An Ethical Model for Social Reporting: the Case of Italian Local Public Administrations

Transcription

1 An Ethical Model for Social Reporting: the Case of Italian Local Public Administrations Paper to be presented at the second meeting of the Study Group on Ethics and Integrity of Governance at the annual Conference of the European Group of Public Administrations September 2004 Lubjliana, Slovenia Patrizio Monfardini PhD Student in Public Management and Regulated Sectors Management University of Siena Office: Fax:

2 SUMMARY: 1. Introduction 2. The theoretical framework 3. The ethical model 4. The methodology 5. The results 6. Final comments. 1. Introduction Social reporting in Italy has traditionally been mainly directed to private corporations, and it has had a very scarce diffusion among Italian firms. In the end of the Nineties, however, a few Local Public Administrations (LPAs) have started to experience the use of social reporting documents with the aim of disclosing a wider range of information to the citizens. Present paper is focused on the building of an ethical model with double purposes: on one hand, it wants to contribute to the normative definition of which information and accountability profiles have to be included within social reporting documents; on the other hand, it tries to classify present experiences of LPAs social reporting in Italy using the aforesaid ethical model. In this way it should be possible to clarify the relationship between the concept of social accountability for LPAs and the political responsibility consequent with the election. In particular, the model should clarify which profiles and dimension of social results have to be reported to stakeholders in order to give them account concerning social performance and outcomes of activities. Furthermore, the analysis of thirty social reporting documents coming from thirty different LPAs will allow to understand the use and the aims of social statements in Italy. 2. The theoretical framework The concept of accountability is very old, it can be considered as old as civilization itself. (GRAY, JENKINS 1993). Literature has provide many definition of the concept; for example Gray and Jenkins (1993), [ ] accountability is an obligation to present an account of and answer for the execution of responsibilities to those who entrusted those responsibilities. On this obligation depends the allocation of praise and blame, reward or sanction so often seen as the hallmarks of accountability in action. At the hearth of this relationships is stewardship. Stewardship involves two manifest parties: first the steward or accountor, i.e. the party to whom the responsibility is entrusted and who is obliged to present and answer to an account of its execution, and, second, the principal or accountee, i.e. the party entrusting the responsibility and to whom the account is presented. Mulgan (2000) proposes another but similar definition: [Accountability] will be taken to refer to certain obligations that arises within a relationship of responsibility, where one person or body is 2

3 responsible to another for the performance of particular services. The obligation in question are, first, to account for the performance of their duties and, second, to accept sanction and redirection. From these definitions is possible to understand that behind the concept of accountability lays the responsibility for doing something in the name and/or in the interest of someone else; so the relationship between those two concepts seems to be very strict, so that part of the literature considers them as substantially assimilable (MOSHER 1968). Nevertheless, accountability seems to be a consequence of responsibility; from a managerial point of view, responsibility for doing something means the necessity of autonomy and decisional power to operate, together with the availability of resources (MUSSARI 1994, 2001). In a democratic contest, who is provided with this powers, has then to give account for their use. In the Italian juridical framework, LPAs are responsible for the fulfilment of collective needs of local communities. The concept of accountability can be differentiated between the private and the public sector because its aim is different in the two worlds, although one of the consequences of NPM is the progressive absorption of private models and logics, with the connected assimilation also of the accountability profiles (GLYNN AND MURPHY, 1996). In any case, accountability implies the necessity of a communication between the accountor and the accountee, and it is very important to understand the dimensions and profiles of communication. For private sector, necessity for an increasing accountability seems to be firmly connected with the idea of Corporate Social Responsibility; in simple words, if firms have to face profiles of responsibility concerning environmental and social effects of their activities, they also have to be accountable to stakeholders for their decision, and they should start to report not only financial performance, but also social and environmental ones (CARROLL 1979; GRAY, OWEN AND MAUNDERS 1988; GRAY, KHOUZY and LAVERS, 1995; CORMIER and GORDON, 2001; ADAMS 2002; DEEGAN 2002). Main part of literature connect Corporate Social Reporting with the so called Legitimacy Theory, that postulates that corporate disclosure depends on political, economical and social factors and that disclosure is a means of legitimacy. (PRESTON and POST, 1975; HOGNER, 1982; LEHMAN, 1983; LINDBLOM, 1983, in GUTHRIE and PARKER, 1989) However it must be said that there are some empirical evidences that suggest the absence of this relationship, or at least its weakness (GUTHRIE and PARKER, 1989). In the Public Sector the concept of accountability has been largely studied, also in comparison with the private sector. In this paper we will use the approach of Robert Behn (2001). 3

