Financial Times, 1999a). The acid in themud flats and seal sands on a river estuary, an internationally designated site formigrating birds, was reported to be too strong to dip a hand in (The Guardian, 1999c).Several conservationist and animal protection groups were trying to help damagedbirds and called for tougher penalties against polluters (see also ENDS Report, 1999a).

Alpha was top of the Environment Agencys list of fines for pollution by companiesin England and Wales published in March 1999 with fines amounting to 382,500 forpollution during 1998 ( Business Insurance, 1999; ENDS Report, 1999b; EnvironmentAgency, 1999; Financial Times, 1999b; Safety and Health Practitioner, 1999). The

Observer (1999b) and the ENDS Report (1999d) reported that Alpha had four factoriesin the top ten releasing cancer causing chemicals to the air including dioxin describedas the worlds most toxic substance and linked to reduced fertility. Indeed, TheGuardian (1999b) reported that in 1996 Alpha emitted more than 5,340 tonnes ofcancer-causing chemicals. Although the Environment Agencys interventionsfacilitated the reduction of this figure to 3,761 tonnes, the company is still a toppolluter with an Alpha site being top of the league table for 1999 discharges (ENDSReport, 2000c).

Three Alpha businesses were named as the first, fifth and 16 on a league table of toppolluters. They discharge alkylphenols used in industrial detergents that are known tofeminise male fish ( ENDS Report, 1999e; Friends of the Earth, 1999, 2000). ENDSreported (ENDS Report, 1999f) that in 1997 Alpha discharged 1,000 tonnes of ammonia

which is also toxic to fish. Friends of the Earth made their feelings known aboutAlphas pollution record by turning up at its AGM in 2000 wearing protective clothingand carrying sparkling time bombs (The Guardian, 2000c).

With regard to prosecutions under environmental law, Alphas environmentalreport notes only one infringement compared to four in 1998 and eleven in 1997. Thisone infringement related to a spill of 100 gallons of non-hazardous material in the USA,the resulting fine being only $1,000 plus a $2,141 investigation fee. In addition to thisincident the report mentions that there were five further spills of significant quantities

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of material. There is no information about the impacts of these spills on theenvironment. Immediately following these reports of bad news there is a section oninternal Alpha awards. It was not uncommon for companies to be concerned aboutnegative impacts on their reputation of reporting bad news at this time (Adams, 1999).

The ENDS Report (1999c) notes that an Alpha subsidiary was criticised in theHouse of Commons for selling heavily contaminated land to a local authority andleaving taxpayers with a multi-million pound clean up bill. Again, this was notmentioned in Alphas own reports.

The section on sustainability in Alphas environmental report 1999, which givesAlphas view on a number of issues that are particularly important to Alphas journeytowards sustainability contains the statement:

The basic principles of the green house effect are well understood. But the science to supportprojections of the effects on climate of increased concentrations of greenhouse gasses in theatmosphere, and the impact on the environment of any climate change, is still uncertain.

The Global Environmental Outlook 2000 (UNEP, 2000) report comes to a different

conclusion concerning both the impact of greenhouse gasses on the climate and theimpact of climate changes on the environment (UNEP, 2000). The Inter-GovernmentalPanel on climate change (whose Web site was linked from the Alpha Web site) hasstudied the impact of various levels of CO2 on temperatures and UNEP (2000) outlinesthe various ramifications of global warming on land displacement, frequency ofoutbreaks of pests, extended range of pathogens, outbreaks of fire, agricultural andfood production and nutrition and health.

In discussing endocrine disrupters, Alpha argues that research about the link withdevelopment and reproduction are inconclusive and that they occur naturally in muchlarger quantities than in chemicals. The scientific literature appears much more certainabout the effects of endocrine disrupters on human health including immune systemsand breast carcinoma as well as reproduction (see, for example, Ahmed, 2000; Bhatt,2000; Johnson-Thompson and Guthrie, 2000; Taylor et al., 1999). ENDS reported (ENDSReport, 1999a) that potential harm from alkyl phenol ethoxylate (APE) surfacants dueto their endocrine disrupting traits and the likelihood of restrictions being imposed as aresult (see also Friends of the Earth, 2000).

