Posts filed under ‘Wall Street’
A Peek Underneath the Hood of CR Magazine’s “100 Best Corporate Citizens List”
Elizabeth Boudrie
Recognized by PR Week as one of America’s top three most-important business rankings, Corporate Responsibility Magazine’s “100 Best Corporate Citizens List” evaluates companies on 325 corporate social responsibility data points. This week we caught up with Elizabeth Boudrie, Vice President of Research for SharedXpertise (parent company of CR Magazine) to learn more about the methodology behind the ranking.
GT: With all the rankings out there, why should companies pay attention to this one? What makes this ranking unique?
EB: From a methodological standpoint, this is an audit versus a survey. One of the frustrations that I think a lot of people have in the corporate responsibility (CR) space is that “We get so many surveys, we have to pick and choose which one we’re going to do and we’re not going to do yours.”
We have to explain to people that it’s an involuntary audit—you don’t have to fill anything out. What we do is the IW Financial folks go and look for essential 325 data elements that are publicly disclosed for all Russell 1000 companies. There are a few data elements that are performance -based, but for the most part they’re disclosure-based. I think that the biggest way [the ranking is different] is that it’s very broad. We’re looking really across a broad spectrum of issues as opposed to others that are very specifically oriented to environment, social and governance (ESG), human rights or specific issues, versus our seven different categories.
GT: How did you come up with those categories?
EB: We have a methodology committee comprised of industry folks and academics and folks who together help us oversee the direction of the data elements and the whole process. And back when they originally started the process – I think this is the 13th year — they looked and said, “Ok, what are the main categories that we think make sense, that we think should be important?” And these are the categories that they came up with.
And over time, we continue to review them. They’re weighted differently based on how important the collective group thinks they are and over time we continue to review them and believe that these are the categories that do capture a broad picture of corporate social responsibility (CSR).
GT: And 2012 is the 13th year for the ranking?
EB: Yes. 2012 will be the 13th annual list.
GT: In the absence of widely agreed-upon performance metrics, I understand that many rankings currently rely on transparency as a proxy for progress. Is this the best way to evaluate companies?
EB: I think all of us would love to get past disclosure as the main determinant of ranks– and we do have some elements within our 300-some-odd data elements that are performance-based — but it’s predominantly disclosure-based. There aren’t enough people who are disclosing enough as it is. We have lots and lots of companies who disclose next to nothing out of the Russell 1000. We think of disclosure as the low bar, but if it’s the low bar there are a lot of people who aren’t stepping over it yet. So from that perspective, there’s still a long way to go.
The other issue is that with so many different companies doing so many different things, it’s very difficult to find a reasonable performance standard that you can apply across company size, across company industry, across company type. And I think everybody is still struggling to find out what that is in every ranking. So I think it’s a reasonable proxy for now because it’s the best we can do but I don’t think anybody’s happy with that forever. And I think everybody’s looking for a better way.
GT: What does transparency tell you about a company?
EB: Transparency maybe doesn’t tell you everything, but a company certainly doesn’t talk about things it’s doing poorly, typically. To us the willingness of a company to be transparent indicates strong management, a willingness to be self-reflective, to understand what’s going on within their environment—both within their own environment internally as well as externally– and it just demonstrates connection to what’s happening in the world right now. I think they’re recognizing over time that people are more interested in exactly what’s happening and that means being transparent about what’s happening with your organization, whether that’s your human rights record, whether that’s your impact on the environment, your philanthropic giving, all the categories we might address.
GT: How many of your top 100 companies are ‘repeat achievers’? How much turnover do you see year over year?
EB: It changes a fair amount. The turnover changes over time, which sort of depends on the changes in the methodology, the data set. We try to limit that so there isn’t so much impact, but there can be an impact. One of our data categories is financial performance and with the recent economic downturn that really impacted some folks. So there can be some churn.
GT: How often do you update your methodology?
EB: We try to take an evolutionary versus revolutionary approach. You’d hate to see 80 percent of the list change because it wouldn’t be meaningful…Ultimately what we’re trying to do is drive people to be as transparent as they can be. So ultimately if a company is being even more transparent in 2012 than 2011 we don’t want to penalize them randomly because the methodology has changed. So we’ll try to be very careful in doing that. What you’ll find is because it’s a comparative methodology a company can do exactly what they were doing the prior year and still fall in the ranking if other companies are doing better.
GT: How does the audit process work?
EB: IW Financial, as part of their process, sends out a correspondence file, which is an opportunity for a company that they’ve audited to review the file and make sure that everything is accurate. We’ve added a separate, additional review for companies that are potentially going to be ranked so they can have a second review.
GT: When does the ranking come out?
