Social accounting refers to the process through which organizations understand the impact of their activities on society. Davis (2003, p. 204) asserts that organizations in different economic sectors are charged with the responsibility of evaluating their social performance. There are numerous reasons why organizations should integrate the concept of social accounting in their operations.
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According to Holdaway (2005, p.43), economics alone cannot be used as the “only measure of accounting since this is likely to have severe impacts on earth’s survival”. Modern management practice is fast moving towards sustainable management of available resources. This implies that firms willing to exploit natural resources need to conduct a thorough assessment of the social and environmental impacts before venturing into such activities as mining. This would not only realize the reduction of social and environmental but also sustainable utilization of natural resources.
Given Holdaway (2005, p.45) and Davis (2003, p. 204 ) assertions, it is imperative to analyze the social and environmental impacts emanating from the failure by Ok Tedi Company to implement social accounting standards. In its operation, Ok Tedi Company had negatively affected the livelihood of the society within which it operated. This is because the company caused environmental degradation.
For example, Ok Tedi Mining Limited disposed of its mine tailings into the river system which was the source of livelihood for the locals. The locals depended on Ok Tedi and Fly rivers as a source of drinking water and food through fishing. In addition to environmental changes, disposal of the mine tailings into the river system by Ok Tedi Mining Limited negatively affected the traditional lifestyle of the locals. Other negative effects that the company’s operations had on the locals include disagreements amongst the various clans that depended on the river system for economic reasons. It also led to ill health amongst the locals.
This is because the mine tailings caused the rivers to flood due to the deposition of sediments on the riverbed. As a result of river flooding, a significant proportion of the riverine vegetation was buried culminating in massive environmental pollution.
Approximately, 30 square kilometer area of the forest was destroyed. As Gray (2001) asserts, the company’s need to assess the social and environmental impacts of their business activities before investing as an ethical business practice. This minimizes adverse social and environmental consequences on communities that depend on those resources under question (Holdaway, 2005, p.46). Thus, based o the destruction caused on social and environmental set up by Ok Tedi Mining Limited business activities, implementing a social accounting and reporting seemed relevant.
The social and environmental impacts mentioned above are just an indication of the deeper and long term problems accrued from the company’s activities. It is also imperative to evaluate the cost implications. Gray (2001) explains that while many of the social and environmental policies outlined in companies’ annual reports seem unreal, implementing tangible and practical social accounting procedures involves hefty financial costs.
Companies undergo enormous costs related to practices aimed at mitigating social and environmental impacts. Additionally, recommendations emanating from social accounting reports involve affirmative action. For instance, by failing to assess the social implications on the effects of its hiring practices, Ok Tedi Mining Limited failed to avert the sexual abuse incurred by women living in this region. To avert this crisis, Ok Tedi Mining Limited would possibly have hired more women from this region and thus deny men from neighboring regions employment opportunities. While this would have averted such social consequences, it would have come at an added cost.
Crane et al (2008) assert that the social and economic cost of overstepping compliance requirements overrides the cost accrued from compliance. Crane et al (2008) assertion seem relevant in the Ok Tedi Mining Limited case. The company had to pay large compensation fees, exceeding US $100m. Additionally, the company incurred about US $64m in losses after the collapse of the dam as well as a US $460m reconstruction cost. By implementing a social accounting and reporting regime Ok Tedi Mining Limited would have avoided incurring such costs.
Ok Tedi Mining Limited case amounts to management failure, which emanates from lack of accountability (Davis, 2003, p. 204). Gray (2001, p.23) notes that in business management “accountability is a relatively simple notion that is widely misused and misunderstood”. This not only indicates major management malpractices that lead to business failure but also results in conflict amongst stakeholders.
Gray (2001, p. 34) states that accountability mainly involves recognizing what firms’ are responsible for and the inherent right by major stakeholders in accessing information to that effect. By stakeholders, Gray (2001, p. 32) refers to anyone who influences or is influenced by the firm, either directly or indirectly. Therefore, other than the governments of Australia and Papua New Guinea, major stakeholders also included the communities living around this region.
In Ok Tedi Mining Limited’s case, the management only admitted to a lack of accountability after protracted legal battles and activism. Lack of accountability led to major conflict amongst stakeholders, especially between the locals and the company’s management. The conflict seems to be drawn from the company’s failure to conduct and implement a social accounting regime. This would have involved conducting a survey on the economic, social, and environmental impacts of mining in the region and releasing this information to all stakeholders. Crane et al (2008, p. 13) note that such management malpractices came at a heavy cost for Tedi Mining Limited since it eventually undertook costly reconstruction and rehabilitation work. Thus, Tedi Mining Limited ought to have implemented a social accounting regime.
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