Corporate irresponsibility: a modern disease?

GE has ‘Ecoimagination’. BP is ‘Beyond Petroleum’. But which is the more
responsible company? It can be difficult to see past the public image portrayed
by corporate media. Equally, it is hard to know if examples of bad practice that
reach the public eye are one-time events, or merely the symptom of a larger
‘irresponsibility disease’ emphasising shareholder profit regardless of the
impacts on society and the environment.

We know that it is not legitimate to conclude that Shell is more responsible
than Vodafone based solely on the strength of advertising campaigns. But it is
equally illegitimate to conclude that Berkshire Hathaway is more responsible
than BP based on incidents covered by the media over the last year.

Amidst this confusion, trust in large corporations has shrunk, demonstrating
a need for a more objective assessment of responsibility for big business. The
Accountability Rating, produced each year by Csrnetwork and non-profit think
tank AccountAbility, measures the responsible practices of the 100 largest
corporations by revenue (the Fortune Global-100). In it, we seek to go past
individual perceptions and cynicism to assess a company’s understanding and
actions.

Vital questions
Through the rating criteria, we acknowledge that a company must understand its
stakeholders. That includes asking the following questions: Who are they? What
are their issues? What opportunities do they present to create beneficial value?
How should the company integrate feedback from them into the corporate
management to guide decision-making and realise this value? And what is the best
way to communicate with these stakeholders?

We also recognise that a company must act responsibly. It must acknowledge
and rectify past mistakes. It must benefit society and the environment in the
present. It must create systems to ensure good practice into the future. We
measure corporate understanding and actions through four domains: strategy; en
gagement; management; and impact.

The results are striking. The oil and gas sector, led by BP in the top spot,
demonstrates the strongest responsible behaviour on average of any sector in the
G-100. Can this be right?

It turns out that oil and gas companies are used to operating in an
environment of high profile and high risks. These include health and safety
risks, risks of environmental disasters and risks of social upheaval. They also
operate in an environment of hyper-competitiveness in which they must out
perform not only each other, but also the growing presence of national petroleum
companies backed by host governments.

In such an environment, it is not surprising that the largest oil and gas
companies have invested heavily in understanding stakeholder expectations and
creating management systems to act upon these expectations. This is a
fundamental requirement for an industry where individual mistakes can result in
significant impacts and intense scrutiny.

What is surprising is the improvement in responsible behaviour from sectors
that have traditionally ‘flown under the radar’. The financial services sector
is the prime example led by strong performers like Barclays, HSBC and HBOS. Here
we are seeing commitments to ethical lending practice as well as initiatives to
reduce energy and waste in operations.

The computing and telecommunications sector, meanwhile, is making commitments
on a range of aspects from empowering developing markets with information
technology to privacy and responsible use issues for children.

In each of these cases, these are real commitments, not public relations
campaigns. Yet, examples of irresponsible behaviour continue to occur throughout
the G-100 companies. BP is still under scrutiny for price-fixing allegations and
the explosion at the Texas City refinery in 2005. Many banks have been tied to
the economic downturn resulting from potentially irresponsible lending
practices.

Automotive companies continue to produce fuel inefficient cars in the face of
growing alarm over climate change. What is the problem here? Why are companies
finding it so difficult to ‘walk the talk’?

Principle of the matter
One significant reason that we have noted through the Accountability Rating is
the gap between policy and implementation. Responsible investment is an
important example. Most of the financial institutions in the G-100 have
committed to uphold the Equator Principles for responsible investment. The
mechanisms to enact this commitment are few and far between, however.

Very few investors have internal guidelines or employee training to determine
what investments are acceptable or not acceptable. Even fewer have effective
measurement, audit procedures or renumeration mechanisms in place to incentivise
ethical investment practices. The result is a policy commitment without the
wherewithal to create change in the company.

We see examples of this gap between policy and implementation throughout the
G-100. These are large companies and when implementation fails, the impacts on
people and ecosystems can be significant. Even though there is room for
improvement for all of the companies in the G-100, however, there are real
differences in the level of responsible behaviour between those companies at the
bottom and top of the Accountability Rating.

Not only do the top performing companies have strategies to integrate
responsible behaviour and highly developed stakeholder engagement programmes,
they are also finding ways to implement and drive responsible behaviour
throughout the organisation.

BP is in the process of re-inventing its health and safety culture along the
entire process chain in the wake of the Texas City disaster. HSBC is developing
sector-specific investment guidelines that integrate the Equator Principles to
drive consistent practice. Vodafone has re-evaluated the way in which it engages
and assures stakeholders to be more responsive to their expectations. These are
companies that are taking on the challenge of implementation.

They are acknowledging their weaknesses and attempting to drive real change
to create better results, both for the company as well as for society and the
environment.

This is responsible behaviour that goes beyond the public relations campaigns
and headlines because it demonstrates understanding and action.

Todd Cort, PhD, PE, is a principal consultant with Csrnetwork

2007 ACCOUNTABILITY RATING: GLOBAL TOP 20

1 BP 75.2

2 Barclays 68.5

3 ENI 67.9

4 HSBCHoldings 67.2

5Vodafone 66.3

6 RoyalDutch/ShellGroup 66.0

7 Peugeot 63.7

8 HBOS 62.0

9 Chevron 61.6

10 DaimlerChrysler 60.1

11 Tesco 60.0

12 BASF 59.8

13General Electric 59.1

14 ABNAmro 57.6

15 INGGroup 56.9

16 E.ON 56.5

17 Statoil 56.1

18Total 55.1

19 RepsolYPF 54.3

20 Electricite de France 54.3

Source: csrnetwork and AccountAbility.Scores out of a possiblemaximumof
100