EB: In the Spring. This year it will come out in early April.
GT: What is the circulation of Corporate Responsibility Magazine?
EB: 19,000
GT: Is the ranking publicly available information? Or is it sold?
EB:The ranking is public. And free.
Elizabeth Boudrie is Vice President of Research at SharedXpertise, where she oversees all global research efforts addressing topics such as corporate responsibility, and transformation and outsourcing of business processes. She will share more information and answer more questions about CR Magazine’s “100 Best Corporate Citizens List” during the NAEM webinar on Jan. 24.
Sustainability Strategy and Long-term Performance
Kimberly Gladman
At the NAEM conference in Fort Lauderdale last May, I spoke about recent academic research on the link between corporate responsibility—in particular, positive environmental policies—and stock price performance. (For a review of the studies I talked about, see my paper, “Ten Things to Know about Responsible Investing.” ) I promised NAEM staff that I’d stay in touch and keep them updated when I heard of additional research that might be of interest to the membership. A paper just out from Harvard Business School definitely fits the bill.
In “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,” Professors Bob Eccles, Ioannis Ioannou and George Serafeim began by identifying companies that disclosed a set of environmental and social policies in 2003-2005. They then conducted over 200 interviews with corporate executives to ascertain which companies had already begun to implement these policies internally in 1993.
Once they had a set of 90 early adopters, they created a matched sample of companies that had few sustainability policies, but were otherwise similar to the first group in terms of size, sector, growth stage and capital structure. Comparing shareholder returns for the two groups, they found that the high-sustainability group outperformed its low-sustainability peers by an annualized 2.3 percent on an equal-weighted basis,between 1993 and 2011.
The authors also demonstrated, based on a statistical analysis of keywords in analyst calls, that high-sustainability companies are more likely to discuss long-term trends and non-financial matters with investors. They study ownership and show that high-sustainability companies attract longer-term investors with more concentrated holdings. They also show that high sustainability companies also are more likely to have a board oversight of sustainability, to incorporate sustainability metrics into executive compensation, and to disclose non-financial performance. (The full study can be found at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1964011).
While the study’s performance numbers may be welcomed by corporate environment, health and safety (EHS) managers as evidence that sustainability pays, it would be interesting to know the relationship between a company’s survival rate and its sustainability activities. For example, does management of social and environmental issues acts as a kind of insurance policy, making a company more likely to be around long-term?
NAEM members would probably have valuable opinions on this question. They would also be able to offer useful perspectives on one of the study’s key follow-up questions: What ensures that companies stay the long-term course in terms of sustainability culture? Why do some companies’ programs fall apart if a key manager leaves, while other firms seem to have environmental consciousness baked into their “DNA”? These questions are just part of the lively discussion this paper is provoking.
What do you think?
Dr. Kimberly Gladman is the Director of Research and Risk Analytics at GMI, a leading provider of corporate governance, accounting, environmental and social research and ratings. Before joining GMI’s predecessor, The Corporate Library, in 2008, Dr. Gladman managed a team of associates researching global corporations at Domini Social Investments, a prominent socially responsible investment fund manager. She also served as Lead SRI Analyst for Domini’s European equity fund, and spent several years participating in the firm’s shareholder advocacy on social, environmental, and governance issues.
She began her career in academia, focused on interdisciplinary research and teaching. She earned a B.A. from Yale University in 1990, and a Ph.D. from New York University in 2001. Dr. Gladman also holds the Chartered Financial Analyst designation.
Sustainability rankings: Which are real, which are rubbish?
Richard Crespin
Albert Einstein once said that not everything that counts can be measured and not everything that can be measured counts. While I remain a dyed-in-the-wool free market capitalist, the measurement systems we’ve used to date have gotten us in a hole with disasters economic, environmental and political.
In 2000 the world had 21 sustainability-related ranking systems; we now have more than 100. As a result many folks now want to know how to prioritize the “real” rankings from the “rubbish”.
As Executive Director of the Corporate Responsibility Officers Association I represent you: the responsibility and sustainability professional. I know the difficulty different reporting regimes pose. I also know how hard it is to rate companies because I serve on the Methodology Committee for Corporate Responsibility Magazine’s 100 Best Corporate Citizens List. As a result, I have discerned a few hallmarks of the better rating systems. Here’s what I can offer as a guide to prioritizing ratings:
- Transparency. Their methods, criteria, and decision-making should be public. Any commercial relationships between the rater and the firms on its list should be clearly disclosed as well.
- Consistency. While evaluation criteria continue to evolve, the rating should have some constancy year-over-year. The criteria should also be applied evenly to all companies in the rated universe.
- Relevance. A list should relate to your company’s industry, brand or strategy.
