An eensy bit terser version of this review appeared in Interzone 243. Of course it makes rather bittersweet reading now, especially the last bit. Iain Banks you were wonderful & you are missed.
The Hydrogen Sonata tells the story of a crisis sparked by the
impending rapture (“Subliming”) of a major galactic civilisation (the
Gzilt) into a sort of extra-dimensional transcendental afterlife or
überlife thingamajig. As the blessed day draws closer, scores are
settled and secrets revealed; rules, manners and mores unravel;
meanwhile, scavengers push and shove on the perimeter, ready at the
first sign of a civilisation-wide, blissed-out puff of smoke to pounce
on whatsoever cool tech and well-appointed worlds that might be going
spare. Pretty swiftly everyone’s favourite super-advanced
post-scarcity utopian anarchists (the Culture) can’t resist poking
their smug pug noses (or hulls, I guess – many of the Culture
characters are, crudely speaking, space ships) into the affair.
So I make that … ten Culture books now? Technically each one is
stand-alone, though some – The Hydrogen Sonata for one – will surely
bewilder the beginner more than others. That’s not to say The Hydrogen
Sonata is “a bad place to start” exactly – there are pleasures
peculiar to wandering in in media res and figuring out, detective
fashion, an already well-established world, and even to feeling the
weight of obscure presences you never fully descry. For Banks
aficionados awaiting a fix of courageously intelligent, consistently
droll, and sporadically pyrotechnically-savage space opera, The
Hydrogen Sonata can’t be said to short-change. The cool tech is cool;
the intriguing teamwork is intriguing, the gratuitously exotic
backdrops are exotic as ever; the grotesque revels are gross as ever
(a minor character can have too many penises, you know, Mr Banks); the
lovable sidekicks must needs be loved; and the Imperial pomp is
copiously pompous (though not technically Imperial). There are tense,
matter-of-fact, “one-hobbit-with-one-HP-survives” style military
set-pieces. There are pilgrimages to gurus. There is pluck.
There are some links to Surface Detail (2010) too, in which disputes
over the ethics of simulated Hell escalates into political and
military crisis. We’re also in Excession (1996) territory, with the Deep Space Natter novel form – you feel a bit like
you’ve stumbled onto a cosmic Wikipedia talk page waaay above your
security clearance.
There’s really so much crammed into The Hydrogen
Sonata that it may seem an odd choice to dwell so carefully on the
wordy and prying committee of principled AI meddlers (whilst, for
instance, the thread about the murderous Septame Bangestyn felt
ever-so-slightly cursory). Still, I don’t think Banks was wasting
skill by selecting this focus and making it work.
Here’s why. Culture novels have been getting good at extrapolating
around various sf mainstays (especially VR simulations, subjectivity
saved games, and dealings between AI and biological life) in ways
which could be catastrophic for storytelling and emotional investment
and pacing, but aren’t. For instance – can scenes ever-liable to
dissolve as sims, or sims-within-sims, be built such that readers
still care for their outcomes? Maybe not! Do readers care about
characters who can be restored off a disc if they die? Maybe not! What
can an author give a flesh-and-bones hero to do, if AI and snazzy tech
can obviously handle the heroism so much better? Maybe nada — “You
won’t be contributing, you’ll be jeopardising,” an AI avatar tells
Sonata protagonist Vyr Cossont as she insists on protagging along to a
climactic battle (p. 432). In general Banks has been admirably
reluctant to fudge these snags. Treated candidly, they can serve as
sources of strange energies and cathexes and seemingly-warped-yet-utterly-logical narrative structures (contrasting
with the flamboyant structural elegance of books like Use of Weapons
(1990), Feersum Endjinn (1994) and Inversions (1998)).
I think that’s part of what’s going on in Matter (2008), Surface
Detail and The Hydrogen Sonata, and I think it’s part of a larger
struggle in many of Banks’ books between materialism and storytelling.
That is, between the obligation to the messiness of the universe, and
the obligation to freight history with meanings and values which might
distort and artificially neaten it.
If I have a niggle – and how many fans will share in it, I don’t know
– I could happily have heard a little more overt moral chat!
Sure,
various values are implicitly represented and tested – especially
those swirling around the themes of prediction (sims again), risk and
self-sacrifice (both pointless and pointed). But more explicit lines
might have been drawn, and/or a more contemporary aura invoked –
Surface Detail was about Hell, and one of its highlights was a
level-headed dispute with a thinly-veiled American theocon. The
Hydrogen Sonata in a way is about Heaven, plus the whole connected
secular caboodle of utopia, revolt and so on. Subliming offers the
opportunity to think about the operation of moral calculation and
moral instinct in anticipation of salvation, about the ways in which
vangardists confront sacrifices and terrible trade-offs (“to murder so
many so that so many more may one day –” yadayadayada), and about how
they may successfully solicit and/or delusively project such
sacrifices and terrible trade-offs, with stunningly complex outcomes.
We know Banks is capable of more in-depth and subtle interrogations of
eschatological psychology; so maybe he didn’t think we were capable or
inclined to attend to them?
Well, I’m not wistful for The Hydrogen
Sermon or anything, and to be fair, whilst Subliming is prodigiously
fleshed out (ectoplasm’d out?) in that novel, plenty of new mysteries
and prospects are generated in the process. So perhaps there is more
about this whole Subliming business yet to come. Actually that's quite
an exciting thought.
Wednesday, 19 June 2013
Corporate Responsibility Reporting Assurance (4)
Okay, a sort of interlude to peer into how the accountancy profession and other assurance providers hope to systematise CR reporting. My info here may be a little archaic (often to the tune of four or five years); I’ll try to bring it more up-to-date eventually, but in the meanwhile anyone who wants to chip in, please do!
Standards
Despite the mostly voluntary character of CR reporting and assurance, there are many signs of standardisation. Most of the largest 250 companies worldwide use guidelines developed by the Global Reporting Initiative (“GRI”), and they seem to try to keep pretty up-to-date.
Look a little closer, and the full extent of this standardisation is difficult to decipher. The GRI guidelines are widely used in some form or another, but the guidelines are designed to be incredibly flexible. Compliance with the G3 version of the guidelines comes at three “Application Levels” according to how many CR indicators the company is able to report on; compliance can be self-assessed, or checked by the GRI or by a third party; reports can also be assured or not (the next iteration, G4 is likely to drop this feature).
Assurance may also be restricted to certain aspects of a report, and it may be either at the “reasonable” or “limited” level. This last distinction relates to the amount of work done to verify the subject matter. Reasonable assurance results in a positive form of the assurance statement (“is fairly stated”) whereas limited assurance results in a negative form (“nothing has come to our attention to suggest that it is not fairly stated”). Statutory audit of financial statements is always at the reasonable level. Limited assurance is used in a variety of other contexts, for example, in quarterly reviews of financial statements. A KPMG survey in 2008 showed that “the majority of the G250 (51 percent) obtain report assurance that is a ‘limited level’ of assurance—a lower level that requires less work from the assurance provider and therefore lower costs. […] From a company perspective, choosing a limited level is not surprising since assurance on corporate responsibility information is mainly a voluntary activity.”
The most significant standard of assurance provision applicable to the Big Four is the ISAE3000, maintained by the International Federation of Accountants (“IFAC”) through the International Auditing and Assurance Standards Board (“IAASB”). For member organisations, ISAE3000 has become compulsory where there is no national alternative (such as the Australian AS/NZS 5911 standard). This applies to the Big Four through their memberships in ICAEW. Specialist assurance providers (such as SGS and Two Tomorrows) typically don’t use the ISAE3000. It is a very flexible, generic standard, applicable to a wide range of non-audit assurance engagements. It assumes that the scope of the assurance engagement will be set by the reporting entity. In the UK, the Auditing Practices Board (“APB”) has responsibility for implementing standards issued by the IAASB. It does not currently promulgate the ISAE3000. The APB has expressed the view that the ISAE3000 aims to address too broad a range assurance engagements.
Then there’s the AA1000AS standard. The AA1000AS was developed by the non-profit organisation AccountAbility specifically for the assurance of CR reporting. The Big Four comply with this standard at their clients’ discretion. The AA1000AS (2008) seems still to be the most recent incarnation.
KPMG describe their use of the AA1000APS (2003) as a two phase process. Phase 1 considers whether the scope and materiality of the report is appropriate. During Phase 1, KPMG run their own analysis of scope and materiality. This consists of establishing five input channels: stakeholder engagement; media search; sector knowledge (e.g. peer CR reports, industry body guidelines); client knowledge; and prior year CR commitments. Phase 2 considers whether the individual claims are accurate and complete. Phase 2 is a lengthy process of identifying and taxonomising material assertions. “This results in a detailed assurance plan (including a list of people to be interviewed and a list of the required documentary evidence) at corporate, business/regional and site level (if relevant), together with the selection of sites to be visited. The type and amount of evidence required varies depending on the type of assertion and the level of assurance being sought.”
AA1000AS was developed to complement ISAE3000. For example, AA1000AS’s moderate and high levels of assurance, which the standard recommends for “new” and “mature” issues respectively, are intended to be consistent with ISAE3000’s “limited” and “reasonable” levels of assurance.
One important difference between the AA1000AS series and the ISAE3000 is that the assuror’s consideration of “materiality” is not limited in a scope set by the reporting entity. Materiality is a crucial concept of financial audit methodology, that has been carried over into assurance. Very loosely speaking, material information is significant information. It’s what matters. (I may get more detailed elsewhere). Under the AA1000AS series, the assuror assesses the degree to which the reporting entity’s scope has correctly identified its stakeholders and their needs. In other words, the assuror must make judge the reporting entity’s choices about what is and is not significant, by appeal to its stakeholders.
So those are the main standards used in the assurance of CR reporting. The Big Four have also developed their own tools relating to CR reporting, for instance Deloitte’s Sustainability Reporting Scorecard (2004), thirty criteria against which to assess a CR report. I’m not sure how much uptake there was of this.
