Social Statements: A Proposal for a Social-Value Balance Sheet and Profit-Loss Statement
This paper proposes a new framework of "social statements"—modeled after conventional financial statements but quantifying a firm's social relationships and external stakeholder interactions—to enable unified measurement of social value and integrate it into corporate decision-making to address the externalization of social and environmental costs.
Original paper licensed under CC BY 4.0 (http://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
The "Social Scorecard": A New Way to Measure a Company's Heart
Imagine a company as a person. For decades, we've only been allowed to look at their bank account to decide if they are successful. This is the traditional Financial Statement. It tells us how much money they have, how much they spent, and how much profit they made.
But the authors of this paper argue that looking only at the bank account is like judging a person solely by their wallet. It misses their friendships, their reputation, and how much they care about their neighbors. In fact, the paper suggests that this "money-only" view is actually causing big problems in the world, like inequality and pollution, because companies are encouraged to ignore the cost of their actions on society.
To fix this, the researchers propose a new set of reports called "Social Statements." Think of these as a "Social Value Balance Sheet" and a "Social Profit & Loss Statement." Instead of counting dollars, these reports count relationships.
Here is how the paper breaks it down, using simple analogies:
1. The Core Idea: Relationships are the Real Currency
The paper argues that "social value" isn't a vague feeling; it's built on connections. Just as a bank account tracks money flowing in and out, a Social Statement tracks people and interactions.
- The Metaphor: Imagine a company is a host at a giant party.
- Financial Statements only count how much food and drink the host sold.
- Social Statements count how many people the host actually talked to, how many deep friendships were formed, and how many people felt welcome.
2. The Two Main Reports
The researchers map these social connections onto the same two forms used for money:
A. The Social Balance Sheet (The "Stability" Report)
This looks at the company's long-term relationships, like a snapshot of their social circle.
- Assets (What they own): In the money world, this is cash or buildings. In the social world, this is trust.
- Current Assets: These are "fresh" or "unsaturated" relationships—new conversations and short-term interactions.
- Fixed Assets: These are "saturated" relationships—deep, long-term trust that has been built over time (like a best friend you've known for years).
- Liabilities (What they owe): In the money world, this is debt. In the social world, this represents relationships the company has with partners or the government that rely on others (like a bridge connecting two towns).
- Net Assets (Equity): This is the pure, direct relationship between the company and the people (residents/customers) without any middlemen.
B. The Social Profit & Loss Statement (The "Activity" Report)
This looks at what happened this year. It measures the energy spent building connections.
- Revenue: The total amount of new social connections made.
- Cost of Goods Sold: The effort spent building relationships with people through partners (e.g., a supplier helping a customer).
- Expenses: The effort spent talking to the public, the government, or maintaining existing friendships.
- Net Income: The new relationships formed directly between the company and the community this year.
3. How Do You Count "Friendships"?
You might ask, "How do you put a number on a handshake?" The paper proposes a clever mathematical trick using Saturation Functions.
- The Analogy: Imagine you are filling a bucket with water.
- If you pour water (interactions) into the bucket, the water level rises.
- But eventually, the bucket gets full. You can't pour in more water than the bucket holds.
- The researchers say that trust works the same way. You can talk to someone a million times, but after a certain point, the "trust value" hits a ceiling (saturation). It doesn't make sense to say you have "infinite trust."
- They use a Network Graph (a map of dots and lines) to visualize this.
- Dots are people, companies, or governments.
- Lines are the relationships.
- Thick lines mean a strong, saturated (full) relationship.
- Thin lines mean a new or unsaturated relationship.
- By adding up the thickness of all the lines connected to the company, they get a score for their "Social Assets."
4. Why Does This Matter? (The "So What?")
The paper claims that if companies start using these Social Statements, two big things happen:
- Better Decision Making: Just as a CEO looks at profit margins to decide where to invest money, they can now look at "Social Margins" to decide where to invest their time and energy. They can see if they are building strong, stable trust or just making fleeting contacts.
- Transparency: Companies can publicly show their "Social Scorecard." Instead of just bragging about money, they can show, "Look, we have 500 deep, long-term relationships with our neighbors."
5. What the Paper Does Not Say
It is important to stick to what the authors actually wrote:
- They are not saying this replaces money. Companies still need to make a profit.
- They are not saying this is a perfect, ready-to-use tool for every single company today. They admit that measuring relationships for a small shop is different than for a giant corporation.
- They are not claiming that a high "Social Score" automatically means a company is good at solving climate change or poverty yet. They suggest that a high score means the company has more people working with them, which is a necessary step toward solving those problems.
The Bottom Line
This paper proposes a new language for business. It suggests that if we want to fix social problems, we need to stop treating human relationships as invisible "externalities" and start counting them just like we count dollars. By turning "trust" and "communication" into numbers on a balance sheet, companies can finally see the full picture of their value to the world.
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