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Social Capital: Its Relevance & Benefits to Organisations.



When doing well by doing the right thing isn’t quite enough to get the corporate juices flowing we need to bring things down to the bare essentials: organisational development in industry and society depends on and reflects how its people work and productively innovate towards its core mission. Whether individuals work in teams, small units, on their own, within the firm or in close contact with external stakeholders, they possess significant and sometimes difficult to quantify value creation potential in the form of social capital. This term is more and more used to indicate a business’s commitment to matters external to its traditional bottom-line value creation for shareholders. Just what it means in a pragmatic sense to managers trying to see the worth in measuring how firms contribute to its creation (internal or external) remains difficult to define.

All organisations (large, small, multi-sector, SME, or social enterprise) require and depend on various forms of capital for their success and maintained survival in the long-term. According to the International Integrated Reporting Council (IR), “the term capitals… refers broadly to any store of value that an organisation can use in the production of goods and services” (Adams et al., 2013), and can be seen as being increased, decreased or transformed into different states through stocks and flows: a systems view of the business model of the organisation in question.


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The diagram represents a process of value creation based on the stocks, flows, inputs and outputs of all six forms of capital: financial, manufactured, intellectual, human, social and relationship, and natural (Adapted from Eccles & Serafeim, 2014). Ideally an organisation recycles these to its benefit and that of social and ecological systems around it. To view an organisation as embedded in its societal and ecological spheres from which it garners its resources reflects integrated and systems thinking. This leads to greater reflexivity in management and governance as well as resulting in effective capital allocation by accounting for systemic risk. It also acts as a “force for financial stability and sustainability (IR, 2013)(Eccles & Serafeim, 2014). All the forms of capital are intricately connected with one another, hence the difficulty in attempting to isolate and refine the definition of one of them individually; the crux of this article.

If there are firms who wish to identify their impact on society (and perhaps by extension the environment), and want to attempt to quantify this to illustrate how they create shared value, then surely their impact on social capital is one of the first things that they should measure, followed by how they perform with regards to intellectual and human capital within their areas of operation housed within society and environment.

These three forms of capital are distinguished quite neatly by the IIRC (Adams et al., 2013) in their synthesis. The following graphical representation and definitions may simplify their understanding.

Most commonly and traditionally reported on and accounted for:

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  • Intellectual Capital: Organisational or structural capital that includes processes, procedures and shared tacit knowledge produced as well as internal reporting, and the management and control function.


  • Human Capital: An individual’s capabilities: knowledge, skills and expertise of employees that includes the capacity for learning to improve these.


  • Social & Relationship Capital: Intra-organisational and Extra-organisational relationships; such as those with stakeholders, throughout the supply-chain, community, government, competitors and customers, depending on where the boundaries of the social system are drawn. These might include legal and regulatory compliance according to location market, cultural context or discipline.


To use the words of social philosopher Albert O. Hirschman, social capital is a "moral resource," that is, a resource whose supply increases rather than decreases through use and which (unlike physical capital) becomes depleted if not used. From here the direct benefit for organization to contribute to its creation (Putnam, 1993).

Furthermore, as transparency-guaranteeing methodologies become more and more efficient across industries and customers awareness around relevant social issues raises, it is only by building and maintaining such network capital that organisations can retain their social licence to operate. By being able to see the link between renovated competition in economic trade, and the “relations within and between socials groups at different levels of society”, organisations form the potential for equitable growth, resilience and participatory governance of market, society and environment (Woolcock, 1998).

Whether or not sustainability is seen by organisations as something they ought to take into account, any management control system will have to take into consideration societal forces. This is essentially why firms should at least have how they create and use social capital on their radar. If the generally accepted saying “numbers make things easier to manage” were true, there would be little chance to argue against the fact that a quantification of the impact on social capital would make life much easier for organizations.

Plus, and to end on ethical note, the possession and monitoring of social capital also holds considerable significance in terms of human wellbeing: doing well by doing good might just be the pragmatic thing to do after all.


References

Adams, C. A., Coulson, A. B., Emmelkamp, T., Greveling, R., Klüth, G., & Ngent, M. (2013). Capitals Background Paper for IR (pp. 32): International Integrated Reporting Council (IIRC), Association of Chartered Certified Accountants (ACCA), Netherlands Institute of Chartered Accountants (NBA).

Eccles, R. G., & Serafeim, G. (2014). Corporate and Integrated Reporting: A Functional Perspective. Harvard Business School. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2388716

Woolcock, M. (1998). Social capital and economic development: Toward a theoretical synthesis and policy framework. Theory and Society, 27, 151-208.

Putnam, Robert D. (1993), "The Prosperous Community: Social Capital and Public Life"The American Prospect no. 13 Retrieved from http://epn.org/prospect/13/13putn.html


Authors
Alex Baker Shelley is a PhD researcher and analyst at ICIS-Maastricht University specialising in organisational transformations towards embedding sustainability. He holds a BSc in Environmental Science from the University of Manchester and an M.Sc. in Sustainable Development from Uppsala University & SLU. He has cross-sectoral experience as a researcher, sustainability analyst (Route2Sustainability), and community volunteer (Manchester Climate Forum). His master’s thesis gauged corporate governance and sustainability accounting with the GRI 3.1 for the Nordic mining sector. He sits on the University Council of Maastricht University and works closely with their Green Office.

Alberto Corti is a market analyst specialized in organizational resilience to social change. He has gained experience from both private and public sector working at the United Nations, the European Commission’s CoM, Skanderna and BSD Consulting. He holds a BA in International Studies from Milan and Tromsø University and a M.Sc. in Sustainable Development from Uppsala University. He co-founded Casta&Bucks, is part of TEDxStockholm’s Board of Directors and Shifo Foundation’s Advisory Board.

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