Monitoring
There is comparatively little independent monitoring of this assurance itself (well, you do have to stop somewhere, I suppose). The G3 includes guidance on satisfactory assurance, but compliance must be self-assessed. One GRI representative commented, “An organization should look at the definition on pg. 38 of the GRI Guidelines and make its own assessment in conjunction with the assurance provider as to how they wish to communicate their engagement publicly. We will not take a position on whether a given engagement does or does not constitute ‘external assurance’ as it is impossible for us to assess the full range of engagements put in front of us” (2009).
AccountAbility don’t monitor the use of the AA1000AS (2008) to a detailed level. Each use of the AA1000AS (2008) in an assurance statement requires payment of a license fee to AccountAbility. AccountAbility pre-checks only the statement itself, although an acceptable statement must include a description of methodology. In partnership with the International Register of Certificated Auditors (“IRCA”), AccountAbility offers individuals training and certification in the use of AA1000AS (2008). AccountAbility also has an assuror membership programme (which includes all of the Big Four). However, neither of these are requirements to use the AA1000AS (2008).
The accountancy profession’s self-regulation mechanisms monitor compliance with the ISAE3000. In the context of indepedence, it's worth pointing out that the organisations which embody these mechanisms scoop their members from the cream of the accountancy profession, including Big Four partners. A quick scan suggests that about half the members of the APB are current or former associates of the Big Four, with the remainder drawn from business, law or academic backgrounds. The Big Four are also well-represented on the IFAC board.
High-level oversight of the ISAE3000 is provided by the Public Interest Oversight Board (“PIOB”), an extension of IFAC. In the UK, an infringement of the ISAE3000 would be reported to the professional body of which the firm or one of its employees was a member. All of the Big Four are institutional members of the Institute of Chartered Accountants in England and Wales (“ICAEW”). The Financial Reporting Council (“FRC”) is the UK’s independent regulator responsible for the accountancy and audit profession. The FRC, through its Professional Oversight Board (“POB”) has a statutory responsibility to ensure that these bodies have effective arrangements in place to investigate complaints against their members and member firms. The FRC recommends that professional bodies escalate cases concerning the public interest to its Accountancy & Actuarial Discipline Board (“AADB”). The AADB may also autonomously initiate investigations. As noted above, the APB does not currently promulgate the ISAE3000. In 2009, Executive Director of the APB commented, “While the ICAEW have some sort of monitoring of all services provided by audit firms in the UK (Practice Assurance), in reality I think it is fair to say that there is no monitoring of compliance with it [the ISAE3000].” There is thus something of a regulatory gap; certainly there is less oversight of this standard than of comparable audit standards.
A few more bits & pieces
In addition to all these standards and frameworks described, the Big Four aim to conduct their assurance work in accordance with the Code of Ethics for Professional Accountants, maintained by IFAC’s International Ethics Standards Board for Accountants (“IESBA”), as well as with their own codes of conduct and independence policies, and with appropriate national laws.
Important national legislation includes SOX, enacted in the US in 2002 in the aftermath of a number of major corporate and accounting scandals, above all the collapse of Enron and subsequently of their auditors, Arthur Andersen. Among its provisions, it prohibits professional services firms from doing audit and certain consultancy work for the same client. SOX also extends the scope of statutory audit to a range of internal fraud-prevention controls. ICAEW comments, “The most effective way to ensure the reality of independence is to provide guidance centred around a framework of principles rather than a detailed set of rules that can be complied with to the letter but circumvented in substance.” The focus of these blog posts is the UK system, characterized by this “principles”-based approach. It should be noted however that in the US context, largely as a consequence of SOX, threats to independence are subject to far greater “bright line” legislative specification and governmental regulation.
Finally, an there is the Audit Firm Governance Code, a code of best practice applicable to firms that audit more than twenty listed companies. This comprises the Big Four and four other large professional services firms. As far as I’m aware this doesn’t contain any provisions which are not chiefly oriented to the audit of financial statements.
Okay! Onward!
Standards
Despite the mostly voluntary character of CR reporting and assurance, there are many signs of standardisation. Most of the largest 250 companies worldwide use guidelines developed by the Global Reporting Initiative (“GRI”), and they seem to try to keep pretty up-to-date.
Look a little closer, and the full extent of this standardisation is difficult to decipher. The GRI guidelines are widely used in some form or another, but the guidelines are designed to be incredibly flexible. Compliance with the G3 version of the guidelines comes at three “Application Levels” according to how many CR indicators the company is able to report on; compliance can be self-assessed, or checked by the GRI or by a third party; reports can also be assured or not (the next iteration, G4 is likely to drop this feature).
Assurance may also be restricted to certain aspects of a report, and it may be either at the “reasonable” or “limited” level. This last distinction relates to the amount of work done to verify the subject matter. Reasonable assurance results in a positive form of the assurance statement (“is fairly stated”) whereas limited assurance results in a negative form (“nothing has come to our attention to suggest that it is not fairly stated”). Statutory audit of financial statements is always at the reasonable level. Limited assurance is used in a variety of other contexts, for example, in quarterly reviews of financial statements. A KPMG survey in 2008 showed that “the majority of the G250 (51 percent) obtain report assurance that is a ‘limited level’ of assurance—a lower level that requires less work from the assurance provider and therefore lower costs. […] From a company perspective, choosing a limited level is not surprising since assurance on corporate responsibility information is mainly a voluntary activity.”
The most significant standard of assurance provision applicable to the Big Four is the ISAE3000, maintained by the International Federation of Accountants (“IFAC”) through the International Auditing and Assurance Standards Board (“IAASB”). For member organisations, ISAE3000 has become compulsory where there is no national alternative (such as the Australian AS/NZS 5911 standard). This applies to the Big Four through their memberships in ICAEW. Specialist assurance providers (such as SGS and Two Tomorrows) typically don’t use the ISAE3000. It is a very flexible, generic standard, applicable to a wide range of non-audit assurance engagements. It assumes that the scope of the assurance engagement will be set by the reporting entity. In the UK, the Auditing Practices Board (“APB”) has responsibility for implementing standards issued by the IAASB. It does not currently promulgate the ISAE3000. The APB has expressed the view that the ISAE3000 aims to address too broad a range assurance engagements.
Then there’s the AA1000AS standard. The AA1000AS was developed by the non-profit organisation AccountAbility specifically for the assurance of CR reporting. The Big Four comply with this standard at their clients’ discretion. The AA1000AS (2008) seems still to be the most recent incarnation.
KPMG describe their use of the AA1000APS (2003) as a two phase process. Phase 1 considers whether the scope and materiality of the report is appropriate. During Phase 1, KPMG run their own analysis of scope and materiality. This consists of establishing five input channels: stakeholder engagement; media search; sector knowledge (e.g. peer CR reports, industry body guidelines); client knowledge; and prior year CR commitments. Phase 2 considers whether the individual claims are accurate and complete. Phase 2 is a lengthy process of identifying and taxonomising material assertions. “This results in a detailed assurance plan (including a list of people to be interviewed and a list of the required documentary evidence) at corporate, business/regional and site level (if relevant), together with the selection of sites to be visited. The type and amount of evidence required varies depending on the type of assertion and the level of assurance being sought.”
AA1000AS was developed to complement ISAE3000. For example, AA1000AS’s moderate and high levels of assurance, which the standard recommends for “new” and “mature” issues respectively, are intended to be consistent with ISAE3000’s “limited” and “reasonable” levels of assurance.
One important difference between the AA1000AS series and the ISAE3000 is that the assuror’s consideration of “materiality” is not limited in a scope set by the reporting entity. Materiality is a crucial concept of financial audit methodology, that has been carried over into assurance. Very loosely speaking, material information is significant information. It’s what matters. (I may get more detailed elsewhere). Under the AA1000AS series, the assuror assesses the degree to which the reporting entity’s scope has correctly identified its stakeholders and their needs. In other words, the assuror must make judge the reporting entity’s choices about what is and is not significant, by appeal to its stakeholders.
So those are the main standards used in the assurance of CR reporting. The Big Four have also developed their own tools relating to CR reporting, for instance Deloitte’s Sustainability Reporting Scorecard (2004), thirty criteria against which to assess a CR report. I’m not sure how much uptake there was of this.
Monitoring
There is comparatively little independent monitoring of this assurance itself (well, you do have to stop somewhere, I suppose). The G3 includes guidance on satisfactory assurance, but compliance must be self-assessed. One GRI representative commented, “An organization should look at the definition on pg. 38 of the GRI Guidelines and make its own assessment in conjunction with the assurance provider as to how they wish to communicate their engagement publicly. We will not take a position on whether a given engagement does or does not constitute ‘external assurance’ as it is impossible for us to assess the full range of engagements put in front of us” (2009).
AccountAbility don’t monitor the use of the AA1000AS (2008) to a detailed level. Each use of the AA1000AS (2008) in an assurance statement requires payment of a license fee to AccountAbility. AccountAbility pre-checks only the statement itself, although an acceptable statement must include a description of methodology. In partnership with the International Register of Certificated Auditors (“IRCA”), AccountAbility offers individuals training and certification in the use of AA1000AS (2008). AccountAbility also has an assuror membership programme (which includes all of the Big Four). However, neither of these are requirements to use the AA1000AS (2008).
The accountancy profession’s self-regulation mechanisms monitor compliance with the ISAE3000. In the context of indepedence, it's worth pointing out that the organisations which embody these mechanisms scoop their members from the cream of the accountancy profession, including Big Four partners. A quick scan suggests that about half the members of the APB are current or former associates of the Big Four, with the remainder drawn from business, law or academic backgrounds. The Big Four are also well-represented on the IFAC board.
