Workers in a Vietnamese factory doing too much overtime, pollution caused by an oil drilling platform past its sell–by date and living up to the slogan “We put our employees first”. These are just some of the huge range of issues covered by social reporting, which companies use to address the social, environmental and ethical performance of their businesses.

Sometimes seen as just a public relations exercise, the impact of social reporting is unclear. “Social reporting is now more about managing interests than providing accountability,” says Deborah Doane, head of corporate accountability at the New Economics Foundation in London. She believes social reporting should be mandatory for companies because “shareholders, except for little old lady activists, don’t really care”.

Only a tiny number of companies prepare social reports. The New Economics Foundation estimates that less than one per cent of all listed companies on either the New York or London Stock Exchanges report on social performance. Only 35 per cent of FTSE 350 companies produce a social report and even fewer report on information such as labour standards.

Pressure on companies is growing, however. In October 2000 Tony Blair called on companies to report and Michael Meacher, the environment minister, has threatened to name and shame the non–reporters among the top companies. But the government is reluctant to legislate further. The forthcoming Company Law Review report, co–ordinated by the Department for Trade and Industry, does not call for mandatory reporting.

Many companies would welcome agreed guidelines on social reporting, says Deborah Doane. “The voluntary approach to reporting means that companies choose what to reveal and what to hide,” she says.

A range of guidelines do now exist for companies – AA1000 produced by the Institute for Social and Ethical Accountability in the UK, the Global Reporting Initiative in the US, and worldwide there is the SA8000, based on UN and ILO conventions, and the Ethical Trading Initiative.

Companies’ motives for producing a report – in the absence of a legal requirement – are often defensive. This is particularly true for the oil companies like Shell and BP, whose image has been badly bruised by negative publicity about their activities in Nigeria and the North Sea.

Big retail brands have also had to respond to pressure from activist groups and the media. As Phil Knight, chief executive of Nike, was reported as saying: “The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse.”

When things have gone this far, companies have a genuine business motive to respond by cleaning up their act – or at least by producing a report that suggests they are taking the issues seriously.

Andrew Wilson, director of the Ashridge Centre for Business and Society, believes social reporting makes good business sense. He cites Camelot, which is now producing its third social report tackling issues like underage gambling, as an example of a company which has seen its image benefit from the process.

But does social reporting actually result in changes in companies’ behaviour? One example is Pentland, the footwear, clothing and sports group, which owns a number of sports and leisure brands like Speedo and Kickers. Four years ago Pentland began to report on its supply chain, mainly in South and East Asia.

One issue which clearly needed addressing was the amount of overtime workers were doing. At one of Pentland’s factories outside Ho Chi Minh City in Vietnam, the predominantly female workers were working excessive hours.

Impactt, a UK–based consultancy, and the Mobility Research and Support Centre, a non–governmental organisation in Vietnam, worked with management, trade union and workers to develop a management model to measure hours worked and mechanisms through which workers could choose to work overtime or not.

The local organisation carried out the research with workers, interviewing about 50 out of 1,800, while Impactt spent five days in the factory, finding out about the business and looking at its records.

Rosey Hurst, director of Impactt, is confident outside organisations can discover the true state of affairs even in workplaces with very different cultures. “It’s easy to identify when a double set of books has been prepared,” she says.

After two and a half days’ discussion between Impactt, the MRSC and the factory’s management and union, an action plan was agreed. Pentland returns to the factory at regular six–monthly intervals to check on its implementation, and so far the new overtime management system has proved viable.

Rosey Hurst believes social reporting has effected real changes on the ground. “Four years ago, activated carbon masks, which protect against solvents, weren’t even available in Asia,” she says. “Now they are.” Of course, there is a danger that social reporting can gloss over the difference between what companies say and what companies do. Deborah Doane of the New Economics Foundation says there is no concrete evidence to date that social reporting results in improved social and ethical performance.

Ashridge’s Andrew Wilson believes the true picture is more nuanced. He says the success of social reporting depends on how much the message and recommendations of the report are internalised. What is clear is that more companies need to produce social reports and that the process is better at identifying problems than at resolving them. But it is a step in the right direction.