Employment issuesExecutive pay rises are loser friendly was a claim made by The Guardian (1999b)referring in particular to pay rises of two of Alpha directors. The article claims that,despite, poor performance, senior executives had been given pay rises of more thantwice the going rate on the shop floor. Later The Guardian (1999e) reported that Alphawas to cut 600 administrative jobs in total mostly in the UK with a few also going from

US offices. The Observer (1999a) reported that Alpha had announced 1,000 job cutsworld wide in on of its divisions, half of which would occur in the UK concurring withreports in The Guardian (1999a) of 500 UK job losses. The annual report and accountsand form 20-F set out the salaries, benefits and bonuses of each director for the currentand previous year. It also reports the average number of people employed by the groupby both class of business and geographic area showing figures for discontinuedoperations separately. However, the only information given in Alpha reports withregard to redundancy policies or payoffs is the total severance costs charged in


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arriving at profit before tax of 61 million. The annual report mentions that the sale ofan Alpha business involved the transfer of some 2,000 employees (p. 11). The averagenumber of employees in the UK was reduced by 1,200 during the year. No informationis given on salary negotiations.

The environmental report mentions three deaths at work during 1999 andprosecution for a death at work during 1998 under English legislation. The latterincident involved infringements of two sections of the Health and Safety at Work Actfor which Alpha was fined a total of 27,000 and ordered to pay 1,953 in costs.

Other ethical, social or environmental issuesNone of the following issues were mentioned in Alphas 1999 reports.

Pricing. US Justice Department data suggests that a number of chemicalmanufacturers, including Alpha, resorted to price-fixing (Chemical and EngineeringNews, 2000).

Other ethical issues. Alpha operates in Indonesia and the Amnesty International

Business Group have questioned them on their human rights policies and whether theyhad made representations to the Indonesian government about East Timor, acted onbehalf of employees subject to human rights violations or trained managers ofIndonesian subsidiaries on human rights issues (Ethical Performance, 2000). A searchof the Alpha web site during 2000 produced no information on this. It would appearthat Alpha did not have a policy framework incorporating human rights instruments.Whilst not uncommon at the time, such frameworks are increasingly being adopted bymajor corporations.

The section of Alphas environmental report for 1999 on activities around the worldreports on activities or outcomes which are successes. They do not represent acomplete account of performance. One interesting disclosure in the section on Pakistanread:

Expired stocks of pesticides were also collected from regional warehouses and sprayed oncrops under supervised conditions to ensure no harm was caused.

Given concerns about Zetok mentioned above, it is perhaps unlikely that this wouldallay the fears of some stakeholders.

Summary for 1999Alpha reports for 1999 carry much more information on ethical, social andenvironmental issues than in 1993 (see Tables I and II). Particularly impressive is theextent of the data on emissions and discharges. Whilst the ENDS report (2000b)questions the reliability of these figures, casting doubt as to whether they relate to

Alphas current business, Alpha regard such claims as unfair.What stands out in comparing the way in which Alpha portrays its 1999

performance with the way it is portrayed in other publicly available sources, is not somuch complete omissions of events and issues, but more the manner in which issuesand events are portrayed. Examples of issues portrayed differently are the finding ofchemical X in the air and the spilling of hydrochloric acid into a river estuary whereexternal sources put a greater emphasis on the impacts on human health and wild life.To some extent differing portrayals will reflect specific concerns of NGOs and the

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medias perceptions of reader interest, but these are, nevertheless, importantstakeholders as are many newspaper readers.

The section on sustainability issues adds weight to the concerns readers would be justified in having about the commitment of the company on reading the corporate

vision. In comparison with other sources, it appears to downplay the issues facing thechemical industry and Alpha. The potential impacts of many of these issues and of thebreaches and spill which arise do not receive the attention many stakeholders clearlywould like, though the company does provide links to other sites, such as the UnitedNations framework convention on climate change.

The performance of Alpha on a number of ethical, social and environmental issuesremained poor. The Labour government played a more proactive role with respect topollution incidents, but the independence of the Environment Agency was called intoquestion. The Sunday Times (1999) reported that five members of the 15-person boardof the Environment Agency had financial ties or other links with Alpha and othermajor British polluters. One part-time board member and former director of Alpha wasreported as having 9,350 shares said to be worth more than 50,000.