High-level oversight of the ISAE3000 is provided by the Public Interest Oversight Board (“PIOB”), an extension of IFAC. In the UK, an infringement of the ISAE3000 would be reported to the professional body of which the firm or one of its employees was a member. All of the Big Four are institutional members of the Institute of Chartered Accountants in England and Wales (“ICAEW”). The Financial Reporting Council (“FRC”) is the UK’s independent regulator responsible for the accountancy and audit profession. The FRC, through its Professional Oversight Board (“POB”) has a statutory responsibility to ensure that these bodies have effective arrangements in place to investigate complaints against their members and member firms. The FRC recommends that professional bodies escalate cases concerning the public interest to its Accountancy & Actuarial Discipline Board (“AADB”). The AADB may also autonomously initiate investigations. As noted above, the APB does not currently promulgate the ISAE3000. In 2009, Executive Director of the APB commented, “While the ICAEW have some sort of monitoring of all services provided by audit firms in the UK (Practice Assurance), in reality I think it is fair to say that there is no monitoring of compliance with it [the ISAE3000].” There is thus something of a regulatory gap; certainly there is less oversight of this standard than of comparable audit standards.
A few more bits & pieces
In addition to all these standards and frameworks described, the Big Four aim to conduct their assurance work in accordance with the Code of Ethics for Professional Accountants, maintained by IFAC’s International Ethics Standards Board for Accountants (“IESBA”), as well as with their own codes of conduct and independence policies, and with appropriate national laws.
Important national legislation includes SOX, enacted in the US in 2002 in the aftermath of a number of major corporate and accounting scandals, above all the collapse of Enron and subsequently of their auditors, Arthur Andersen. Among its provisions, it prohibits professional services firms from doing audit and certain consultancy work for the same client. SOX also extends the scope of statutory audit to a range of internal fraud-prevention controls. ICAEW comments, “The most effective way to ensure the reality of independence is to provide guidance centred around a framework of principles rather than a detailed set of rules that can be complied with to the letter but circumvented in substance.” The focus of these blog posts is the UK system, characterized by this “principles”-based approach. It should be noted however that in the US context, largely as a consequence of SOX, threats to independence are subject to far greater “bright line” legislative specification and governmental regulation.
Finally, an there is the Audit Firm Governance Code, a code of best practice applicable to firms that audit more than twenty listed companies. This comprises the Big Four and four other large professional services firms. As far as I’m aware this doesn’t contain any provisions which are not chiefly oriented to the audit of financial statements.
Okay! Onward!
Monday, 10 June 2013
Rather dull note for Public Administration Select Committee about digital democracy
Public consultations justly have a bad name. So indeed do stakeholder consultations.
For a period of several years I was involved with private sector market research and, frequently, public sector consultations. Confidentiality forbids me from sharing specific examples, but I grew used to hearing the growing horror of stakeholders gradually realising how limited their scope of influence was, on issues on which they were more passionate, more informed, and more directly influenced by than those who were driving policy, and despite the trappings of open and responsive governance.
E.g.:
(a) I think the government tends to forget that it has a responsibility to assess the invested interests of those who participate in consultations. In particular, there is a tendency to think that businesses are experts in their own affairs, and that they can therefore be expected to make the best decisions for the economy and the country on sector-specific issues. In fact we live in such an interconnected world that there is no such thing as a purely sector-specific issue; the government have a responsibility to be critical of these sources, and to try to work out what the big picture is.
(b) I think stakeholder mapping is usually very badly done. There is often a slippage in sense from "anyone whom this issue affects" (a good definition of a stakeholder) to "those who are already influential in this area, and/or already present themselves as knowledgeable" (a poor definition).
(c) My strong intuition is that no matter how hard government (or any organisation) promises to itself it really will listen to its stakeholders this time, the only way to genuinely drive policy change through stakeholder engagement is to delegate real power to stakeholders - or at least to allow stakeholders to impose penalties if, in their considered judgement, the engagement process has not been material.
The issue, of course, is then whether you have the courage to delegate power to stakeholders who may disagree with you!
*
None of these suggestions really make my heart leap, but I find it tricky to come up with anything better.
I am slightly worried that such measures might be adopted and executed badly. They might then serve as evidence that online participation is simply impractical.
So here are a few thoughts on online participation (apologies; they are slightly disjointed).
The UK should be leading the way in online participation, not half-heartedly trying out experiments bound to fail, so that we have the excuse, "Well, we gave it a bloody good shot!"
I suppose a good principle to begin with is what the de facto citizen is like.
We shouldn't romanticize the notion of the citizen. We are often: overworked, harried, short on time, money, patience, passionate about issues but also nervous and defensive about a lack of deep knowledge of them, willing to learn, but also distrusting of all information on topics of public interest, without necessarily the time nor the inclination to be critical of that information, and craving the security and simplicity of authoritative information sources, or of timeless truths (typically cynical and/or vague dogmatism).
So "involving" us isn't just a matter of making government more permeable to the pre-existing knowledge, energy & deliberative resources of the citizenry. It is also finding ways to cultivate & nourish those things.
The trouble about polls is that there are just so many of them. One avenue worth exploring is making participation in official polls a bit more like voting: for instance, you can only vote in these polls once per month, so you'll choose the issue that's important to you, and not feel guilty about the rest. (Twelve votes per year might be better than one per month, for the sake of flexibility).
Letter-writing & petitions obviously have their place, but they feel rather dated. They take time and energy. The results are often discouraging (38 Degrees campaigns are a partial exception). They are only indirectly educative. We surely now have the technology to make the activities of government far more transparent, and to be able feedback on those activities at a fine grain, and for our government to be minutely responsive to that feedback. We have social networking and social browsing; why not social scrutiny of government?
We need to think about the notion of the "popularity" of information, and how the effects of particular items "going viral" could be usefully included in the interface between public and government. Not everything can receive equal attention, but it is not for the government to decide what is and isn't important. Nor can we any longer trust the opposition and traditional media to make such a selection. We the public must also be directly involved in determining relevance. At the same time, this is obviously risky territory. Information can become popular based on shallow considerations.
So in terms of online interaction, we also need to think about the relationship between the serious & official, and the casual, satirical, just-for-fun. Obviously not every tweeted joke, every "OMFG!" or ever photoshopped jpeg is an equally venerable and sacred exercise of a democratic right. At the same time, if you simply exclude the flippant, anarchic & playful side of things, you risk creating an arena for engagement which is dull, excessively hard work, and unrepresentative of the citizenry - being dominated by anoraks, humourless sorts, and special interests. You fail to cultivate & nourish the knowledge, energy & deliberative resources of the citizenry. (We also need to think about trolls. We also need to think about astroturf).
I don't have any big answers, but a small example might point us in roughly the right direction. Scenario A is that there is a comments section beneath Parliament TV. It obviously looks rather like the thread of pretty much any YouTube clip, and it confirms everyone's suspicion that we, the British public, are idiots.
Scenario B is that Parliament TV is integrated with Facebook, Twitter, Tumblr, etc., as well as bespoke social networking sites. Users can comment on issues raised and share specific segments of the filmed proceedings, or transcripts thereof, and can filter the annotative activity of other users in a variety of ways. There is, for example, a "readers who liked this comment tended to also like these comments" feature, so it's not just a matter of what's popular or not - people with common purposes or ideas can find one another. There are incentives for independent fact-checking to flourish. Where jargon or specialised language appears, it is easy to click through to get definitions and explanations. Those readers who persevere on such a path can even find educative resources in the underlying theory. You may start your day seeing a funny photoshopped pic, proceed to the news story on which it is based, then find yourself enrolling in an online course in economics or environmental science. Openness is a guiding principle throughout. The online architecture has been designed with the frictionless experience of the end user, the citizen, kept firmly in mind.
But at the same time, we learn what the culture of parliament is like. What is it like to be an MP or a civil servant? What restrictions do they feel upon their speech and action? What is it they think the public don't understand about their position? What is it they feel they are blamed for that is beyond their control? How do even those who are in government feel their ability to govern as they would like, to make the decisions they really want to make, is restricted by their party, by the markets, by the economy, by specific commercial interests, by existing statutes and case law, by the media, by the European and international context? It may sound paradoxical, but e-democracy isn't just about increasing and improving the participation of the public in governing. It's also about increasing and improving the participation of the governors in governing.
To summarise slightly reductively: online participation needs to be frictionless, fun, and educative. It needs to imaginatively exploit cutting edge technologies, not just transfer pre-digital practices online.
What have the more far-thinking and imaginative theorists of e-democracy proposed? Has the Public Administration Select Committee interviewed anyone who fits that description?
For a period of several years I was involved with private sector market research and, frequently, public sector consultations. Confidentiality forbids me from sharing specific examples, but I grew used to hearing the growing horror of stakeholders gradually realising how limited their scope of influence was, on issues on which they were more passionate, more informed, and more directly influenced by than those who were driving policy, and despite the trappings of open and responsive governance.
E.g.:
(a) I think the government tends to forget that it has a responsibility to assess the invested interests of those who participate in consultations. In particular, there is a tendency to think that businesses are experts in their own affairs, and that they can therefore be expected to make the best decisions for the economy and the country on sector-specific issues. In fact we live in such an interconnected world that there is no such thing as a purely sector-specific issue; the government have a responsibility to be critical of these sources, and to try to work out what the big picture is.
(b) I think stakeholder mapping is usually very badly done. There is often a slippage in sense from "anyone whom this issue affects" (a good definition of a stakeholder) to "those who are already influential in this area, and/or already present themselves as knowledgeable" (a poor definition).
(c) My strong intuition is that no matter how hard government (or any organisation) promises to itself it really will listen to its stakeholders this time, the only way to genuinely drive policy change through stakeholder engagement is to delegate real power to stakeholders - or at least to allow stakeholders to impose penalties if, in their considered judgement, the engagement process has not been material.
