Debating the Social Footprint

Commentary: Following my article on the Social Footprint, Mark McElroy responded with comments in defence of the method, which are presented here with my own responses.

[Original Article] For years, people wanting to measure and report real performance in corporate social responsibility have been frustrated over one area in particular - the apparent impossibility in making any kind of real objective measurement of the company's social impact. Now, a new tool claims to solve this problem - the Social Footprint.

The Social Footprint, produced by the Centre for Sustainable Innovation, promises great things. It is, according to the Centre, "a corporate sustainability measurement and reporting method that quantifies the social impact of organizations on people". Further, it "produces the true bottom-line oriented measures of impact" and says that this means that 'true Triple Bottom Line measures can now be taken and reported for the very first time'. This is heady stuff indeed.

How does it do this? In some ways, it takes an approach that will be familiar to some as the 'ecological footprint' where impact on the environment is assessed. The Social Footprint focuses on the concept of 'social capital'. Unlike environmental or natural capital which is limited and which can not easily be created by humans, social capital is produced by people and can be grown virtually at will.

[McElroy Reply] The latest version of the Social Footprint presentation on our website (v 2.0) includes a major revision to the areas of impact covered by the method. In addition to social capital, the areas impacted include human capital, constructed capital, and a limited set of natural capital. We have also more clearly delineated the areas of ÒexternalÓ impacts (society) from ÒinternalÓ impacts (workers).

[Original Article] The tool is based on what is described as the 'quotients approach'. Simply it goes like this. You take any aspect of behaviour and check whether it is sustainable relative to the impact it is having. For instance, an environmental example would be if a certain geographical region produces 10m gallons of freshwater per year, and a company or community in the region uses 15m gallons per year, then you do the simply calculation of 15/10 = 1.5. Any figure greater than 1, in this example, is unsustainable.

That example, of course, relates to an ecological footprint. Environmental impact is very much about science, so this method is generally a straightforward one. It is a much more controversial proposition to apply the same logic to an area as difficult to define as social capital.

They do, however, give some examples of how this would work. If a certain community has a need for $10m a year in order to provide a primary education for all of its children, but residents are only spending $2m a year, then the calculation 2m/10m = 0.2. In the social cases, anything less than 1 is unsustainable.

The concept, therefore, hinges on defining 'a minimum level of sufficiency for the social capital of interest to us - values that fall below that level can lead to undesirable, if not dangerous, social outcomes.'

This is one of those arguments that sounds great in theory, but becomes impossible in practice. Even the Centre's own simple example does not stand up to any kind of scientific approach. Who says that it will cost $10m to provide primary education for children in that area? That figure can only be taken as a given if (a) education services are being provided as economically efficiently as possible, with no wasted spending (b) the quality and the focus of education is as good as it can possibly be, and consistently so wherever it is delivered and (c) there is some meaningful threshold that shows that the $10m version of education provides a consensually agreed level of attainment that $9m cannot. This is not going to happen.

[McElroy Reply] I really donÕt follow the logic here. IsnÕt it possible to estimate the cost of education while taking inefficiencies and inconsistencies into account? And isnÕt it possible to do all of that by consensus? I sat on a school board for three years in Vermont and we did it every year. It was called the "budgetary process". And every year we would measure outcomes as a consequence of our spending and adjust our new budgets accordingly. Mr. Baker seems to be holding us up against some kind of a perfect world standard, which is not only unfair, it is not necessary for the Social Footprint to be viable. Humans can try, err, and learn canÕt they? Thresholds can be set and adjusted, accordingly.

[Mallen Reply] I suppose it's possible that in Vermont the budget decision making was a wise process that came up with absolutely the most optimal answer every time, but that's not really the point. It is easy to say that businesses should contribute properly to the financial costs of the State - that's what tax is for, and we can of course properly assess the costs of the State. These costs may have been wisely assessed, or they may be far from the mark. Disagreement over such matters is what fuels electoral argument. What the method is claiming, however, is that it is meeting the needs for social and environmental sustainability. That is just not the same thing, as the following paragraphs discuss.

[Original Article] In most educational situations that one can cost observe around the world, the issue is not simply one of resources, it is also one of leadership within schools, of good quality management of processes, and a culture of support for the learning process by parents. To turn the issue of educational provision into a mathematical equation that ignores qualitative facts will surely produce the wrong answer every time.