4 In the traditional model, Public Administration (PA) was accountable concerning two main profiles: for the equity of its actions and for the use of resources. The first concern aims to guarantee citizens for a fair and equal treatment by the PA; the second one is the direct consequence of the way in which PA obtains its resources. Because taxation represents the main source of resources of the PA, it seems correct to put a particular attention on their use by civil servants. In addition to these traditional profiles of accountability, PA has to be accountable also for performances (BEHN 2001); this means accountability for outputs and outcomes of the activities carried out by the Public Entities. Performance accountability is connected with the ideas and the reform profiles of the New Public Management (PARKER and GOULD 1999); in other words, NMP has been the cause for an increasing attention to the performance profiles and to the measurements of results (OSBORNE and GAEBLER 1992; HOOD 1995; BOUCKAERT and POLLITT 2000). Other Authors have identified and classified in different ways the several dimensions of accountability of a Public Entity (PARKER and GOULD 1999; STECCOLINI, 2003). Glynn and Murphy (1996) for example consider: Public accountability which [can be summarised] as those who are charged with drafting and/or carrying out policy should be obliged to give an explanation of their actions to the electorate; Financial accountability this is perhaps the longest established accountability concentrating on the regularity with which resources entrusted to an agent have been managed; Legal accountability, i.e. to a court of law, or equivalent, for the exercises of powers; and Managerial accountability, i.e. accountability by managers for the achievement of defined, and perhaps agreed, resource utilisation objectives. PA has also another peculiar type of accountability connected with the fact they are constituted by an administrative side and a political and elected one. The political side of PA is normally elected by universal suffrage. As a consequence it represents the wills and the interests of whole citizenry; before the vote, politicians have to propose their electoral program, very often in a formal document, that is their commitment. For this reason, PA has to be accountable concerning the political coherence between what have been promised and what have been achieved both in terms of outputs and outcomes (TANESE, 2004). In other words the exercise of responsibility needs accountability; the different profiles of accountability depend on the institutional peculiarities of the chosen sector, and on the relationships between subjects operating in the same contest. As it is easy to understand, the outcome measurements are much more important because they concern LPA policies aimed to face or solve particular social problems. Besides, the disclosure of the outcomes of the activities normally is not provided by traditional financial statements, nor in the 4

5 other documents attached to this, so that social reporting statements should comprehend that kind of useful information for citizens and stakeholders. The following table summarises the dimensions of accountability for LPA. Table: 1 Accountability in Public Sector Equity Use of resources Political coherence Performance In order to satisfy these dimensions of accountability, LPA, as well as other Public Entities, uses different documents of reporting. Traditional financial reporting gives account concerning at least the use of resources; obviously, if the accounting system uses an accrual base it can provide also information concerning performances, playing an important role together with the reports of management accounting system. In Italy, LPA Annual Budget has several annexes, including the planning and programming documents for the next 3-5 years. One of the main characteristics of the Budgeting system is that it guarantees full access to the documents for citizens and stakeholders. As a consequence there is full disclosure concerning objectives and accounting data related to the use of resources. The disclosure of the equity and the political dimension of accountability have been, in past years, very often neglected by LPAs, because the focus was merely on use of public resources. In recent years many LPAs have tried to develop experiences of social reporting, supported by a flourishing, and not only academic, scientific production concerning the same topic. (BARTOCCI 2003; TANESE 2004; VIVIANI 1999; ROGATE and TARQUINI 2004). Empirical researches have however emphasised that such kind of reports are often merely limited to a dogmatic description of activities carried out by the local government with scarce reference to the planned objectives and to the mission of the LPA, if not depleting themselves in a mere re- 5

6 classification of traditional and compulsory financial statements (MARCUCCIO and STECCOLINI 2004) The main purpose of social reporting should be to broaden profiles of accountability to stakeholders concerning both the political dimension and the performance measurement related in special way to the outcome of activities (ROGATE and TARQUINI 2004; TANESE 2004). On the other hand, social statements can t be the only source of information for reporting environmental and social performances of PA, nor they can represent the documents that collect all the data that were not disclosed into the traditional financial statements (UNERMAN 2000; LIPARI 2001). The following table summarises the relationship between the LPA, the citizenry, instruments and dimension of accountability: Table 2: Citizens/ Stakeholders Accountability documents LPA Financial Statements Management Accounting Reports Social Reporting Documents Use of resources Economical performances Political coherence 3. The model The Italian LPAs have progressively understood the usefulness of social reporting statements for many purposes. In particular, they are used not only for reporting, but very often they become means of communication for political purposes, loosing part of their managerial capacity (GIUSEPPONI 2003; BARTOCCI 2003). Born as a possible solution for the problem of understandability of the LPA financial statements, social reports became immediately a means of communication. In particular they often include a sort of reclassification of the annual expenditures in order to improve the intelligibility of economic performance for the stakeholders (MARCUCCIO and STECCOLINI 2004). 6