The issue, of course, is then whether you have the courage to delegate power to stakeholders who may disagree with you!
*
None of these suggestions really make my heart leap, but I find it tricky to come up with anything better.
I am slightly worried that such measures might be adopted and executed badly. They might then serve as evidence that online participation is simply impractical.
So here are a few thoughts on online participation (apologies; they are slightly disjointed).
The UK should be leading the way in online participation, not half-heartedly trying out experiments bound to fail, so that we have the excuse, "Well, we gave it a bloody good shot!"
I suppose a good principle to begin with is what the de facto citizen is like.
We shouldn't romanticize the notion of the citizen. We are often: overworked, harried, short on time, money, patience, passionate about issues but also nervous and defensive about a lack of deep knowledge of them, willing to learn, but also distrusting of all information on topics of public interest, without necessarily the time nor the inclination to be critical of that information, and craving the security and simplicity of authoritative information sources, or of timeless truths (typically cynical and/or vague dogmatism).
So "involving" us isn't just a matter of making government more permeable to the pre-existing knowledge, energy & deliberative resources of the citizenry. It is also finding ways to cultivate & nourish those things.
The trouble about polls is that there are just so many of them. One avenue worth exploring is making participation in official polls a bit more like voting: for instance, you can only vote in these polls once per month, so you'll choose the issue that's important to you, and not feel guilty about the rest. (Twelve votes per year might be better than one per month, for the sake of flexibility).
Letter-writing & petitions obviously have their place, but they feel rather dated. They take time and energy. The results are often discouraging (38 Degrees campaigns are a partial exception). They are only indirectly educative. We surely now have the technology to make the activities of government far more transparent, and to be able feedback on those activities at a fine grain, and for our government to be minutely responsive to that feedback. We have social networking and social browsing; why not social scrutiny of government?
We need to think about the notion of the "popularity" of information, and how the effects of particular items "going viral" could be usefully included in the interface between public and government. Not everything can receive equal attention, but it is not for the government to decide what is and isn't important. Nor can we any longer trust the opposition and traditional media to make such a selection. We the public must also be directly involved in determining relevance. At the same time, this is obviously risky territory. Information can become popular based on shallow considerations.
So in terms of online interaction, we also need to think about the relationship between the serious & official, and the casual, satirical, just-for-fun. Obviously not every tweeted joke, every "OMFG!" or ever photoshopped jpeg is an equally venerable and sacred exercise of a democratic right. At the same time, if you simply exclude the flippant, anarchic & playful side of things, you risk creating an arena for engagement which is dull, excessively hard work, and unrepresentative of the citizenry - being dominated by anoraks, humourless sorts, and special interests. You fail to cultivate & nourish the knowledge, energy & deliberative resources of the citizenry. (We also need to think about trolls. We also need to think about astroturf).
I don't have any big answers, but a small example might point us in roughly the right direction. Scenario A is that there is a comments section beneath Parliament TV. It obviously looks rather like the thread of pretty much any YouTube clip, and it confirms everyone's suspicion that we, the British public, are idiots.
Scenario B is that Parliament TV is integrated with Facebook, Twitter, Tumblr, etc., as well as bespoke social networking sites. Users can comment on issues raised and share specific segments of the filmed proceedings, or transcripts thereof, and can filter the annotative activity of other users in a variety of ways. There is, for example, a "readers who liked this comment tended to also like these comments" feature, so it's not just a matter of what's popular or not - people with common purposes or ideas can find one another. There are incentives for independent fact-checking to flourish. Where jargon or specialised language appears, it is easy to click through to get definitions and explanations. Those readers who persevere on such a path can even find educative resources in the underlying theory. You may start your day seeing a funny photoshopped pic, proceed to the news story on which it is based, then find yourself enrolling in an online course in economics or environmental science. Openness is a guiding principle throughout. The online architecture has been designed with the frictionless experience of the end user, the citizen, kept firmly in mind.
But at the same time, we learn what the culture of parliament is like. What is it like to be an MP or a civil servant? What restrictions do they feel upon their speech and action? What is it they think the public don't understand about their position? What is it they feel they are blamed for that is beyond their control? How do even those who are in government feel their ability to govern as they would like, to make the decisions they really want to make, is restricted by their party, by the markets, by the economy, by specific commercial interests, by existing statutes and case law, by the media, by the European and international context? It may sound paradoxical, but e-democracy isn't just about increasing and improving the participation of the public in governing. It's also about increasing and improving the participation of the governors in governing.
To summarise slightly reductively: online participation needs to be frictionless, fun, and educative. It needs to imaginatively exploit cutting edge technologies, not just transfer pre-digital practices online.
What have the more far-thinking and imaginative theorists of e-democracy proposed? Has the Public Administration Select Committee interviewed anyone who fits that description?
Monday, 1 April 2013
An open memo to Daniel C Dennett
Very much enjoyed listening to you on BBC Hardtalk this morning - and nice to hear your voice after years of reading your words!
(1) Stephen Sackur spent quite a long time on "absolute certainty." I wonder if that emphasis is peculiarly British - or even a peculiarly Church of England? It seems to me that in the UK there is quite a fierce fight over, as it were, the final 1% of faith. Perhaps secularism in the UK is shaped by a kind of anti-secularist who is prepared to concede a great deal and then dig in - a kind of opponent less common in the US (and elsewhere?).
I see that final 1% as a territory in which, for the anti-secularist at least, there is an enhanced role for tact, and a reduced role for dialectic steered by evidential claims. Does the secularist necessarily need to dispute that priority?
I am trying to picture those secular practices you talked about replacing religious institutions. Do you think, I wonder, they might still use religious language and ideas, but in a euphemistic way? I'm not sure! But I'm sure there are human institutions whose self-understanding involves propositions which everyone knows, when it comes down to it, aren't strictly true. Their truth is not their point. (So maybe, "We can usefully regard human life from an Inspirational Stance . . .").
The disjunct between what is ritually professed, and what comes out in an anonymised and/or scientistic context, is pretty suggestive. For instance: not too long ago a survey of Church of England clergy suggested that only roughly half believed in the immaculate conception. (OK, I must be careful not to caricature the C of E - it is certainly not already a secular replacement for a religious institution, and belief in the power of prayer, for instance, is widespread and often extremely strong. But still).
Related: right at the start when you mentioned "replacements" I thought it was a caution, rather than a hope. In other words, the decline of institutionalised religion could provide a space for the institutionalisation, or informal flourishing, of other forms of irrationalism. I soon found out what you really meant. But it is intriguing how certain superstitions may act as checks on others.
So perhaps the atheist's job, in this context, is to tactfully nudge and rearrange evidentially unsupportable thoughts, language, practices, rather than try to expunge them. To compartmentalise them, in other words, so that religion and/or its successor superstitions don't compromise us as epistemological and as ethical beings. (I think of Don Cupitt in more or less-this-mould (though perhaps he asks the traditional Christian to concede only 90%, not 99%)).
You mentioned religious scientists who can compartmentalise their mental life, so that their belief in the impossible doesn't compromise their studies. The White Queen in Through the Looking Glass believes in six impossible things before breakfast, very rigorous and extreme compartmentalisation!
The kind of transitional arrangements to a form of rationalism in which superstition resides as a commensalistic or mutualistic presence would have to be much subtler. In this regard, the atheist may need to start being a bit more of a theologian, dwelling in mysteries.
Sometimes fairly literally a theologian: when there is a fierce fight over the last 1% of faith, atheists have an obligation to intervene, with great tact and imagination, in theological debates. They have an obligation to demonstrate exegetical acuity and a kind of intellectually-developed empathy with the experience of revelation and its aftermath. They thereby both earn their authority and have a chance at recovering the rationalist elements of institutionalised irrationalism. (I know this because it came to me in a dream).
(2) Your Intuition Pump (/Pomp) about religion and music is really excellent! What if a scientific consensus told you music was bad for you, that you can allow yourself a little of it (like drink or drugs or delicious food, perhaps), but no more? Perhaps that's what it feels like to be a person of faith confronted with secularism.
Except . . . don't you think it's cheating a little to allow yourself those few bits of music? I just think losing one's faith tends to be a more dramatic shift.
Perhaps a closer analogy would be if all recorded music, all rehearsed music and all music involving instruments were bad for you. You would have to learn to hear a different music: bird song, the cadences of the speaking voice, the music of the wind in the leaves, the song of the cityscape, etc. It sounds pretty awful to me. Or perhaps the analogy should be, you can only listen to Bruce Springsteen (not including the Seeger sessions). OMG, I think I'd have to start a cult!
Best,
L
(1) Stephen Sackur spent quite a long time on "absolute certainty." I wonder if that emphasis is peculiarly British - or even a peculiarly Church of England? It seems to me that in the UK there is quite a fierce fight over, as it were, the final 1% of faith. Perhaps secularism in the UK is shaped by a kind of anti-secularist who is prepared to concede a great deal and then dig in - a kind of opponent less common in the US (and elsewhere?).
I see that final 1% as a territory in which, for the anti-secularist at least, there is an enhanced role for tact, and a reduced role for dialectic steered by evidential claims. Does the secularist necessarily need to dispute that priority?
I am trying to picture those secular practices you talked about replacing religious institutions. Do you think, I wonder, they might still use religious language and ideas, but in a euphemistic way? I'm not sure! But I'm sure there are human institutions whose self-understanding involves propositions which everyone knows, when it comes down to it, aren't strictly true. Their truth is not their point. (So maybe, "We can usefully regard human life from an Inspirational Stance . . .").
The disjunct between what is ritually professed, and what comes out in an anonymised and/or scientistic context, is pretty suggestive. For instance: not too long ago a survey of Church of England clergy suggested that only roughly half believed in the immaculate conception. (OK, I must be careful not to caricature the C of E - it is certainly not already a secular replacement for a religious institution, and belief in the power of prayer, for instance, is widespread and often extremely strong. But still).