- Acceptance. Pay more attention to lists that have broad acceptance and/or use widely accepted criteria like the Global Reporting Initiative.
- Prediction. The most effective rating systems will predict future performance. This is the “holy grail” and will likely remain elusive for at least another 10-15 years. To be predictive a rating needs to incorporate a full business cycle’s worth of data, typically 30+ years. No rating system that I know of has been around that long.
What do you think? Are these the right criteria for evaluating information requests? When it comes to the flood of sustainability surveys, what is your strategy for responding? Which do you respond to? Why?
Richard Crespin is the Executive Director of the Corporate Responsibility Officers Association and chair of the upcoming COMMIT! Forum on Sept. 26-27 in New York. To participate in the conversation about the “New Rules for Disclosure” visit http://www.commitforum.com/index.php/agenda/.
Confronting Conflict Minerals
Gary Niekerk
Most environmental professionals don’t hang out with the Wall Street crowd. We don’t typically have a lot of designer suits and six figure bonuses (although I do own a pair of wing-tipped safety shoes). However, Wall Street and environmental, health and safety (EHS) are a little more connected these days than you think. What I’m referring to is a piece of legislation buried in the 800-plus-pages of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, called “SEC 1502 – Conflict Minerals”.
The intention of SEC 1502 is to increase transparency in the minerals supply chain, with the hopes of reducing the terrible violence in parts of Central Africa related to the minerals trade. This somewhat controversial regulation is garnering a lot of attention as the final rulemaking is expected in the next few months.
If your company manufactures products where, “conflict minerals (tin, tantalum, tungsten, or gold ) are necessary to the functionality or production” of the product, you could be one of the 5,000 or more public companies the SEC estimates may be impacted by this legislation.
NAEM will be covering the topic at the upcoming EHS Management Forum on Oct. 19-20, where I’ll talk about Intel’s approach to this complex issue. For more information, please contact our Corporate Social Responsibility team or read the white paper we wrote about trying to achieve a ‘conflict-free’supply chain.
In the meantime, I’d love to hear from you. What are you doing to address this important issue? What are some of the unique challenges this legislation will present for your company?
Gary Niekerk is the Director of Global Citizenship for Intel Corp., where he works on corporate strategy related to sustainability, corporate reputation and stakeholder management. He has spent 25 years working with employees, customers, and stakeholders to protect and build the brands and reputation of some of the world’s leading high-tech companies, including Hewlett-Packard Co., Apple Inc. and Intel Corp.
Turning environmental metrics inside out
Howard Brown
Since attending NAEM’s “Measuring Corporate Sustainability” conference last month, I’ve been thinking about the enormous quantity of data that environmental, health and safety (EHS) managers have to collect in order to respond to environmental, social and governance (ESG) research surveys. I am convinced we are measuring the wrong things.
ESG issues are extremely important; the amount of time and money spent on surveys is itself an indicator of corporate recognition of its importance. But as Bob Kidder, CEO of Chrysler, once told me, “You get what you measure.” The reason we measure is to learn so we can modify our behavior and improve.
Managers are now spending so much time assembling data and responding to rating surveys, they often find they don’t have enough time to work on making things better, even when the data makes clear which actions would be most effective. The present cacophony of indicators, measurement systems, and analytical models is scarcely effective for guiding improvements. A company can do extremely well in one system and be at the bottom of the pack in another. And it’s hard to know why. Something is broken – or to put more positively – the system of reporting hasn’t matured enough yet to be really useful.
With more than 100 rating firms, plus dozens of academic, government, and NGO surveys, managers have to do triage to determine which surveys to participate in. Pick the wrong survey and end up with your CEO asking why the company got a poor rating. To make things worse, the transparency expected of participating companies doesn’t apply to the rating firms themselves. EHS managers don’t know how the data will be used, weighted, combined, or analyzed in the process, nor do they know if a particular model is appropriate for evaluating their company. More importantly, the rating systems are designed for external stakeholders and are rarely designed to be useful to companies themselves for strategic planning.
Perhaps the single most frustrating thing about the status quo is that almost all of the ratings systems rely on negative motivation. It’s about avoiding negative consequences – risks to brand value, stock price, and legal liabilities – rather than encouraging positive ones. This leads companies to continue treating environment as a necessary cost of doing business rather than as a tool for improving business performance.
When I spoke with environmental managers at the conference, I heard Bob Kidder’s words ringing in my ears. The measurement chaos is causing companies to focus more on improving their scores than on improving business performance. We need to turn our thinking inside out. Our primary goal has to be performance, not the score.