[McElroy Reply] Who said anything about "ignoring qualitative facts"? The sustainability thresholds we spoke of in our example would presumably be determined from an analysis of both quantitative and qualitative factors, and would also be tested against outcomes. Thus, the thresholds might change from one year to the next based on what people learn from experience as a consequence of the budgets they adopt. Here again, Mr. Baker seems to be saying the Social Footprint method will not work because human knowledge is fallible. We agree with the second part of that sentence, but not the first. There is no knowledge with certainty in life. If human action required certainty of knowledge, nothing would ever get done. Life is just one long string of trials and errors, and thereÕs nothing about that that prevents us from using a method like the Social Footprint. Mr. BakerÕs certainty criterion, if I can call it that, amounts to a kind of death pact that we flatly reject.

[Mallen Reply] The 'death pact' comment is out of place - everybody is in agreement that businesses and other actors should be taking action on sustainability. The question is what information is used as the basis for this. Putting the certainty of numbers onto assumptions that turn out to be false may mean that the wrong action is taken and this is much more damaging. If you have genuinely invented a system that produces good results from false premises then you have indeed achieved something that eludes the rest of us. For every other system, garbage in garbage out is the rule.

[Original Article] When the Centre tries to apply its methodology to a more complex real-life example, the problem becomes even more obvious. What they have done is to look at Wal-Mart and its contribution, or lack of it, to the achievement of the Millennium Development Goals (MDG).

The argument goes like this. The MDG have been agreed by the UN and most nations as the top development targets, covering areas such as eradicating extreme poverty. In addition, the UN has identified a threshold of 0.7 percent of GDP from developed nations in order to achieve these. Every citizen has a per capita share of the responsibility to meet these goals. Wal-Mart employs over a million US citizens, and therefore we can ask whether or not Wal-Mart is contributing its pro rata share of the US contribution to fully fund the MDGs.

Needless to say, if you do the sums against Wal-Mart, it is woefully failing the task. In fact Wal-Mart apparently contributed to the MDGs only through their payment of federal taxes.

But the apparent logic of the exercise is pretty spurious, unfortunately. The idea that any organisation is responsible on a per capita basis relating to its workforce is simply nonsensical. Governments take responsibility for national goals, and may find resources for these from the places where those resources are best found - they are not obligations spread across the population.

[McElroy Reply] First, call me old fashioned but I happen to think that people are responsible for the actions of their governments. Mr. Baker can disagree with that, but to simply declare that he disagrees with it is not to defend his position or to criticize ours.

[Mallen Reply] But then, by the logic of this argument, holding Wal-Mart responsible on a per-capita basis also removes responsibility from those individuals and places it with 'an abstraction'. After all, those people pay federal taxes as well, and they vote on the basis of what political parties promise to do. And some of them may be very actively involved in poverty issues. What you say, though, is that Wal-Mart becomes responsible for them. Saying that Wal-Mart should be held responsible for its actions and how these do or don't make a positive / negative impact is one thing. Suggesting this should be measured against a per-capita measure on the basis of how many people they employ is just wrong. What about heavy-impact industries that employ few people?

[Original Article] Nothing in this approach factors in whatever impact, positive or negative, Wal-Mart has through the basics of its trade. The fact that it sources goods from many developing countries may be a factor that creates jobs and wealth in those countries. There may be other aspects of how it operates that would create further problems in those countries, particularly where genuine sweatshops operate. In any case, quantifying such impacts to feed into the equation is impossible.

[McElroy Reply] Here I agree with Mr. Baker that the Wal-Mart example we gave did not reflect Wal-MartÕs possible impacts in the areas he mentions. But that is only because (a) they did not figure into the narrow example we used (i.e., they were not relevant because we looked at MDG impacts only, not total economic impacts), and (b) to the best of our knowledge, Wal-Mart does not source any products or materials from the countries involved in MDG programs in the first place, nor does it do business in any of them. If any of that had been otherwise, the Social Footprint method would certainly have had to have taken that into account, but it wasnÕt. More to the point, the Wal-Mart example is just that: an illustration of the method intended to display the general approach and the manner in which calculations can be made using the logic behind it. Virtually all of the data reflected in the example can be subjected to criticisms of accuracy, but so what? To dwell on that is (a) to rely on a certainty principle that we flatly reject, and (b) to miss the whole point of the exercise.