Related: right at the start when you mentioned "replacements" I thought it was a caution, rather than a hope. In other words, the decline of institutionalised religion could provide a space for the institutionalisation, or informal flourishing, of other forms of irrationalism. I soon found out what you really meant. But it is intriguing how certain superstitions may act as checks on others.
So perhaps the atheist's job, in this context, is to tactfully nudge and rearrange evidentially unsupportable thoughts, language, practices, rather than try to expunge them. To compartmentalise them, in other words, so that religion and/or its successor superstitions don't compromise us as epistemological and as ethical beings. (I think of Don Cupitt in more or less-this-mould (though perhaps he asks the traditional Christian to concede only 90%, not 99%)).
You mentioned religious scientists who can compartmentalise their mental life, so that their belief in the impossible doesn't compromise their studies. The White Queen in Through the Looking Glass believes in six impossible things before breakfast, very rigorous and extreme compartmentalisation!
The kind of transitional arrangements to a form of rationalism in which superstition resides as a commensalistic or mutualistic presence would have to be much subtler. In this regard, the atheist may need to start being a bit more of a theologian, dwelling in mysteries.
Sometimes fairly literally a theologian: when there is a fierce fight over the last 1% of faith, atheists have an obligation to intervene, with great tact and imagination, in theological debates. They have an obligation to demonstrate exegetical acuity and a kind of intellectually-developed empathy with the experience of revelation and its aftermath. They thereby both earn their authority and have a chance at recovering the rationalist elements of institutionalised irrationalism. (I know this because it came to me in a dream).
(2) Your Intuition Pump (/Pomp) about religion and music is really excellent! What if a scientific consensus told you music was bad for you, that you can allow yourself a little of it (like drink or drugs or delicious food, perhaps), but no more? Perhaps that's what it feels like to be a person of faith confronted with secularism.
Except . . . don't you think it's cheating a little to allow yourself those few bits of music? I just think losing one's faith tends to be a more dramatic shift.
Perhaps a closer analogy would be if all recorded music, all rehearsed music and all music involving instruments were bad for you. You would have to learn to hear a different music: bird song, the cadences of the speaking voice, the music of the wind in the leaves, the song of the cityscape, etc. It sounds pretty awful to me. Or perhaps the analogy should be, you can only listen to Bruce Springsteen (not including the Seeger sessions). OMG, I think I'd have to start a cult!
Best,
L
Friday, 1 February 2013
Corporate Responsibility Reporting Assurance (3)
What is assurance anyway, Lara? Ha! I'm glad you asked.
OK, so let me introduce assurance and begin to analyse the concept of independence on which it depends. The contemporary assurance market is rooted in an explosion in social accounting experiments in the 1970s (Hess 2001). CR reporting declined and theoretical interest waned during the recession of the early 1980s. Environmental auditing and reporting picked up in the 1990s, and then underwent a steady expansion of remit. See Elkington (1994) on the “triple bottom line” of economic, social and environmental dimensions of organisational success. CR reports characteristically address all three dimensions.
In 2007 nearly 80% of the largest 250 companies worldwide issued annual CR reports, compared to about 50% in 2005 (KPMG 2008). I'm unsure where we are today, although I have a horrible feeling CR and CR reporting has slipped down the list of priorities since the most recent global financial crisis. CR shouldn't be one of a set of priorities: it should be the most important aspect of every priority a firm has.
CR is a highly complex and divisive concept. CR disclosure, especially in the form of annual standalone CR reports, is seen as one way of improving the deliberative setting in which the concept is contested.
Whenever there has been growing interest in CR reporting, there has also been a rise in independent assurance of CR reports. This is unsurprising, given the “growing body of social and environmental accounting research that finds corporate posturing and deception in the absence of external monitoring and verification” (Laufer 2003:254). Surveys regularly show public distrust of statements of business leaders (see e.g. BBC 2002). In 2007, about 40% of companies of the largest 250 companies worldwide used some form of assurance in their reports.
Before we go any further, we need to settle on a stipulative definition of assurance. As used by accountants, it is a very broad term covering the audit of financial statements, as well as various due diligence, attestation and agreed-upon-procedures engagements, and customised services which may or may not result in a standard form of report.
In the context of CR reporting, assurance sometimes refers to any tactic intended to add credibility to a corporate disclosure. This may include those which bear no obvious relation to accounting methodology. SustainAbility (2005:1) offer four categories of assurance unrelated to accounting methodology: evaluation, certification (e.g., against the SA8000 standard), expert statement (e.g., from NGOs or academics), and stakeholder commentary.
To further confuse matters, academics sometimes use audit as a broad term encompassing certification, consultancy and assurance activities which the accountancy profession would categorise as non-audit. This use is characteristic of Critical Management Studies; there “audit” emphasises the financial origins, and ostensibly mathematically-reductionist presuppositions of a positivist governance paradigm, for example Power and Laughlin (1992).
There is some inconsistency in the way the term assurance is used by the Big Four. Generally speaking, audit of financial statements is recognised as a sub-type of assurance. But since it is the main sub-type, referring to assurance rather than audit can imply that services other than financial audit are meant. PwC, for example, calls its core service line “Audit and Assurance,” tacitly differentiating the two.
In these blog posts, except where noted, assurance refers only to the assurance of CR reports in a manner that is “systematic, documented, evidence-based, and characterized by defined procedures” (GRI 2006:38), not to any of the wide range of engagements identified above. Audit refers only to the audit of financial statements.
The Big Four and a few other large accountancy firms dominate the assurance market. Technical or issue experts and specialist assurance provider firms have a sizeable minority share. Many companies use stakeholder panels and other third-party commentary to add credibility to their CR reports, but few firms combine these methods with formal assurance (KPMG 2008).
In addition to financial audit and assurance, the Big Four offer their clients a huge variety of consultancy and certification services. Assurance needs to be provisionally distinguished from these services. In assurance, there is a subject matter, a set of suitable criteria, and a tripartite relationship between assurance practitioner, entity responsible for the subject matter, and intended users of the subject matter. This standard break-down can be seen for example in IAASB 2004:283. A case in point is: the Vodafone Corporate Responsibility Report 2008/09 (subject matter); GRI’s G3 Guidelines and AccountAbility’s AA1000APS (criteria); KPMG LLP (assuror); Vodafone Group plc (responsible entity); Vodafone’s stakeholders (intended users of the subject matter).
The intended users of a subject matter often include the responsible entity itself, but to speak of “assurance” implies that the responsible entity is not the only user. This distinguishes assurance from consultancy. Assurors are “third parties,” positioned between the responsible entity and the intended users of the subject matter. The assuror applies the criteria to the subject matter, and issues a statement summarizing its findings. The assuror thereby advises the intended users on what level of trust they can place in the subject matter.
This assurance statement is usually included in the CR report itself. The statement is often of the form that the subject matter is “fairly stated.” The statement usually also includes a high-level summary of methodology, and sometimes includes areas in which the responsible entity could show improvement. A formidable liability statement is the final piece of the assurance statement.
This liability statement points to the difference between assurance and certification. Assurance is characterised by a comparatively low transfer of liability to the assuror. If the subject matter proves, contrary to the assurance statement, to be misstated, the assuror is fairly well-protected from torts initiated by those who have relied on it.
Liability is roughly correlated with reputation. In other words, if a certification agency only had the degree of confidence implicit in assurance when it issued its certifications, they would probably lose their credibility. However, the correlation is more exacting in the business world than in the wider public domain. In the case of financial audit, the transfer of liability to the auditor is consistently beneath public expectations. Audit has a reputation as certification against fraud – but is not considered so by auditors or by the law. Ha! See Millichamp (2002:2). This disparity is known, in a rather smug and patrician and euphemistic sort of way, as the “expectation gap.” Humphrey et al. (1992:57) argue that the expectation gap allows the accountancy profession to “convey an impression of responding to public concern; to reaffirm its independent and selfless image; to assert the validity of its own perspectives on the nature of the audit function; and to direct questioning away from the existing audit system to the limits of proposed reforms and solutions for closing the expectations gap.” For empirical work on the expectation gap see e.g. Monroe and Woodliff (2009).
Indeed, the boundaries of consultancy, certification, and assurance are in practice often blurred. There is an iterative quality to assurance, such that the responsible entity is advised periodically what steps are necessary to acquire an assurance statement. KPMG comment, “Once we receive a reasonable draft of the client’s sustainability report we can check whether the identified issues are covered and whether the information on a material issue is balanced. This is usually the start of a lively debate with the client about what different parties may perceive to be material for their organization, which is more difficult to define if the client’s own stakeholder engagement processes are not fully developed” (AccountAbility 2007:9).
In this way, assurance may drive improvements in CR reporting and underlying CR policies. However, Big Four descriptions of assurance accentuate how their independence can generate credibility, not how it can drive organisational change.
This is our first indication of an orientation to the audit of financial statements. A brief history will help to explain. The link between audit and consultancy has been by far the most publicly contentious issue relating to auditor independence. In the late 1990s fierce criticism and a string of court cases persuaded all of the Big Five except Deloitte to sell or spin off their consultancy businesses. Deloitte also initially announced its intention to split into separate audit and consultancy firms. Following the collapse of Arthur Andersen (producing the Big Four from the Big Five) after its provision of dubious consultancy and audit services to Enron, a raft of tighter regulatory measures, notably the Sarbanes-Oxley Act 2002 in the US (“SOX”), seemed to take the problem of the relationship between audit and consultancy out of the Big Four’s hands. Deloitte thus elected to retain its consultancy business, which proved extremely profitable throughout the next decade. The other Big Four firms have quietly rebuilt their consultancy businesses. The issue remains a senstive one, however, and the Big Four seldom seek to thematise any complementarity of audit and consultancy.
