The Social and Environmental Report of General Motors Plc - Assignment Example

Introduction This assignment analyses and discusses the social and environmental report of General Motors Plc. There are some important questions given to us about the social and environmental report of the company. 1. Questions and Answers a. Social and environmental reporting is only useful if the information reported is reliable. (i) Using ideas in the current IASB Framework document, explain what you understand by the term ‘reliable’. Reliability is one of the qualitative characteristics of the financial statements. These characteristics are “the attributes that make the information provided in financial statements useful to users” (IFRS 2008; Framework; par. 24). Paragraphs 31 and 32 of the Framework (as revised in 2007) issued by the IASB states that information is reliable if the users can depend on it to “represent faithfully” the information presented or what is expected to be presented. In the case of corporate social responsibility and social and environmental reports of various companies, reliability is a key factor that makes these reports more believable to their readers. The contents of such reports should be 100% reliable since the inclusion of data that do not faithfully represent the actual reality will affect the reader’s reliance on the entire report. An example of the application of the reliability principle in a CSR is in reporting cost savings of the company from implementing energy-saving measures. If these cost savings are only based on the environmental policy of the company but were not actually observed by the company such cost savings should not be disclosed in the CSR because they are not reliable. A CSR report that is professed to be reliable carries with it the assurance of the preparer that the information contained therein can be trusted by the readers. That is, in any reports prepared by General Motors (GM), for example, carry with them the assurance of GM that the contents of such reports are based on actual facts and are, therefore, reliable. For the information to be reliable, it should be real and should be based on actual data or facts. The information should also be “supported by internal controls or documentation that could be reviewed by individuals other than those who prepared the report” (GRI; 2007). “Unverifiable statements or data that affect the broad messages in a report…may compromise its creditbiliy….,accuracy and reliability” (Mullerat and Brennan, page 534). This was emphasized in the Exposure Draft (ED) prepared by the IASB (found in the IASB Agenda Project). The IASB has included in the said ED that direct verification is a necessary subset for ensuring the information in the reports are reliable and verifiable. This just means that a test of the reliability of the information in a financial or CSR report is the presence of documentation on the said information that can withstand scrutiny of independent persons. (ii) Based on your definition of reliable, and with specific reference to the report you have chosen, explain why you think it is important for a corporate social and environmental report to contain reliable information. Companies such as GM are now being analyzed not only on the basis of their bottom line but also on how they contribute to the improvement or preservation of the environment and the society. In recognition of this fact, publicly-listed companies have devoted prominent sections in their websites (not to mention their people and their time) in order to showcase their various CSR reports. In its EC Green Paper published in December 2001, the Association of Chartered Certified Accountants or ACCA stated that “the demands for greater transparency and accountability have grown…and has led…to demands for better information on the three linked aspects of sustainability – economic, social and environmental performance” (2005). For GM, the company believes that “corporate responsibility… will be an important element in our success in the 21st century”. GM also believes that integrating corporate responsibility to its core business strategies will “strengthen GM’s ability to make a meaningful difference in people’s lives and impact societal interests”. In turn, this difference, as GM believes, will make a major contribution to GM’s business, its community and its stakeholders. The CSR not only contains the words to the above effect but also show financial and other quantitative data that validates the company’s claims. As the report is more extensive and informative than the financial statements in this aspect (for example, the CSR contains quantitative data on improving environmental performance, which are not found in the financial statements), it is important that the data contained in the report are valid, realistic and reliable. Thus, in GM’s case, the data should be reliable because the readers (i.e., analysts, government regulatory bodies, and other concerned groups) depend on these data to show the level of performance of the company in terms of social responsibility. In particular, analysts may use the CSR to predict future profitability and continuation of the operations of the company. Specific contents of the CSR that may help the analysts include cost-cutting initiatives (and their effects), benefits (additional revenues or cost savings) of going into the various environmental and social programs of the Company and ventures into new products that are not only environmentally-friendly but can also add on to the revenues of the Company. The government, itself, may also use the CSR as basis to grant licenses to the company as the Company’s CSR shows the Company’s compliance with specific government regulatory polices concerning energy-savings, environment contributions, etc. The