7 The social reporting process has three main characteristics: a) the voluntariness; b) the reporting regarding to commitments, results and outcomes achieved; c) the stakeholder participation (TANESE, 2004). In Italy, at the moment, there are no generally accepted standards for social reporting, nor a juridical framework, although since 2001, many academicians and consultants, assembled in a study group on social reporting (GBS) are formalizing standards and models for social reporting both for private and public sector. These standards and models don t have any binding power but they constitute a sort of best practice. (DIERKES 1986; GBS 2001; ANDRIOLA and SERAFINI 2002; HINNA 2002, PARIS 2003). As a consequence, there is a completely voluntary approach to social reporting and a full freedom in contents and form of statements. Such freedom permits to appreciate singular peculiarities and ideas concerning social reporting, contributing to the location of the best practices. On the opposite side, this approach does not permit benchmarking analysis, nor to assure reliability to the information provided. Reliability of information is the biggest problem of social statements; part of the literature considers social reporting as important as financial statements for stakeholders, so it has to provide a sort of true and fair view of the social result of the management (HINNA 2002). Because of the lack of generally accepted principle and of external audit on the statements, reliability of information seems to be at risk (DIERKES and ANTAL 1985). It is easy to understand that this kind of disclosure can be distorted by a misuse of information for political purposes; in fact, it is common to find in Italy social statements disclosing information only referred to activities and outputs carried out, without any connection with the planning and programming documents, nor with the electoral program. In this way it is easy to emphasize good performances, without any mention to uncompleted activities and to incidental failures (VIVIANI 1999). Another important feature of social reporting is participation; unlike traditional financial and budgeting accounting, social reporting process is often considered the best way to engage stakeholders in LPA management. The aim of citizens participation is the construction of legitimacy. It is possible to considerate three different level of participation in social reporting; the first and the lowest level consists in communicating the documents to the stakeholders and to allow them to give back their impression and comments about the work done. The second level of participation implies to engage stakeholders in the drafting phase of the final statement, in order to emphasize the profiles of activities deemed to be more important by the stakeholders. 7

8 In the end, the third level of citizens and stakeholders participation consists in the engagement also in the planning and programming phase of the activities. The second and the third characteristics of social reporting process will be taken into consideration within the model. Behind the use of social reporting documents it is possible to build an ethical model in order to understand why LPA, and more in general, enterprise should set up social reporting processes. The model, can also develop the contents which a social statement can include. The model is inspired by the Max Weber ethical approach, written in the essay The Politics as a profession in In the essay, Weber suggested to divide between an Ethics of Values, and an Ethics of Responsibility. The main difference between those two approach is that the first one takes into consideration only the values coming from the subjects and the coherence between actions and values, without giving any importance to consequences of actions, while the second one refers only to the effects of actions. In other words, subjects can be considered good only if they act in coherence with their values, without any consideration of the consequences of their activities. The problem is, in Weber opinion, when the achievement of an objective coherent with the subjects values, stated ex-ante, implies to use non-ethical tools that can lead to bad consequences. This means that ignoring the consequences of activities can be very dangerous. On the opposite side, Ethics of Responsibility takes into consideration only the consequences of actions, because subjects are morally accountable concerning the effects of their activities. Following this second approach, it is not necessary to develop a system of values before the action, but it remains essential to understand and most of all to forecast the consequences of actions, in order to avoid those activities which lead to bad outcomes. In Weberian philosophical approach it is possible to separate the two Ethics only to understand their peculiarities, but in real life, subjects have to take both into considerations. The two Ethics are not antithetical but they supplement each other in order to create the real and good politician (WEBER 1919; ROHLS 1995) Also Hans Jonas, a German philosopher, takes into consideration the same profiles of Ethics. He adds to the Weberian framework the idea that the concepts of responsibility for consequences of actions, and then the connected accountability for them, is in-its-own a value to be stated ex-ante (JONAS 1993; ROHLS 1995). To build the model we also need another conceptual subdivision. 8