But as Bendell (2005) argues, the link between CR consultancy and assurance is not so obviously problematic. Declining to assure a CR report does not lead to a dramatic loss of investor confidence, as is typical when an auditor refuses to sign off on a set of financial statements, or challenges a company’s “going concern” assumption. Similarly, “shopping around” for an assuror of CR reports is unlikely to make investors nervous in the same way switching auditors tends to, so ideas for organisatonal change can be drawn from a larger pool. Such advantages may outweigh the risk that assurors exaggerate the success of systems which, wearing their consultancy hats, they helped to design. See Beattie and Fernley (2003) for a literature review around auditor independence and the provision of non-audit services, and Cragg (2005:96-97) for examples of independence issues arising from consultancy in the context of CR report assurance and social audit.
The Deloitte web site offers a typical Big Four rationale for assurance: “As the importance in and reliance of [sic] these [CR] reports increases, there is a growing trend to add credibility to the information presented through assurance. The benefits include greater transparency, increased stakeholder confidence and enhanced regulatory compliance.”
The appeals to “greater transparency” and “increased stakeholder confidence” confirm that in Deloitte’s view, the point of assurance is credibility. “Enhanced regulatory compliance” whispers at organisational change, but it is an oblique phrase in need of some interpretation. Corporations in the UK are not legally obliged to undertake CR policies. The Companies Act 2006 requires that publicly listed companies include information in their annual report on “environmental matters,” “the company’s employees” and “social and community issues” (Section 417, Para 5). Assurance thus neither constitutes, nor falls under, any kind of state-mandated compliance regime. Listing “regulatory compliance” simpliciter as a benefit would make mandatory activities appear to depend on discretionary ones, and the main function of “enhanced” is to neutralise this connotation.
But there is also a ubiquitous expectation that CR will be increasingly legalised, and that reporting will be an early focus of this legalisation. For example, France has required publicly listed companies to publish annual environmental and social reports since 2001. A European Parliament resolution in 2007 recommended the revision of the Fourth Company Law Directive to include social and environmental reporting alongside financial reporting requirements. “Enhanced” thus also carries a sense of “ahead of the game” – organisations which assure their CR reports will find the transition easier when CR and CR reporting are inscribed in law. In this connection, “enhanced regulatory compliance” also imparts a sense of “enhanced standardisation”; that is, of compliance with widely-recognised standards like the G3, even though such guidelines are not regulatory in any straightforward sense.
That typo - a botched edit, actually - is exemplary of the kind of anxiety and confusion surrounding the purposes and priorities of CR reporting. It is likely that the phrase was originally “the reliance in and importance of these reports”; reliance connoting de facto market realities, importance with just a hint of idealism about it. The importance was deemed more important, but the editor left traces of his or her work.
Elsewhere Deloitte (2009:3) are confident enough to set a date on legalisation. “2015-2030 – Increasing legislation, regulation and tax policies force reactive organisations to adopt sustainable behaviour which now becomes a license to operate as unsustainable supply chains seem increasingly outdated. A few popular sustainable approaches and quality stamps emerge as standard, allowing benchmarking and greater consumer visibility. Increasing collaboration between non-competing organisations emerges as the main route to sustaining competitive advantage.”
From the Big Four’s perspective, responsibility for the economic, social and environmental impact of business is migrating inevitably from the public sector to the state sector, driven by ratcheting public expectations. Good CR policies, such as the assurance of CR reports, have their value in positioning businesses advantageously in this shift, and allowing them to shape a few of its specific characteristics.
OK, so let me introduce assurance and begin to analyse the concept of independence on which it depends. The contemporary assurance market is rooted in an explosion in social accounting experiments in the 1970s (Hess 2001). CR reporting declined and theoretical interest waned during the recession of the early 1980s. Environmental auditing and reporting picked up in the 1990s, and then underwent a steady expansion of remit. See Elkington (1994) on the “triple bottom line” of economic, social and environmental dimensions of organisational success. CR reports characteristically address all three dimensions.
In 2007 nearly 80% of the largest 250 companies worldwide issued annual CR reports, compared to about 50% in 2005 (KPMG 2008). I'm unsure where we are today, although I have a horrible feeling CR and CR reporting has slipped down the list of priorities since the most recent global financial crisis. CR shouldn't be one of a set of priorities: it should be the most important aspect of every priority a firm has.
CR is a highly complex and divisive concept. CR disclosure, especially in the form of annual standalone CR reports, is seen as one way of improving the deliberative setting in which the concept is contested.
Whenever there has been growing interest in CR reporting, there has also been a rise in independent assurance of CR reports. This is unsurprising, given the “growing body of social and environmental accounting research that finds corporate posturing and deception in the absence of external monitoring and verification” (Laufer 2003:254). Surveys regularly show public distrust of statements of business leaders (see e.g. BBC 2002). In 2007, about 40% of companies of the largest 250 companies worldwide used some form of assurance in their reports.
Before we go any further, we need to settle on a stipulative definition of assurance. As used by accountants, it is a very broad term covering the audit of financial statements, as well as various due diligence, attestation and agreed-upon-procedures engagements, and customised services which may or may not result in a standard form of report.
In the context of CR reporting, assurance sometimes refers to any tactic intended to add credibility to a corporate disclosure. This may include those which bear no obvious relation to accounting methodology. SustainAbility (2005:1) offer four categories of assurance unrelated to accounting methodology: evaluation, certification (e.g., against the SA8000 standard), expert statement (e.g., from NGOs or academics), and stakeholder commentary.
To further confuse matters, academics sometimes use audit as a broad term encompassing certification, consultancy and assurance activities which the accountancy profession would categorise as non-audit. This use is characteristic of Critical Management Studies; there “audit” emphasises the financial origins, and ostensibly mathematically-reductionist presuppositions of a positivist governance paradigm, for example Power and Laughlin (1992).
There is some inconsistency in the way the term assurance is used by the Big Four. Generally speaking, audit of financial statements is recognised as a sub-type of assurance. But since it is the main sub-type, referring to assurance rather than audit can imply that services other than financial audit are meant. PwC, for example, calls its core service line “Audit and Assurance,” tacitly differentiating the two.
In these blog posts, except where noted, assurance refers only to the assurance of CR reports in a manner that is “systematic, documented, evidence-based, and characterized by defined procedures” (GRI 2006:38), not to any of the wide range of engagements identified above. Audit refers only to the audit of financial statements.
The Big Four and a few other large accountancy firms dominate the assurance market. Technical or issue experts and specialist assurance provider firms have a sizeable minority share. Many companies use stakeholder panels and other third-party commentary to add credibility to their CR reports, but few firms combine these methods with formal assurance (KPMG 2008).
In addition to financial audit and assurance, the Big Four offer their clients a huge variety of consultancy and certification services. Assurance needs to be provisionally distinguished from these services. In assurance, there is a subject matter, a set of suitable criteria, and a tripartite relationship between assurance practitioner, entity responsible for the subject matter, and intended users of the subject matter. This standard break-down can be seen for example in IAASB 2004:283. A case in point is: the Vodafone Corporate Responsibility Report 2008/09 (subject matter); GRI’s G3 Guidelines and AccountAbility’s AA1000APS (criteria); KPMG LLP (assuror); Vodafone Group plc (responsible entity); Vodafone’s stakeholders (intended users of the subject matter).
The intended users of a subject matter often include the responsible entity itself, but to speak of “assurance” implies that the responsible entity is not the only user. This distinguishes assurance from consultancy. Assurors are “third parties,” positioned between the responsible entity and the intended users of the subject matter. The assuror applies the criteria to the subject matter, and issues a statement summarizing its findings. The assuror thereby advises the intended users on what level of trust they can place in the subject matter.
This assurance statement is usually included in the CR report itself. The statement is often of the form that the subject matter is “fairly stated.” The statement usually also includes a high-level summary of methodology, and sometimes includes areas in which the responsible entity could show improvement. A formidable liability statement is the final piece of the assurance statement.
This liability statement points to the difference between assurance and certification. Assurance is characterised by a comparatively low transfer of liability to the assuror. If the subject matter proves, contrary to the assurance statement, to be misstated, the assuror is fairly well-protected from torts initiated by those who have relied on it.
Liability is roughly correlated with reputation. In other words, if a certification agency only had the degree of confidence implicit in assurance when it issued its certifications, they would probably lose their credibility. However, the correlation is more exacting in the business world than in the wider public domain. In the case of financial audit, the transfer of liability to the auditor is consistently beneath public expectations. Audit has a reputation as certification against fraud – but is not considered so by auditors or by the law. Ha! See Millichamp (2002:2). This disparity is known, in a rather smug and patrician and euphemistic sort of way, as the “expectation gap.” Humphrey et al. (1992:57) argue that the expectation gap allows the accountancy profession to “convey an impression of responding to public concern; to reaffirm its independent and selfless image; to assert the validity of its own perspectives on the nature of the audit function; and to direct questioning away from the existing audit system to the limits of proposed reforms and solutions for closing the expectations gap.” For empirical work on the expectation gap see e.g. Monroe and Woodliff (2009).
Indeed, the boundaries of consultancy, certification, and assurance are in practice often blurred. There is an iterative quality to assurance, such that the responsible entity is advised periodically what steps are necessary to acquire an assurance statement. KPMG comment, “Once we receive a reasonable draft of the client’s sustainability report we can check whether the identified issues are covered and whether the information on a material issue is balanced. This is usually the start of a lively debate with the client about what different parties may perceive to be material for their organization, which is more difficult to define if the client’s own stakeholder engagement processes are not fully developed” (AccountAbility 2007:9).
In this way, assurance may drive improvements in CR reporting and underlying CR policies. However, Big Four descriptions of assurance accentuate how their independence can generate credibility, not how it can drive organisational change.