community, wherein GM operates, uses the CSR to decide on how it will relate to the respective GM office. Through presentation of reliable data in its CSR, GM will be able to enhance its reputation as a responsible corporate citizen, increase the value of its operations to its stakeholders and even make it easier for GM to process its various regulatory papers. b. There is sometimes a “gap” between what a company does and what it says it does in its social and environmental report. In other words, the report may not be completely reliable. With reference to the report (and any other material you think might be appropriate) explain whether or not you think the report gives a reliable picture of the company’s social and environmental performance in the period. If one looks at the report only, one will be impressed with the degree of information found in the CSR. The painstaking way in which GM explained its corporate social responsibility principles and the extent of data gathered to quantitatively show the impact of GM’s social responsibility initiatives exemplify how deeply GM’s commitment is towards its social responsibility principles. Annex A shows an excerpt from the Global Reporting Initiative Guidelines in the introductory message of GM. Annex B shows an example of how GM measures its global performance as disclosed in its CSR. Although the information disclosed in the CSR is extensive, assessing its reliability could not be easily done, not with just reading the information alone. For one, the data in the CSR are almost all positive. There’s a section in GM’s CSR report which shows its “performance at a glance”. This section shows that key performance indicators (KPIs) such as fuel economy, community donations and diversity have all increased (which is the desired positive effect). On the other hand, KPIs that should decrease such as emissions, water use, waste disposal and lost time accident rate really decreased. This raises the question whether the reader may rely on the implicit claim of GM that everything is going well with its application of social responsibility. Another concern on the reliability of GM’s CSR is the absence of any third-party reports or write-ups showing that the information was verified by an independent party. According to a survey conducted by Pleon, a Europe-based international business consultancy (as reported by William Baue in 2005), there is evidence that more and more stakeholders want CSR reports to be “verified by professional assurance or verification body”. In the absence of such a report, there is a question on whether or not the contents of the CSR are actually reliable to the readers. In addition, GM’s CSR is clearly separated from its financial accounting and in its annual report. Although the CSR makes mention of cost savings from corporate responsibility initiatives, such was not mentioned in financial section of its annual report. Annex C shows an excerpt from the environmental performance section of CSR. The reduction in water usage (and consequently, the related expense) was not mentioned in the 2007 annual report of GM. Thus, there is no way to tie-up the actual impact of these cost savings on the costs and expenses of the Company. Lastly, in a press release issued by GM on March 6, 2009 and a March 24, 2009 news published by Google News, there were references to ongoing restructuring of GM. To quote the March 6 press release, “restructuring the business out of court remains the best solution for GM and its constituents. The company has established a clearly-defined plan to restructure its business and restore GM to long-term viability”. However, there was no such mention of the restructuring in the CSR (which was issued four days after the press release). Since such a press release will greatly affect the employees of the Company, GM should have ensured that its effects and the Company’s plan of action to counter these negative effects should have been mentioned in the CSR, which was not the case. Thus, there was a disconnection between the announcements of the Company and the CSR. This raises a question on the reliability of the positive write-ups found in the CSR. In summary, there is doubt on the reliability of the information contained in GM’s CSR. Deeper analysis and more research to verify its contents are needed. In addition, lack of consistency between the CSR and other reports / press releases issued by GM also raises questions on the CSR’s reliability. c. Imagine that you are an employee of the company. Drawing on your answers to parts a) and b), evaluate the extent to which the report provides reliable information relevant to the information needs of an employee. In general, as an employee of GM, reading the CSR will tell me that I am working for a company which provides adequate training for its employees, does not discriminate, offers various incentives such as scholarships and, in general, is a good place to work in. That is, if the contents are reliable in the first place. However, there are two things that are lacking in the report and hamper the reliability assessment of the contents of the CSR. First of all, there is the ongoing restructuring being done by various GM offices worldwide due to the global economic crisis. As stated in Section II. B. above, there were press releases to this effect but these were not mentioned in the CSR. These press releases and their absence from the CSR raise doubt on the reliability and credibility of the contents of the CSR as far as GM’s employees are concerned. Another point is that, according to Tarja Ketola, the author of “Do You Trust Your Boss? – a Jungian Analysis of Leadership Reliability in CSR”, CSR “consists mainly of soft words that cover the hard values and actions of the company”. The information within the CSR gives one an