ConclusionsThe most noticeable feature of Alphas reports is their lack of full disclosure regardingits ethical, social and environmental impacts. The Alpha reports portray the companyas one that is doing well, trying hard and seeking to do better. In contrast, the data onAlphas impacts and efforts to curtail them from external sources is different. The morediscerning readers of Alpha reports will be left with many questions even if they neverpick up a newspaper. Analysing Alpha reports against the elements of accountabilitywhich were set out in this papers introduction, the level of accountability dischargedby Alpha appears to be low. There is little coverage of negative impacts, insufficient

evidence that Alpha accepts its ethical, social and environmental responsibilities, anarguably one-sided view of sustainability issues facing the company and a lack ofcompleteness. The different coverage in external sources also raises question as to theinclusivity of stakeholders in the reporting process. The report itself providesinsufficient information on the reporting process and governance structures in placewith respect to ethical, social and environmental reporting.

This raises serious concerns as to the value of the responsible care guidelines asanything but a legitimating tool and insurance policy. Responsible care may havesucceeded in getting companies like Alpha to report on its core indicators, but it hasfailed to get Alpha to report in a way which, overall, fairly reflects performance andimpacts. Many of the issues identified as being important to stakeholders of theindustry in Adams and Kuasirikun (2000) are not addressed by responsible care. The

guidelines are voluntary and the industry associations cannot enforce compliance.There is no requirement to involve stakeholders and information and processes do notrequire to be verified or audited. This highlights the deficiencies of guidelines that werewritten by and for those who are intended to abide by them.

A particularly concerning feature of Alphas reporting is its lack of completeness,an AA1000 reporting principle (ISEA, 1999a). Reports omit details of impacts oncommunities and the environment which are material to key stakeholder groups. Thisdegree of incompleteness would not be tolerated in financial reporting.


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The reader of Alpha reports finds out about fines, which in the UK at least havebeen widely criticised as being too few and too low, but there is limited reporting on theimpacts of its mistakes on human health and animal and plant life. There are severalissues that have been mentioned in the press such as the large number of deaths

through pesticide use, misleading advertising, accusations of price fixing, operations incountries with poor human rights issues and animal testing which are not mentioned inthe reports. These items would also be regarded as material to some stakeholders, forexample, Amnesty International, animal rights groups and some customers. Thesection on sustainability issues in the 1999 environmental report gives the impressionof a widely held view of the impacts (or lack of them) of some of Alphas products andprocesses which was not widely supported by the external sources consulted. Inaddition, the coverage of overseas operations is incomplete.

There is little evidence of any consultation with stakeholders. Involvingstakeholders in itself cannot, of course, be taken to mean that corporate reportsaccurately reflect performance. Indeed, their involvement could be used as a means oflegitimating corporate reports. Sound governance structures are essential to ensure

that the stakeholder dialogue process is robust, as is transparency concerning thereporting process itself (see, also ISEA, 1999a, b). Corporate governance structures arecurrently designed to protect shareholders, but this must change radically to give equalprominence to other stakeholder groups if companies are to reflect the aspirations oftheir stakeholders and survive in the long term.

Some of the key elements of the AA1000 requirements missing from the Alphareports are outlined in Table III. The GRI guidelines are much less concerned withprocess than is AA1000. They focus more on the content of the report. Table IV setsout the main elements of report content in GRI (2000) and some of the key omissions inthe Alpha reports[11]. Compliance with GRI would result in more information beingreported and some stakeholder dialogue. However, Alpha already complies with

AA1000 principles Examples of missing disclosures in Alpha reports

Inclusivity A much clearer statement of governance structures with respect toethical issues and reporting and, in particular, a clear statement of howstakeholders are involvedIdentification of key corporate stakeholdersInclusion of all material adverse impacts relevant to stakeholdersInclusion of stakeholder-derived indicators and/or stakeholdercommentary

Completeness A clear statement of the scope of the exercise and the reasons forexclusion of any activities or locations

A summary of the major changes to the companys business and keyethical impacts of those changes

Embeddedness A clear and positive statement of Alphas commitment to ethicalissues to be incorporated into the vision statementClear links between the vision statement and corporate objectivesFuller explanation of the role of the corporate environment and healthand safety department and the way in which it fits into the governancestructure

Table III.Some of the AA1000principles and examplesof missing disclosures inAlpha reports

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responsible care and was involved in its development and it is possible that a companycould provide the information outlined in the GRI (2000) guidelines without improvingaccountability as defined in the introduction to this paper. Although the GRI guidelinesrequire stakeholder consultation, there is limited guidance as to the form it should take.This must be addressed if stakeholder dialogue is to be a robust exercise in enhancingtrust and minimising risk rather than simply a legitimating exercise that companiescan hide behind in the way that they did with the Sullivan principles (Arnold andHammond, 1994). The case of Alpha illustrates that simply telling companies whatthey should report on is insufficient to ensure accountability.