This is our first indication of an orientation to the audit of financial statements. A brief history will help to explain. The link between audit and consultancy has been by far the most publicly contentious issue relating to auditor independence. In the late 1990s fierce criticism and a string of court cases persuaded all of the Big Five except Deloitte to sell or spin off their consultancy businesses. Deloitte also initially announced its intention to split into separate audit and consultancy firms. Following the collapse of Arthur Andersen (producing the Big Four from the Big Five) after its provision of dubious consultancy and audit services to Enron, a raft of tighter regulatory measures, notably the Sarbanes-Oxley Act 2002 in the US (“SOX”), seemed to take the problem of the relationship between audit and consultancy out of the Big Four’s hands. Deloitte thus elected to retain its consultancy business, which proved extremely profitable throughout the next decade. The other Big Four firms have quietly rebuilt their consultancy businesses. The issue remains a senstive one, however, and the Big Four seldom seek to thematise any complementarity of audit and consultancy.
But as Bendell (2005) argues, the link between CR consultancy and assurance is not so obviously problematic. Declining to assure a CR report does not lead to a dramatic loss of investor confidence, as is typical when an auditor refuses to sign off on a set of financial statements, or challenges a company’s “going concern” assumption. Similarly, “shopping around” for an assuror of CR reports is unlikely to make investors nervous in the same way switching auditors tends to, so ideas for organisatonal change can be drawn from a larger pool. Such advantages may outweigh the risk that assurors exaggerate the success of systems which, wearing their consultancy hats, they helped to design. See Beattie and Fernley (2003) for a literature review around auditor independence and the provision of non-audit services, and Cragg (2005:96-97) for examples of independence issues arising from consultancy in the context of CR report assurance and social audit.
The Deloitte web site offers a typical Big Four rationale for assurance: “As the importance in and reliance of [sic] these [CR] reports increases, there is a growing trend to add credibility to the information presented through assurance. The benefits include greater transparency, increased stakeholder confidence and enhanced regulatory compliance.”
The appeals to “greater transparency” and “increased stakeholder confidence” confirm that in Deloitte’s view, the point of assurance is credibility. “Enhanced regulatory compliance” whispers at organisational change, but it is an oblique phrase in need of some interpretation. Corporations in the UK are not legally obliged to undertake CR policies. The Companies Act 2006 requires that publicly listed companies include information in their annual report on “environmental matters,” “the company’s employees” and “social and community issues” (Section 417, Para 5). Assurance thus neither constitutes, nor falls under, any kind of state-mandated compliance regime. Listing “regulatory compliance” simpliciter as a benefit would make mandatory activities appear to depend on discretionary ones, and the main function of “enhanced” is to neutralise this connotation.
But there is also a ubiquitous expectation that CR will be increasingly legalised, and that reporting will be an early focus of this legalisation. For example, France has required publicly listed companies to publish annual environmental and social reports since 2001. A European Parliament resolution in 2007 recommended the revision of the Fourth Company Law Directive to include social and environmental reporting alongside financial reporting requirements. “Enhanced” thus also carries a sense of “ahead of the game” – organisations which assure their CR reports will find the transition easier when CR and CR reporting are inscribed in law. In this connection, “enhanced regulatory compliance” also imparts a sense of “enhanced standardisation”; that is, of compliance with widely-recognised standards like the G3, even though such guidelines are not regulatory in any straightforward sense.
That typo - a botched edit, actually - is exemplary of the kind of anxiety and confusion surrounding the purposes and priorities of CR reporting. It is likely that the phrase was originally “the reliance in and importance of these reports”; reliance connoting de facto market realities, importance with just a hint of idealism about it. The importance was deemed more important, but the editor left traces of his or her work.
Elsewhere Deloitte (2009:3) are confident enough to set a date on legalisation. “2015-2030 – Increasing legislation, regulation and tax policies force reactive organisations to adopt sustainable behaviour which now becomes a license to operate as unsustainable supply chains seem increasingly outdated. A few popular sustainable approaches and quality stamps emerge as standard, allowing benchmarking and greater consumer visibility. Increasing collaboration between non-competing organisations emerges as the main route to sustaining competitive advantage.”
From the Big Four’s perspective, responsibility for the economic, social and environmental impact of business is migrating inevitably from the public sector to the state sector, driven by ratcheting public expectations. Good CR policies, such as the assurance of CR reports, have their value in positioning businesses advantageously in this shift, and allowing them to shape a few of its specific characteristics.
Thursday, 31 January 2013
Corporate Responsibility Reporting Assurance (2)
First, a little caveat: some of this could be dated. At the time when I pulled most of this material together, I did a kind of close reading of "independence." I checked out Big Four’s web sites and other marketing materials; I examined the assurance and general ethics standards promulgated by the International Federation of Accountants (“IFAC”) and by the Institute of Chartered Accountants in England and Wales (“ICAEW”), the popular AA1000 standards developed by the non-profit organisation AccountAbility, the G3 standards developed by the non-profit Global Reporting Initiative, and some of the assurance methodology recommended by audit text books. I also tried to get a sense of the self-regulatory mechanisms of the accountancy profession. I did this by looking at the web sites of various entities, and corresponding with very nice representatives from IFAC and the Financial Reporting Councial (“FRC”) - though not, if I remember rightly, from the Big Four? - to further clarify this regulation architecture. This close reading exposed how the concept of “independence” is constructed in close relation with two others, “professionalism” and “stakeholders.” So I also engaged closely with primary sources which articulate these concepts. This was all about four years back though; a lot may have changed since then. If something has changed, or I'm wrong about something, I'd love to hear from you.
Second, a quick digression. It's a funny world, corporate responsibility. And corporate responsibility reporting is a funnier world inside it. The funniest little world is corporate responsibility reporting assurance.
Or perhaps it's corporate responsibility reporting awards-judging. It's that time of year again: CorporateRegister.com wants you to vote for your favourite CR report (AKA sustainability report or CSR report)! You have a chance of winning cash prizes if you vote! What's that? You don't have a favourite CR report? I'm sorry, I don't understand.
Perhaps those incentives are there because so few people will trouble themselves reading one, let alone two, let alone many CR reports. And even if you did read one, how are you supposed to say if you like it? We like the CR reports that are the most true. Which are they?
Yet a company's CR and CR reporting are really the only things about that company that matter to most sensible people.
There needs to be more journalistic mediation between places like CorporateRegister and members of the public. At the very least, there needs to be an accessible, one-stop-shop that summarises the assurance processes which have gone into each report.
CorporateRegister: you in particular, for your "credibility through assurance" category in particular, need to rejig your layout so that information about who the assuror was, if GRI criteria were used, etc. appears on the same page as you cast your vote. That allows for a quick comparison, and energetic voters can still do depth research if they need to (which one of our two tomorrows does Two Tomorrows really support? etc.).
Third, an introduction to one or two concepts from political sociology. (I didn't really need them to do this analysis; in fact, I think it would have been a lot stronger had I proceeded without formal methodology, and only that sense common to the humanities / liberal arts. But as it happens, I did use them, and at least the history of these concepts being applied is enriched (if only enriched with my bungling)).
It is difficult to invoke Habermas with a clear conscience in a blog post about anything other than Habermas. His core preoccupations undergo constant and nuanced revision throughout his ouevre. I've elected to take concepts from The Theory of Communicative Action, but their application here also points to successors in later and precursors in earlier works by Habermas. One point I'm going to make later on - that organisations seeking a “license to operate” from society are systemically hampered, in harvesting credibility, by the disparities between genuine sources of legitimacy in the socio-cultural sub-system and the representative institutions open to those organisations - recalls Legitimacy Crisis (1975). In characterising the accountancy profession’s structure of mixed orientation to success and to understanding as legal rationality, I'll be parallelling one core idea of Between Facts and Norms (1996), that law derives its legitimacy from networks of communicative power, and thereby expresses the tension between the claims of reason as concretely specified and their context-transcending idealizations (Habermas 1996:449). Furthermore, there are parts of The Theory of Communicative Action which I have only cursorily engaged with here. The concept of legal rationality constitutes abbreviated and speculative reconstruction of aspects of knowledge embodied in accountants’ everyday practices, whereas Habermas’s theory of reconstructive science provides a comprehensive framework within which the concept could be more rigorously linked to empirical fallibilistic enquiry.
Power and Laughlin (1999) also apply Habermas to the accounting profession, suggesting that “the nechnical neutrality of accounting practice is illusory and that accounting is a potentially colonizing force which threatens to ‘delinguistify’ the public realm” (132). To suggest a model of the entanglement of independence and professionalism, which can operate outside both concrete discursive connections and a sociology of the professions, I'm going to draw on categories developed by Habermas (1985), especially socially-integrated and systemically-integrated action settings. Habermas develops these to contest Max Weber’s “identification of instrumental reason with the rationalisation characteristic of modern life” (Power and Laughlin 1999:121).
Habermas’s analysis of modernity proposes two parallel processes of rationalisation. In the domain of instrumental-purposive action, action is oriented to success. Rationalisation here consists in the optimisation of success. Action can be optimally integrated by steering media, that is, non-linguistified communication media such as money and power. These steering media relieve the participants in complicated regimes of action of the burden of achieving linguistic consensus, while preserving and extending the integrity of their action networks. Each actor is steered according by the contours of incentives and disincentives which confront her, not motivated by her linguistically-attained intersubjective understanding. This is what is meant by “systemic integration,” contradistinguished from “social integration.” Since action in this domain is oriented to success, its systemic integration by steering media is considered non-pathological.
In the domain of communicative action (the “lifeworld”), however, action is oriented towards understanding. Rationalisation in this domain consists in the accumulation of intersubjective moral-practical understanding. This process is identical with the increasing generality of that understanding, which Habermas understands as the gradual uncoupling of the institutional, cultural and personality symbolic structures which together comprise the lifeworld. To make sense of this triptych, we need to consider that social integration consists in the reciprocity of socialisation (the internalisation of cultural values by the personality system) and social control (the internalisation of cultural values by institutions). As the lifeworld rationalises, and the three symbolic structures float apart from one-another, their interpenetration coming more and more to depend upon the interpretive accomplishments of actors, who reciprocally raise and redeem the validity claims inherent in their communicative practices. See Habermas (1985:146).