impression that the company’s management’s attitude and performance are exemplary. But the words and information contained in the CSR may actually not be reflective of reality. For example, in GM’s case, GM has an “Equal Opportunity Employment Policy” (refer to Annex D). However, the question here is how the readers of the CSR will know that such policy is being implemented to its fullest. Or, put in another way, how can the reader rely on such a policy and the related disclosures in the CSR report. There are only two ways in which this can be done: one must either be working within GM or there’s another party (an independent one) that verifies if GM really provides equal opportunity to its employees (see recommendations in section d). d. Based on the findings from your review, set out three recommendations as to how the report’s reliability could be improved. Your recommendations should include reasons and/or evidence. As stated in section II. B. in the previous pages, more and more stakeholders want the contents of the CSR reports to be verifiable. In this regard, a best practice is to “obtain third-party verifications on non-financial information” found in the CSR (Deloitte; 2009). Having an independent or third-party provider provide assurance to the report adds credibility and reliability on the information (such as the cost savings and the implementation of various employee policies) contained in the CSR. Another way to enhance the reliability of GM’s CSR is to create “corporate responsibility advisory panels” (Deloitte; 2009) and to have these panels’ views and opinions published alongside the CSR. GM may make use of its tie-ups with various entities (such as the European Employee Forum and Ceres) for this purpose. These entities are independent of GM and may provide more credence to the contents of the CSR. Lastly, the contents of the CSR should be consistent with other information related to GM and other reports issued by this Company. Consistency with the other reports will help enhance the information found in the CSR, will add assurance to the reliability of this information and will not make it appear as if the CSR is just a marketing ploy for the Company. 2. Bibliography 1. About Us. Ceres website. Available at http://www.ceres.org/Page.aspx?pid=415. (Accessed March 24, 2009). 2. Baue, William (2005). Taking Account of Corporate Social Responsibility Reports [Online]. Available at http://www.socialfunds.com/news/article.cgi/article1806.html. (Accessed March 24, 2009). 3. Association of Chartered Certified Accountants (December 2001). Promoting a European Framework For Corporate Social Responsibility – An EC Green Paper. [Online] Available at http://www.accaglobal.com/publicinterest/activities/ policy_papers/archive/environment/284000. (Accessed March 24, 2009). 4. Best practices in corporate responsibility reporting: Six tips for getting the most out of a corporate responsibility report (2009). Deloitte & Touche LLP [Online]. Available at http://www.deloitte.com/dtt/article/0,1002,cid%253D153081,00.html? WT.mcid=caenthemeCR. (Accessed March 24, 2009). 5. Corporate Responsibility Report (March 10, 2009). General Motors [Online]. Available at http://www.gm.com/corporate/responsibility/reports/08/. (Accessed March 22, 2009). 6. General Motors Europe and the European Employee Forum Agree on Principles of Social Responsibility (2002). [Online] Available at www.gmworkersblog.com/ content/download/1144/5837/version/1/file/rules+of+social+responsibility+EN.pdf. (Accessed March 24, 2009. 7. GM Says Restructuring and White-Collar Cost Reductions will Save $1B Annually (March 24, 2009). Google News. [Online] Available at http://www.google.com/ hostednews/canadianpress/article/ALeqM5jDuj8CJxajB1nmdiidQKnMQ_XhFQ. (Accessed March 25, 2009). 8. GM Statement Regarding the Company's Position on Restructuring (March 6, 2009). General Motors [Online]. Available at http://media.gm.com/servlet/ GatewayServlet?target=http://image.emerald.gm.com/gmnews/viewmonthlyreleasedetail.do?domain=74&docid=52828. (Accessed March 24, 2009). 9. International Accounting Standards Board. International Financial Reporting Standards IFRS 2008: Including International Accounting Standards (IASs) and Interpretations as Approved at January 1, 2008. London: Kluwer Kluwer Law International [Online]. Available at http://books.google.com.ph/books?id= tvNJTWlFe4C&pg=PA1178&lpg=PA1178&dq=accounting+for+leases+comments+criticisms&source=bl&ots=hUA6ewHCCQ&sig=ZJXk7ulSjYjtosWl7Pp1zFAvnY8&hl=en&ei=T_S8ScbPCpim6wP7uP3qBA&sa=X&oi=book_result&resnum=3&ct=result#PPP1,M1. (Accessed March 16, 2009). 10. IASB Agenda Project. Conceptual Framework Phase A - Objective and Qualitative Characteristics. [Online] Available at http://www.iasplus.com/agenda/framework-a.htm. (Accessed March 23, 2009). 11. Ketola, Tarja (2006). Do You Trust Your Boss? – A Jungian Analysis of Leadership Reliability in CSR. Electronic Journal of Business Ethics and Organization Studies. Volume 11, No. 2. [Online] Available at http://ejbo.jyu.fi/ pdf/ejbo_vol11no2_pages6-14.pdf. (Accessed March 24, 2009). 12. Mullerat, Ramon and Brennan, Daniel (2005). Corporate Social Responsibility – The Corporate Governance of the 21st Century. Hague, Netherlands: Kluwer Law International. [Online] Available at http://books.google.com.ph/books?id= WNR9qIUaQJ8C&pg=PA534&lpg=PA534&dq=corporate+social+responsibility+reliability&source=bl&ots=EEldxPWpE7&sig=UkWqRD1FQeSfGLc08HsxYPNIFbQ&hl=en&ei=OSTLScbdBYiZkQWBmztCQ&sa=X&oi=book_result&resnum=2&ct=result#PPA533,M1. (Accessed March 25, 2009). 13. Reliability Definition. Global Reporting Initiative or GRI (2007). Available at http://www.globalreporting.org/ReportingFramework/G3Online/DefiningReportQuality/LowerBlock/DefiningReportContentReliability.htm. (Accessed March 24, 2009). Read More