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Social Accounting for Corporate Managers

James S. Shulman and Jeffrey Gale





JUN 28 1971


Social Accounting for Corporate Managers

James S. Shulman and Jeffrey Gale


JUL 5 1971

M. I. I. LibRArtlES

Social Accounting for Corporate Managers

• This oaner identifies the need of a system of accounting for those
corporate activities which have other than traditionally quantifiable
financial consequences. Whether these activities are consciously undertaken
or are the by-products of corporate operations, it is suggested that they
should be accounted both to the public and to internal managers through the
establishment of a system of social accounting, a term coined by others,
but appropriate to our purposes.

The authors are aware that the ideas offered here are only a beginning
inquiry into a topic of growing significance, and that vzidely divergent
debate is needed to direct attention toward definitive forms to fulfull the
p"erceived need. We cheerfully anticipate argument and criticism; and expect
t^at' the last word on the subject is far, far away — perhaps even light years
away. Since arguments over traditional accounting principles continue to
absorb the attention of interest groups, if is surely reasonable to expect
t^at social accounting will create problems requiring full discussion by con-
flicting parties: and to hope that more interest will generate light on a
pr'esently unlit area.
Aroused Interest in Social Responsibility

Headlines and newspaper stories in recent years give the impression
that the public is suddenly becoming aware of certain anti-social aspects
of corporate operations. Student obstruction of corporate recruiting at
universities, consumer strikes at retail stores, sit-ins at corporate head-
quarters, and demonstrations of various groups against corporate hiring practices,
ecological damage, poorly designed products, and other apparent malfeasance
and misfeasance have forced corporate managers and directors to sit up and
take notice.


While the socially directed activities of interest groups capture the
headlines, it is of interest to note that many corporate managers have
treated the subject for decades. (This is not to say that very much has
necessarily been done about it by many managers.) In our experience,

corporate managers have seemed to adopt one of three general approaches.

Some managers have recognized the growing need of some kind of attitude |
toward social responsibility, but have chosen to ignore it. They say,
"Our function is to maximize profit, so as to facilitate growth of the \
business and returns to our investors. This is our primary task, and V7e
shall pursue it. We are not lav; breakers, we do not consciously offend
anybody, but V7e cannot afford the luxury of diverting our energies from
our primary function." A second group of executives has recognized that
somebody out there is complaining about certain corporate activities, or
side-effects, but they take a strong stand against any encroachment of their
prerogatives. They have chosen actively to oppose any outside activities
that remotely smack of interference with management authority. A third
group of executives has recognized the growing interest in corporate re-
sponsibility as a factor in the environment which affects corporate operations .
This group of managers has come to realize that the long-run success of the
firm may even be enhanced if the subject is factored into planning activities,

Observation of corporate operations in recent years suggests that there
may be a trend toward adoption of the third alternative. In fact, there is
evidence that som.e firms have recognized the positive aspects of social re-
sponsibility for decades, and have attempted to do something about them. For
example, while Dow Chemical Company has become famous for the anti-napalm
demonstrations, the fact is that the company has for nearly two generations
planned its manufacturing processes so as to reduce or eliminate ecological

damage. In the case of Eastern Gas & Fuel Associates, participation
through its Boston Gas Company subsidiary in housing rehabilitation in
Boston's Roxbury district is an instance of a firm which has taken a
positive approach to a particular social problem, and has even profited
measurably from it. In a related activity, the Olivetti Company in Italy
has for generations exhibited interest in the social welfare of its em-
ployees, far above and beyond the programs of the Italian government. Many
other similar Instances of corporate activity are available for those who
seek them out. . There is a growing feeling that more corporate

managers should be attending to activities over and above growth and profits
The Rise of New Interest Groups

But the critics of corporate activity have now been joined by other
parties with a new set of interests. For example, institutions which hold
large blocks of stock in public companies have traditionally shown little or
no interest in the management of the firms in v;hich they invest. Institutions,
foundations, trust officers, and even large mutual fund investors have (with


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