Socially-integrated action in this domain is non-pathological. But systemically-integrated action is associated with the distortion of communicative rationality. The tendency for this to occur is what is meant by “the internal colonisation of the lifeworld.” It is this tendency – and not rationalisation in either the dimension of purposive-instrumental action or of communicative action – which is the closest correlate to Weber’s understanding of rationalisation as the expansion of formal reason to ever more domains of social life.
Is that OK? Does that seem about right to you?
Now, in my view, the professional independence of auditors means that audit cannot be reduced to the internal colonisation of the lifeworld. In line with Habermas’s thesis that purposive-instrumental action remains anchored in communicative action (1985:196), I'm going to argue that the systems rationality embodied by auditor independence relies on the lifeworld resources of the accounting profession, including: a permanent regime of training and mentoring, a tradition of professional congeniality and discussion, a preoccupation with ethics, as well as a relatively homogeneous pool of cultural and ideological norms. Professional independence straddles both system and lifeworld. It contains a mixture of strategic and communicative action. Somewhere in the coming posts, I'll analyse this mixture, in its institutional specification in the accountancy profession, as that profession’s legal rationality.
Second, a quick digression. It's a funny world, corporate responsibility. And corporate responsibility reporting is a funnier world inside it. The funniest little world is corporate responsibility reporting assurance.
Or perhaps it's corporate responsibility reporting awards-judging. It's that time of year again: CorporateRegister.com wants you to vote for your favourite CR report (AKA sustainability report or CSR report)! You have a chance of winning cash prizes if you vote! What's that? You don't have a favourite CR report? I'm sorry, I don't understand.
Perhaps those incentives are there because so few people will trouble themselves reading one, let alone two, let alone many CR reports. And even if you did read one, how are you supposed to say if you like it? We like the CR reports that are the most true. Which are they?
Yet a company's CR and CR reporting are really the only things about that company that matter to most sensible people.
There needs to be more journalistic mediation between places like CorporateRegister and members of the public. At the very least, there needs to be an accessible, one-stop-shop that summarises the assurance processes which have gone into each report.
CorporateRegister: you in particular, for your "credibility through assurance" category in particular, need to rejig your layout so that information about who the assuror was, if GRI criteria were used, etc. appears on the same page as you cast your vote. That allows for a quick comparison, and energetic voters can still do depth research if they need to (which one of our two tomorrows does Two Tomorrows really support? etc.).
Third, an introduction to one or two concepts from political sociology. (I didn't really need them to do this analysis; in fact, I think it would have been a lot stronger had I proceeded without formal methodology, and only that sense common to the humanities / liberal arts. But as it happens, I did use them, and at least the history of these concepts being applied is enriched (if only enriched with my bungling)).
It is difficult to invoke Habermas with a clear conscience in a blog post about anything other than Habermas. His core preoccupations undergo constant and nuanced revision throughout his ouevre. I've elected to take concepts from The Theory of Communicative Action, but their application here also points to successors in later and precursors in earlier works by Habermas. One point I'm going to make later on - that organisations seeking a “license to operate” from society are systemically hampered, in harvesting credibility, by the disparities between genuine sources of legitimacy in the socio-cultural sub-system and the representative institutions open to those organisations - recalls Legitimacy Crisis (1975). In characterising the accountancy profession’s structure of mixed orientation to success and to understanding as legal rationality, I'll be parallelling one core idea of Between Facts and Norms (1996), that law derives its legitimacy from networks of communicative power, and thereby expresses the tension between the claims of reason as concretely specified and their context-transcending idealizations (Habermas 1996:449). Furthermore, there are parts of The Theory of Communicative Action which I have only cursorily engaged with here. The concept of legal rationality constitutes abbreviated and speculative reconstruction of aspects of knowledge embodied in accountants’ everyday practices, whereas Habermas’s theory of reconstructive science provides a comprehensive framework within which the concept could be more rigorously linked to empirical fallibilistic enquiry.
Power and Laughlin (1999) also apply Habermas to the accounting profession, suggesting that “the nechnical neutrality of accounting practice is illusory and that accounting is a potentially colonizing force which threatens to ‘delinguistify’ the public realm” (132). To suggest a model of the entanglement of independence and professionalism, which can operate outside both concrete discursive connections and a sociology of the professions, I'm going to draw on categories developed by Habermas (1985), especially socially-integrated and systemically-integrated action settings. Habermas develops these to contest Max Weber’s “identification of instrumental reason with the rationalisation characteristic of modern life” (Power and Laughlin 1999:121).
Habermas’s analysis of modernity proposes two parallel processes of rationalisation. In the domain of instrumental-purposive action, action is oriented to success. Rationalisation here consists in the optimisation of success. Action can be optimally integrated by steering media, that is, non-linguistified communication media such as money and power. These steering media relieve the participants in complicated regimes of action of the burden of achieving linguistic consensus, while preserving and extending the integrity of their action networks. Each actor is steered according by the contours of incentives and disincentives which confront her, not motivated by her linguistically-attained intersubjective understanding. This is what is meant by “systemic integration,” contradistinguished from “social integration.” Since action in this domain is oriented to success, its systemic integration by steering media is considered non-pathological.
In the domain of communicative action (the “lifeworld”), however, action is oriented towards understanding. Rationalisation in this domain consists in the accumulation of intersubjective moral-practical understanding. This process is identical with the increasing generality of that understanding, which Habermas understands as the gradual uncoupling of the institutional, cultural and personality symbolic structures which together comprise the lifeworld. To make sense of this triptych, we need to consider that social integration consists in the reciprocity of socialisation (the internalisation of cultural values by the personality system) and social control (the internalisation of cultural values by institutions). As the lifeworld rationalises, and the three symbolic structures float apart from one-another, their interpenetration coming more and more to depend upon the interpretive accomplishments of actors, who reciprocally raise and redeem the validity claims inherent in their communicative practices. See Habermas (1985:146).
Socially-integrated action in this domain is non-pathological. But systemically-integrated action is associated with the distortion of communicative rationality. The tendency for this to occur is what is meant by “the internal colonisation of the lifeworld.” It is this tendency – and not rationalisation in either the dimension of purposive-instrumental action or of communicative action – which is the closest correlate to Weber’s understanding of rationalisation as the expansion of formal reason to ever more domains of social life.
Is that OK? Does that seem about right to you?
Now, in my view, the professional independence of auditors means that audit cannot be reduced to the internal colonisation of the lifeworld. In line with Habermas’s thesis that purposive-instrumental action remains anchored in communicative action (1985:196), I'm going to argue that the systems rationality embodied by auditor independence relies on the lifeworld resources of the accounting profession, including: a permanent regime of training and mentoring, a tradition of professional congeniality and discussion, a preoccupation with ethics, as well as a relatively homogeneous pool of cultural and ideological norms. Professional independence straddles both system and lifeworld. It contains a mixture of strategic and communicative action. Somewhere in the coming posts, I'll analyse this mixture, in its institutional specification in the accountancy profession, as that profession’s legal rationality.
Corporate Responsibility Reporting Assurance (1)
Okay Fawks, in the next few posts I want to talk about the independent assurance services provided by the world’s largest professional services firms, PwC, Deloitte, KPMG and E&Y (“the Big Four”) on their clients’ Corporate Responsibility (“CR”) reports.
The Big Four’s core business is audit. All publicly listed companies are legally obliged to publish financial statements, informing shareholders and the general public of the company’s financial position. They are also legally obliged to have these financial statements verified by an external auditor. The Big Four perform this role for the world’s largest corporations. In the UK market for example the Big Four audit all of the FTSE100.
The Big Four’s reputation for independence stems from their auditing of financial statements. The governance structure which they rely upon to protect their independence is also oriented towards this activity.
However, to assure CR reports, a different type of independence is required. Unlike financial statements, CR reports try to address the needs of all stakeholders in a company. Instead of being limited to financially material information, CR reports aim to cover all the social and environmental issues which are important to these stakeholders.
The assurance of CR reports thus requires a type of independence resembling the liberal idea of state neutrality. The Big Four are required to arbitrate among a plurality of often contradictory demands. With only the independence inherited from the financial audit context, the Big Four regularly fail in this role. As a result, many stakeholders remain incredulous towards CR reports, and corporations themselves are confused about the levels of transparency they are achieving.
The Big Four should shift to “critical independence,” abandoning many claims to disinterestedness, and acknowledging the specific place from which they speak.
The Big Four’s core business is audit. All publicly listed companies are legally obliged to publish financial statements, informing shareholders and the general public of the company’s financial position. They are also legally obliged to have these financial statements verified by an external auditor. The Big Four perform this role for the world’s largest corporations. In the UK market for example the Big Four audit all of the FTSE100.
The Big Four’s reputation for independence stems from their auditing of financial statements. The governance structure which they rely upon to protect their independence is also oriented towards this activity.
However, to assure CR reports, a different type of independence is required. Unlike financial statements, CR reports try to address the needs of all stakeholders in a company. Instead of being limited to financially material information, CR reports aim to cover all the social and environmental issues which are important to these stakeholders.
The assurance of CR reports thus requires a type of independence resembling the liberal idea of state neutrality. The Big Four are required to arbitrate among a plurality of often contradictory demands. With only the independence inherited from the financial audit context, the Big Four regularly fail in this role. As a result, many stakeholders remain incredulous towards CR reports, and corporations themselves are confused about the levels of transparency they are achieving.
The Big Four should shift to “critical independence,” abandoning many claims to disinterestedness, and acknowledging the specific place from which they speak.
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