An external audit is no guarantee that reports will not be used as a legitimatingexercise. For external audits to add value from a stakeholder perspective, they must beconducted by appropriately qualified people who both understand the audit processand accept the ethical, social and environmental responsibilities of companies (seeAdams, 2002; Kamp-Roelands, 1999; Owen et al., 2000, regarding concerns with socialand environmental auditing). They must also be carried out using generally acceptedauditing guidelines and, crucially, the criteria for qualification of the audit report mustbe clear. At present there are no guidelines that adequately cover the ethical, social andenvironmental audit process. There is an urgent need for their development and

enforcement for companies operating globally.The scope of the work done by KPMG on Alphas 1999 report was limited to one

part of the reporting process. The scope of an audit is currently ultimately thecompanys decision and the findings of this research point to the inappropriateness ofthis state of affairs with respect to large MNCs. The Ernst & Young audit report of BPdated 12 March 2001 provides an example of an audit much broader in scope. Theterms of reference included, for example, reviewing a selection of external mediasources for reports relating to BPs adherence to its policies, as a check on the

Section of GRI reports (GRI, 2000) Key elements missing from Alpha reports

Profile of reporting organisation The scope of the report in terms of coverage ofcountries/regions, products, etc.

Policies, organisations andmanagement systems

Major stakeholders and basis of defining themMethods of stakeholder consultation and outcomes of suchconsultations

Performance Reporting on economic indicators which do not appear infinancial statements such as labour productivity levels,investment in human capital, performance of organisation inhonouring contracts with suppliersReporting on a broader range of social indicators such asemployee retention rates, employee satisfaction levels, ratio oflowest wage to national legal minimum and local cost of living,equal opportunities outcomes, etc.Reporting on integrated indicators including systematicindicators linking performance at the micro-level with

economic, environmental or social conditions at themacro-level; and cross-cutting indicators bridging informationacross the different elements of sustainability

Table IV.

Sections of GRI reportsand key elements missing

from Alpha reports


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appropriateness of the information reported and statements made in the report(www.bp.com). It is not clear from this statement to what extent this particular reviewof external media sources in the audit process might improve accountability. Policiesthemselves tend to be vague and all encompassing and should be supported by more

detailed objectives. A company may be adhering to its policies, but its reports may beincomplete as far as its impacts were concerned. A review of external media sourceswould seem to be an essential element of an audit process if the audit report is to giveassurance as to the completeness of impacts.

The increase in reporting on the Internet, whereby companies can change theirdisclosures frequently, further emphasises the need to define the scope of such audits.There is concern that much of the data on the Internet is not audited. If the Ernst &Young report of BP specifically includes publication on the Internet, it provides somecomfort:

BP periodically updates the report to provide information on company activities and to reflectprogress in performance. As and when new assertions, statements and performance data are

published by BP, they are reviewed by Ernst & Young. The date appearing on the Ernst &Young statement shows the last date at which information has been reviewed and attested toby Ernst & Young in accordance with our terms of reference (www.bp.com).

In conclusion, this study supports the call for comprehensive mandatory requirementsconcerning ethical, social and environmental reporting. These must focus on processesof corporate reporting and governance structures. A radical overhaul of corporategovernance structures is required. The current focus on the concerns of the shareholderstakeholder at the cost of other stakeholder groups is increasingly inappropriate ascompanies become larger and more powerful with ever increasing impacts on otherstakeholder groups. Social and environmental audit practices should come under thesame degree of scrutiny as financial audit practices. Social and environmental auditguidelines must be developed and audit practices standardised to improve the

completeness of reporting and reduce the audit expectations gap. The scope of audits,the content of the audit report and the reliability of information posted on the Internetare particular areas of concern. Room for doubt as to whether reporting reflectedperformance on the scale highlighted here would not be tolerated in financial reporting.Companies complain that few stakeholders read their ethical reports in any detail, if atall (see, for example, Adams, 1999). Perhaps the reporting-performance portrayal gap isthe reason why. The results produced here suggest that further research work isneeded on: the processes of reporting; auditing guidelines and practices; and,governance structures which might best serve to improve the accountability of largeglobal organisations to their stakeholders.