I’m convinced that solving our environmental challenges calls for an approach that isn’t dependent on coming up with ever more sophisticated models and statistical averaging and indexing techniques for rating the negative impacts of entire corporations. The world is too complicated to objectively measure those impacts in a consistent and standardized way. And companies are too different to be compared in this way. We need an environmental performance measurement approach that is simple and conceptual.
The answer is to focus on managing resource use, rather than on managing the consequences of using the resources. Or in other words, focus more on reducing the inputs than on reducing the unintended outputs.
We also need to focus performance measurement on products rather than whole companies. This can be done if companies identify the real value each of their products delivers to customers. The critical issue is ultimately how much resource mass does it take, and should it take, to deliver a given amount of value to customers.
Think of it this way. Everything that comes out of a company and causes environmental problems was once a resource and was then lost due to inefficiency or lack of knowledge. Pollution is nothing more than valuable resources lost in process and released where they don’t belong. If you don’t use the resource in the first place, you can’t spill it, lose it, or waste it. You also don’t have to pay for extracting it, refining it, transporting it, making it into useful components, etc. And you don’t have to worry about the environmental impacts of doing all that.
We need to measure the value we’re delivering to customers in relation to the resource mass required to deliver that value. Every time that you reduce product mass without reducing the value delivered, the savings are multiplied all the way back through the supply chain.
Companies must learn how to look at their goals in terms of the functions their products serve. From this perspective, a battery company should not think of itself as a battery company but as a portable energy company, while a washing machine company should think of itself as a clean clothes company.
This is the only way to truly align environmental metrics with business metrics. When you’re reducing resource inputs, you’re reducing costs, you’re reducing environmental risks, and you’re reducing fines. But most importantly, you’re gaining competitive advantage. The more companies think about delivering the most performance for the least mass, the greater advantage they’ll have in the marketplace.
Howard Brown is founder of dMASS and chairman of o.s.Earth. For more than 20 years as CEO of Resource Planning & Management Systems (RPM), Inc., in New Haven, Conn., he worked with companies such as Duracell, Avery Dennison Corp., Exxon Mobil Corp., General Electric Co., Deere & Co., Whirlpool Corp., Warner- Lambert Co. and Pfizer Inc. to establish or enhance their environmental practices and performance.
The effect of sustainability analytics on investment
With all the talk about environmental, social and governance (ESG) metrics, it’s easy to forget that socially responsible investing remains a niche strategy. Last week, we asked Jeff Morgan, President & CEO of the National Investor Relations Institute, to put this trend into context and asked what impact ESG information may have in the months and years to come.
Developing a strategy for ESG disclosure
Carol Singer Neuvelt
Thanks again to all of you who joined us in Fort Lauderdale for the “Measuring Sustainability” conference this week. From my perspective, we had a successful day, in that we increased awareness of the issues and we shared ideas for improving the environmental, social and governance (ESG) reporting process.
The conference also highlighted some practical advice you can use to build a business case for publicly communicating your sustainability story:
- Understand the value of disclosure to your business:Today, nearly one out of every eight dollars under professional management in the U.S. is involved with some strategy of socially responsible investment (SRI), according to the Social Investment Forum. Since 2005, SRI assets have increased by more than 34 percent to $3.07 trillion. ESG research firms are therefore asking more questions because their clients (investors) are asking them for that information. As the lead survey responder within your company, it’s important to take the time to discuss the value of disclosure with your C-Suite and with your internal teams.
- Create a process for vetting requests: Assemble a committee representing all those involved with responding to outside requests. Understand how much time and transparency your company is willing to commit. Then figure out how to collect the information and who will take the lead in managing the request. Remember that if the information request has an enterprise-wide impact, corporate communications MUST be involved.
- Do your research, too: When you receive a survey, learn as much about the requesting entity as you can. Are they shareholders? Are they investment managers? Are they research firms? Also find out how the information is used, who the audience is and the influence the resulting products have. If possible, ask members of your network to learn about their experience with working with that firm.
- Be strategic: While it’s important to be responsive to your stakeholders and investors, you don’t have to be all things to all people. Identify which audiences most matter to your business and participate in the surveys that reach that audience. For some companies, investors may be the most important audience; for those with strong consumer brands, on the other hand, the more mainstream (published) rankings might matter more.
- Build relationships: Dialogues are always better than surveys. ESG firms want to understand how your business operates, so if there’s something you think they’ve misunderstood, don’t be afraid to pick up the phone. And if you think they’re asking the wrong questions, tell them why. They want to know which metrics are material to your business, but they need your input.
- Be consistent: Remember that you’re in this for the long-haul, so develop a solid strategy and stick with it.
What advice would you add to this list? What strategies have you developed to manage the external requests for information?