9 Looking at the LPA and more generally to PA, they can be considered ontological subjects with their own values and objectives or just groups of persons without an own ontology. The first case means that it is possible to identify values of the organizations that not necessarily coincide with the main stakeholders groups ones; in the second case the values of the LPA are the values of main stakeholders groups. The second approach is quite easy to understand because it is usual to consider LPA as entities representing citizens and other stakeholders interests and also the Law confirms this role. In effect, art. 3, 2 comma of the Legislative Decree 267/2000 states that Local Public Administrations represent their community, protect their interests and promotes their (economical and social) growth. The first approach attributes many importance to LPAs as subjects of the economical scenario. Combining the two aforesaid classifications it is possible to build the ethical matrix. In the middle of the matrix, the cells, identified by a code, make clear the content of the reporting and consequently the object of accountability for the LPA. As the vertical arrow shows, going toward the top of the matrix means to give significance to the reporting activity, from a business administration point of view. Traditional doctrine, in fact, emphasizes that reporting activities have to be connected with an ex-ante phase in which the enterprise does planning and programming activities for the future. This permits to state the individual responsibility, the profiles and the directions of accountability, and after the managing phase to evaluate the performances both from a strategic and a managerial point of view. On the other hand, it is not possible to carry out such activities without the connection with the programming phase, but this does not nullify the communicative capacity of the documents. In the first row it is possible to see the connection with a planning and programming phase, or in general terms, with an ex-ante stage in which values have to be made clear and stated formally in a document. As the horizontal arrow shows, going towards the right of the matrix means to give importance to the participation of stakeholders into the process of social reporting. The opportunity of stakeholder participation is a tricky question. The traditional Stakeholder Theory emphasises the necessity for their engagement, in order to gain legitimisation, and many stakeholder identification and analysis techniques have been drawn up during the years by academicians. (DONALDSON and PRESTON 1995; BRYSON 2004). However, part of the literature is debating about the moral rights of stakeholders in relation of management of the corporation and concerning the opportunity to pose sort of limitations to stakeholders engagement (BEER 2004). In public sector, in particular, the direct connections with profiles of the representative democracy suggest to give particular attention to the amount of citizen 9

10 involvement in order to avoid the risk of emptiness of the representation concept (WILSON 1887; CROUCH 2003) The Ethical Matrix Importance of reporting ETHICS OF THE VALUES ETHICS OF RESPONSIBILITY (FOR CONSEQUENCES OF ACTIVITIES) ETHICS OF THE PUBLIC ENTITY 1.1 Are we behaving in a good way? [Mission/electoral program] 2.1 Consequences of our activities have been good? [Output/Outcome Measurement] ETHICS OF THE STAKEHOLDERS GROUPS 1.2 Are we behaving coherently with interests of stakeholders groups? [SH participation in mission/electoral program construction] 2.2 Consequences of our activities have been satisfactory for our stakeholders groups? [Output/outcome measurements distinguished for SH group] Citizen participation In the cell 1.1 contents of documents concern the coherence between the actions and the value of the LPA. This means a preliminary phase of value stating by the political side of the LPA. The main problem is obviously to define the values of the LPA; the main part of them should came from the political program of the Major, and they are formally written in a mission. It is not so common to find in Italy LPAs who have formalised their mission and their strategic objectives, normally they remain unwritten and not communicated to the citizenship. Some other times the values are so vague that it is virtually impossible to not be coherent with them. In the cell 2.1 documents should inform stakeholders and citizen about the effects of activities of the LPA, without, as said above, any connections with entity values. At this level it is possible to disclosure at least two main kind of results. One of them measures the outputs of the activities carried out by the LPA; in this case citizens can judge if the amount and the quality if outputs is satisfactory for them or not (MUSSARI 2001). The other kind of result concerns the outcome of activities, and needs programme evaluation tools. The outcome can be represented as the impact of an activity on a certain situation and can be measured using program evaluation tools. It is very rare to find such kind of analysis in social reporting documents for many reasons. First of all, programme evaluation and policy analysis tools cost large amount of money; secondly, they 10