Notes1. The name of the company, its reports, products, projects, initiatives and other company

specific terminology have been changed.

2. Completeness is one of the AA1000 reporting principles (ISEA, 1999a).

3. The author is a former director and council member of AccountAbility.

4. AccountAbility is a membership organisation funded by its membership that is open to allsectors of the economy. GRI was originally convened by a partnership of the Coalition forEnvironmentally Responsible Economies (CERES) and the United Nations Environment

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Programme (UNEP). The current steering committee involves 17 organisations, nine ofwhich originate in either the UK or US and one of which is AccountAbility. The GRI received$3 million to support its activities from the United Nations Foundation and receivesadditional funding from organisations such as the Ford Foundation, MacArthur Foundation

and the US Environmental Protection Agency (see, GRI Web site). These two guidelineshave been selected because they are recent, detailed and applicable to a broad range ofreporting issues. In addition, GRI is known to be used by at least 238 companies world wideas at June 2003 (www.globalreporting.org) whilst AA1000 is unique in its detailed focus onprocess.

5. Companies which have invested time and resources into developing stakeholder dialogueprocesses and reporting these processes on their Web pages include, for example, BT and theCo-operative Bank.

6. The author was invited to attend and speak as a stakeholder.

7. The reports cover a calendar year.

8. These included, for example, the following web sites: biz/ed, www.bized.ac.uk; Business Information Sources on the Internet, University of Strathclyde, www.dis.strath.

ac.uk; Dow Jones Business Directory, http://businessdirectory.dowjones.com; International Business Resources on the WWW, http://ciber.bus.msu.edu/busres.htm; Corporate Watch, www.corpwatch.org; Health Action International, www.haiweb.org; World Health Organisation, www.who.int; Multinational Resource Center, www.essential.org; Buko Pharma-Kampagne, www.epo.de/bukopharma; MaLAM, www.camtech.net.au/malam; Consumers International, www.consumersinternational.org; European Agency for the Evaluation of Medicinal Products, www.eudra.org;

Pesticide Action Network, www.panna.org; Amnesty International, www.amnesty.org; HealthWrights, www.healthwrights.org; Consumers Association of Penang(CAP), www.southbound.com.my/souths/cap/cap.htm;

and Greenpeace International, www.greenpeace.orgSearches were also carried out on business journals such as: Harvard Business Review,

European Management Review, Business Ethics, Fortune, Journal of International BusinessStudies, Journal of World Business Studies, Economist, Acquisitions Monthly, Business Week,Chemical Engineering News, Chemical Week and Chemical Market Reporter. Relevant articleswere found by searching BIDS ISI and BIDS IBSS (www.bids.ac.uk) and the Royal Society ofChemists at BIDS ISI/RSC. Newspaper CD-ROMs were also searched (see, Adams and Laing,2000, for a detailed account of the method used in this research).

9. For daily and weekly publications, the date of publication is given and for monthly andquarterly publications, the volume and number of the publication are given.

10. The prosecutions were announced on the eve of the take-over by Her Majestys Inspectorateof pollution (HMIP) of the National Rivers Authority (NRA). Concerns were raised over theeffectiveness of these bodies in bringing prosecutions (Chemistry and Industry, No. 10, 1993;Chemical Engineer, No. 542, 1993; Chemistry in Britain, Vol. 29 No. 6, 1993; Environmental

Digest, No. 71; European Chemical News, Vol. 59 No. 568, 1993; Financial Times, 30 April1993; Greenpeace Business, No. 13, June 1993; Health and Safety at Work, Vol. 15 No. 8, 1993;


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Informations Chimie Hebdo, No. 1131; New Scientist, Vol. 138 No. 1872, 1993; Plastics andRubber Weekly, No. 1484, 1993).

11. This table uses the GRI (2000) guidelines rather than GRI (2002). These were the mostcurrent guidelines at the time this article was developed and also the most relevant in

assessing the reports that Alpha produced in 2000 based on the calendar year 1999. A noteon changes made by the 2002 guidelines is provided in the section on current developmentsin the field of ethical reporting.

References

Adams, C.A. (1999), The Nature and Processes of Corporate Reporting on Ethical Issues,Chartered Institute of Management Accountants, London.

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