Where value is the bottom line: Traidcraft puts social priorities before profits - so how does it gauge success? Paul Gosling reports

TRAIDCRAFT does not claim to offer the best dividends to its shareholders, nor the cheapest prices to its customers, nor the highest wages to its staff.

Yet Traidcraft's latest share issue raised pounds 440,000. The company lacks neither customers nor workers, and volunteers freely give their time to sell its products. The reason? Traidcraft describes itself as a social enterprise, and the first item on its agenda is to promote fair trade with underdeveloped countries.

As its chief executive, Philip Angier, points out, putting social objectives before economic ones is no excuse for slack management. But without the bottom line taking priority, how can achievement be assessed?

'What we have lacked is a procedure to say what is the sacrifice made in the UK by staff, investors and volunteers, and what benefit is going to the Third World,' he said. 'Or is a subsidy just going to fund a liberal, wishy- washy organisation in the middle?'

The company's solution is the complicated procedure of a 'social audit'. It involves Traidcraft examining the real effect of trade on the exporting country, including the benefit to local people and any environmental damage.

'We are well aware of the danger of foisting our own methods of development on to our partners,' Mr Angier said.

Traidcraft is gearing up for a full social audit in about four years and is improving internal procedures to meet the test.

The audit will include consideration of equal employment opportunities, the value added per employee and the environmental performance of the company. It will also set targets for value added in the country of origin of products.

Some of these factors are difficult to measure and have implications for the company's financial audit. For example, overheads must be properly attributed to understand the real cost of each social objective and to determine whether it is the best use of the money.

The New Economics Foundation and the Manchester Business School are working with Traidcraft to produce alternative quantifiable performance targets. This fits in with the NEF's research into social auditing, and a project by MBS on the ethical responsibility of business. MBS recently appointed a professor of business ethics.

Ed Mayo, director of NEF, said it wanted to promote a broader view of economic wellbeing. 'We believe in new economics, which extends economics to include the environment, social wealth and ethical values,' he said.

'Normally at the bottom line, if you can't measure it, it's not worth anything, so you have to look at other ways of quantification.'

There is potential for the wider application of social auditing. Analysts who specialise in ethical investments frequently complain about the difficulty in establishing how genuinely a company is meeting the criteria of a fund.

Mark Campanale, an investment manager at Jupiter Tyndall Merlyn, said social auditing could be useful for fund managers.

'When the first ethical fund was launched in 1984, investors wanted to avoid some products, like armaments and tobacco. Now we've moved on and are talking about broader ethical responsibilities. The whole ethos of a company is what we are increasingly looking at.

'When we do analysis we look at the effect on the environment, we look at minorities employed and women on the board, but we need verification,' Mr Campanale said.