11 require high professionalisms not so easy to find in LPAs especially small sized. Finally, the information coming out from the analysis suffers from problems of reliability (MUSSARI 1999; ROSSI and FREEMAN 1999). The main problem of this second cell, with reference to contents of social reporting documents is that LPA and PA in general, must manage their activities with big attention to equity profiles because they use public money. In other words, the disclosure of the mere results of activities is on its own insufficient, because it does not explain how certain performances have been reached, and that profile is very important into the public sector. Social statements referring to the cell 1.2 use to disclosure information concerning the coherence between stakeholders values and activity of LPA. This needs a stakeholder participation phase within which the LPA has to try to understand the most important shared values; in other words, because of the large amount of stakeholders of LPA, it may happen to have clashing values and interests. In this situation LPA has to build a common and shared values framework in order to operate with a clear route. In practical it is not easy to understand the stakeholders values, nor to operate coherently with them, nor, even before, to identify and select stakeholders to involve in the analysis. In the end, in the cell 2.2, social reporting aims to comprehend if consequences of activities succeed in satisfying different group of stakeholders; this forth approach is much more pragmatic in comparison to the other, but again, it needs the individuation and selection of stakeholders in order to comprehend their need in a clear way. From a normative point of view social reporting should take into consideration both the ethics of Values and the Ethics of Responsibility. Without the first one, the risk is to manage LPA only to satisfy the stakeholders interests without a linkage to shared values. On the opposite hand, the main aim of a LPA is to produce policy and goods able to satisfy citizens and stakeholders needs so limiting the focus of activities and reporting on coherence with values can render the action of LPA ineffective. As we will see in paragraph 5 the analysis of documents drafted by Italian LPAs shows very often the presence of more than one approach in the same documents. Obviously some documents emphasise more one profile in despite of others and viceversa. 11

12 4. Methodology Thirty social statements have been selected to test the model; part of them (18) are Bilanci Sociali and the other (12) are Bilanci di Mandato. The main differences between them concerns the width of the period of reporting. The Bilancio Sociale usually refers on a one year period and report outputs and outcomes obtained by the Local government annual activities (TANESE 2004; ROGATE and TARQUINI 2004; GIUSEPPONI 2003; BARTOCCI 2003 MAZZARA 2003). The Bilancio di Mandato, instead, provide information concerning the coherence between the electoral program proposed by the Major during the electoral campaign and formalized in the first Local Public Administration Council Assembly and the outcomes achieved at the end of the five years of his mandate. The selection criteria have been multiple: firstly, the availability of documents and the year of their drafting, secondly a geographic criteria, in order to emphasize both the regions within which such tools have been used since the end of the Ninety, and the best practices. Concerning the first criteria, selected documents have all been drafted in the period , so they actually represent the state of the art of social reporting in Italian LPAs. The documents are all easily available on the web or in paper format contacting the local governments offices; this means that they are not internal reports, but they have been disclosed to the public opinion and distributed among the citizens. However the selection does not build a representative sample of social reporting documents in LPAs, because there are not complete information or surveys about the distribution of such reporting tools in all Italian LPAs. In addition, the selected LPAs are very diversified in a dimensional point of view, that means that some of the results can be affected by the above mentioned variability of quantitative dimensions of each LPA. As a consequence it is not possible to generalize results coming from this research to the totality of the Italian LPAs. The second criteria used to select between LPAs aims to emphasize two characteristics of Italian social reporting practices. Considering the geographic distribution of the tools it is possible to point out the regions within which there have been the first experiences of social reporting in public sectors. Those regions (Toscana, Emilia-Romagna) seem to be leaders in adopting social reporting instruments. The second characteristic refers more generally, to the increasing attention focused on the forms and the instruments of social reporting that the LPAs could use to broaden the dimension of information offered to their stakeholders. Selected documents, in fact, have been drafted by 12

13 different sized LPAs, spread in all part of Italy, emphasizing the current fashion of social reporting. The content analysis has been done reading the documents and trying to find the answer to the question in the table 3. Table 3: Questions: 1. Has the LPA a formalized version of the mission or of the electoral program? 2. Are in the social reporting document any references to the mission/electoral program of the LPA? 3. Are in the social reporting document any references concerning the main stakeholder groups? 4. Have citizens and Stakeholders participated to the building of the mission/electoral program? 5. Are in the social reporting document output measurements? 6. Are in the social reporting document outcome measurement? 7. Are in the social reporting document any output measurement distinguished for group of stakeholder? 8. Are in the social reporting document any outcome measurement distinguished for group of stakeholder? 9. Do citizens and stakeholder participate to the process of social reporting? 10. Do citizens and stakeholder participate to the process of planning and programming outputs and outcomes? 5. The results The analysis of the documents provides interesting information. The annex 1 shows the analytical result of the content analysis of the documents. Column number refers to the number of the question in the previous box. Lines show the social reporting document analyzed, the LPA that has drafted it and the year. Each document has been read in order to find the affirmative or the negative answer to each of the ten questions. As it is possible to see, not all the documents reviewed have a reference to the mission or to the electoral program of the LPA. In those cases, the social reporting documents are a mere description of the activities carried out by the LPAs, without any connection to the programming phase. As aforesaid, the consequence is that the reliability of information is at risk: very probably documents are used only for political purposes and they omit to disclose failures in performance, gaps and delays emerged during the period. 13