logo-newlogo-newlogo-newlogo-new
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books
✕
  • Home
  • Chambers on Internal Audit
  • Uncategorized
  • Why Social Accountability Must Be on Internal Audit’s Radar

Why Social Accountability Must Be on Internal Audit’s Radar

What Happens When Internal Audit Is Ignored? It Happens Too Often
August 26, 2019
6 Risk Management Lessons I Learned From Hurricane Dorian
September 9, 2019
September 2, 2019

Why-Social-Accountability-Must-Be-on-Internal-Audits-Radar

Two significant developments in business took place at the end of August that could have profound and long-lasting impacts on how organizations operate. Internal auditors should take note.

First, the Business Roundtable, an association of leading U.S. CEOs, announced a fundamental change to its Statement on the Purpose of a Corporation. The statement, which is updated periodically, is the de facto marching orders for doing business in America and, for the past 20 years, has been pretty basic: Serve the shareholder.

The second development relates to lawsuits stemming from the ongoing opioid epidemic in the United States. Two major pharmaceutical companies face costly judgments and settlements for their role in the crisis.

According to the U.S. National Institute on Drug Abuse (NIDA), more than 47,000 Americans died in 2017 as a result of an opioid overdose, including prescription opioids, heroin, and illicitly manufactured fentanyl, a powerful synthetic opioid. Manufacturers of prescription opioid pain relievers face thousands of lawsuits relating to how these drugs contributed to the epidemic. According to NIDA:

In the late 1990s, pharmaceutical companies reassured the medical community that patients would not become addicted to prescription opioid pain relievers, and health-care providers began to prescribe them at greater rates. This subsequently led to widespread diversion and misuse of these medications before it became clear that these medications could indeed be highly addictive.

So, how do these two developments relate to each other? The simple answer is social accountability.

Last month, a judge in Oklahoma ordered Johnson & Johnson, a multinational consumer products and pharmaceutical company, to pay $572 million for contributing to the state’s opioid-addiction crisis. The Oklahoma case is the first of more than 2,000 against drug manufacturers, retail pharmacy chains, and distributors to go to trial.

The potential judgments and settlement costs major pharmaceutical companies face — potentially in the billions of dollars — are clearly linked to their products. While none of the companies has admitted to any illicit or illegal activity relating to its manufacture and marketing of prescription opioids, they are nonetheless being held accountable by the courts and the general public. Holding corporations accountable is not new. Courts all over the world have done so, from the Union Carbide disaster in Bhopal, India, to faulty airbags involving Takata. 

But efforts to hold pharmaceutical companies accountable for their role in the opioid epidemic goes beyond simple accountability and product liability. There is an important added component: the public good. 

One definition of social accountability offers clarity on this point. It refers to social accountability as “the actions initiated by citizen groups to hold public officials, politicians, and service providers to account for their conduct and performance in terms of delivering services, improving people’s welfare, and protecting people’s rights.”

This is where the Business Roundtable’s new Statement on the Purpose of a Corporation comes in. 

First, a little background. The Business Roundtable is one of the most powerful and influential business groups in the U.S., if not the world. The Washington, D.C.-based nonprofit comprises CEOs of major U.S. companies such as Amazon, Apple, and General Motors. It promotes public policy that’s favorable to business interests.

The update to the Statement on the Purpose of a Corporation elevates the interests of employees, customers, suppliers, and communities to the same level as shareholders. While not abandoning the core directive to serve shareholder needs, the statement clearly introduces a social accountability component that can be safely described as profound and significant.

The statement is full of key words and phrases that embrace and promote social accountability: “investing in our employees,” “dealing fairly and ethically with our suppliers,” “respect the people in our communities,” ” protect the environment,” “embracing sustainable practices.”

The 181 signatories to the statement are leaders of some of the world’s largest and most influential corporations, which should lend it credence, credibility, and gravitas. However, critics are quick to point out that some of the signatories already run afoul of the statement’s lofty rhetoric.

For internal audit, there are ethical, cultural, and business strategy implications that should direct how CAEs address this new approach to doing business. The first step will be to establish how your particular organization responds to the new statement. Are executive management and the board committed to operating the organization in a socially responsible way? Does your organization’s culture embrace social responsibility?

Many organizations already have sustainability and social responsibility policies in place, such as providing employees time off to volunteer in their communities. These practices and policies can be easily audited. The bigger challenge will be addressing whether other aspects of the organization, such as executive compensation, supply chains, use of natural resources, and employee programs, live up to social responsibility standards.

As always, I look forward to your comments.

Share

Related posts

January 24, 2023

Do Performance Bonuses Impair Internal Auditors’ Independence and Objectivity?


Read more
January 16, 2023

Are Internal Auditors to Blame When Boards Are in the Dark?


Read more
January 9, 2023

Follow the Leaders in 2023


Read more

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

What’s Trending

01-24-23

Do Performance Bonuses Impair Internal Auditors’ Independence and Objectivity?


01-16-23

Are Internal Auditors to Blame When Boards Are in the Dark?


01-09-23

Follow the Leaders in 2023


Read More

Archive

  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009

Contact Us

PO Box 1441
New Smyrna Beach, FL 32170

+1-407-463-9389
rchambers@richardchambers.com

About AuditBeacon.com

AuditBeacon.com is a resource center for internal auditors and risk professionals from around the world. In addition to more than 500 blogs authored by Richard Chambers, the site includes links to news and insights on internal audit and other information that illuminates the value of this important profession. AuditBeacon.com is provided as a service by Richard F. Chambers and Associates, LLC.

Copyright © 2023 Richard F. Chambers & Associates. All Rights Reserved.
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books