Discussion Questions: Social Reports and Reputation

1.       Do CPA firms like KPMG and PwC have special expertise in social and environmental auditing?  Are there differences between social auditing and financial auditing?

2.      What kind of attestation or verification would you like to see in the back of a social or environmental report?

3.      What market factors do you think will drive corporations to adopt the practice of audited social reports?

4.      What types of steps have BP, Ford and the other companies listed in Echo’s report taken in order to incorporate CSR into its branding efforts?

-         relatively younger(to be consistent with next point) companies (post-1970), often with an organic orientation, that have made social issues part of its brand;[2]

Some larger companies producing social reports have had to deal with a history or crisis that has at times threatened their existence as a company.  For example, Chiquita is given credit for producing the “gold standard”[3] of CSR supply-chain reporting. It is a "bitten brand" because as successor to the United Fruit Company it has the long history of “banana republics” that is used against it by activists and in the 1990s was the subject of a major exposé by the Cincinnati Enquirer on treatment of its workers in Central America (despite its excellent CSR reporting, it has remained in the headlines in the 21st century). [4]

Concept: Higher Brand Betas Mean More Volatility

-         Young people are far more aware and concerned about brands;
-        They are easily reached through television and the Internet.

The other side of this coin is that brands can also decline more rapidly.  Media penetration works both ways.  Bad news on the CSR side can destroy a brand even faster than use of CSR in advertising can help it.  The people who are expert at creating a brand are not always so clever at controlling the devastation from negative publicity.  Johnson & Johnson managed to do it with Tylenol.  But Bridgestone/Firestone lost the faith of its customers in the quality of its brand.  More broadly speaking, corporate mortality rates have risen.  The average life expectancy of a Fortune 500 company in 1938 was 100 years.  It is now 20 years.  More threats to brands exist and therefore corporations have less time to realize value.

One way of summarizing all this is to say that the corporate “Brand Beta” has been tilting upward (the coefficient of β has been rising).  The ladders to brand success are steeper, but so are the downward spirals.  Just one exaggerated claim that is attacked in the press can be devastating for the company.[5] 

Concept: Building Intangible Assets through CSR

CSR issues are important not only to the maintenance of a brand built over several years but also to the building of a new brand.  This is both easier and harder than it used to be, because public perception of many brands today is greatly affected by the social message conveyed by the brand.[6]  Some convey it as a conscious strategy called cause-related marketing, i.e., linking a commercial product to a cause.  Various organizations have begun efforts to quantify the value of a company’s reputation (see the excerpt below on one organization’s findings) to help companies measure the effects of their social responsibility marketing efforts.

Alternatively, a company can suffer negative repercussions for not addressing socially responsible issues. When a company’s value depends on its employees and its reputation, the lines between social reporting and financial reporting become blurred.  Failures in social reporting could adversely affect the company.