[Mallen Reply] Wal-Mart sources from at least 48 countries, some of which include the poorest countries. It also sells branded products which come from all over the world. The impact of this company is hotly disputed - some say that it supports sweatshops that make life a great deal worse, some say that the economic activity it generates helps to address poverty in a sustainable way. But there's no doubt it has a significant impact here. Divorcing the millenium development goals from economic impact seems a remarkable thing to do on the face of it. The former will not be met in the absence of economic development, surely.

[Original Article] Likewise, the simple assumption that everyone bears equal responsibility for everything is too simplistic. Governments understand, for instance, that wealthy people should contribute more to meeting such goals than people on a minimum wage. If you took any measure - even one fully funded by government, and measured it against a workforce like Wal-Mart's where people are predominantly at the lowest end of the payscale - you would come up with a deficit on this system for this reason.

[McElroy Reply] Here again, I agree with Mr. Baker, at least insofar as the equal allocation idea used in our example is concerned. But this is just a variable in the method. If Mr. Baker is unhappy with the equal allocation of burden assumption we used, he is certainly free to change it. In fact, anyone who uses the method is free to make whatever assumptions they like about such things. Still, it doesnÕt change the method. Rather, it begs the question of whether one personÕs allocation scheme is better than anotherÕs for measuring and reporting the social sustainability impact of organizations. Good question. Perhaps after many successive applications of the method have occurred under different allocation assumptions, we will all be better able to tell. But all of that is to argue for the method, not against it.

[Original Article] And then, of course, there are still some other equally challenging assumptions made. The figure of 0.7 percent of GDP has been a figure promoted as a good level of national investment in world development for many years. There is certainly no equation proving that this figure is actually the real cost of meeting the millennium goals - a cost that we simply don't know. Their achievement will probably come much more as a result of promoting the development of sustainable trade in developing countries, tackling cultures of corruption as well as providing some of the basic infrastructure than it will by the transfer of aid funds. In any case, it is certainly a harder figure to quantify than that $10m for the theoretical education bill.

[McElroy Reply] Well there Mr. Baker goes again with his certainty principle. He seems to be saying if the facts of a situation do not present themselves with certainty, we should give up the fight before we even start. If you believe that there can ever be knowledge with certainty in life, Mr. BakerÕs reasoning may be compelling to you. But if you believe that humans are irreparably afflicted with a fallible capacity to ever know anything with certainty, as we ourselves believe, Mr. BakerÕs criticisms ring hollow. We prefer to assume that we will almost always get it wrong the first time out, but that only when we do and in the light of what happens afterwards can we develop the ability to get closer to the truth. I daresay this is a perspective on organizational sustainability measurement and reporting that is attributable to the epistemological roots of our organization. Among our core competencies is a strong background in the theory of knowledge, and Mr. Baker apparently hails from a school of epistemological thought that we think is deeply flawed. Hence our method and his trouble with it.

[Mallen Reply] The easiest argument in the world is to attribute a view to someone that they didn't put forward, and then discredit it. Nowhere in this article or elsewhere have I put forward the view that is attributed to me in this paragraph.

In short, the Social Footprint comes up with a simplistic equation that is bound to mark companies down for behaving unsustainably without providing a real metric that measures what's going on. It is a brave attempt, but really simply underlines why everyone has been finding this whole field so difficult for so long.

[McElroy Reply] Not everyone. If Mr. Baker and others who share his views can manage to divest themselves of the necessity for certainty in life, perhaps they will come to see, as we have, that significant progress can be made in this area.

[Mallen Reply] As mentioned above, I have never proposed the argument that certainty in life is required before taking action. However, that is surely not the same thing as promoting a method as being a solution to a problem, and then defending the fact that it is based on false premises and won't work on the basis that nothing is certain in life.

But when all is said and done, if the Social Footprint deserves to thrive and make a difference in the world, it will do so whatever people like me say. At least it represents an attempt to encourage businesses to understand and act on their contribution to sustainability. If we argue about it, it is only because we see the task as important enough to get right. I wish the Center for Sustainable Innovation well in their attempts to achieve these aims.

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