Albert, Emily --- "What Gets Measured, Gets Managed: the Corporate Responsibility Index" [2005] ALRCRefJl 26; (2005) 87 Australian Law Reform Commission Reform Journal 37

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Reform Issue 87 Summer 2005/06

This article appeared on pages 37 – 39 of the original journal.

What gets measured, gets managed: The Corporate Responsibility Index

By Emily Albert *

In the current era of corporate collapses and reputation scandals, greater attention is being brought to bear on companies to behave in a ‘responsible’ manner.

No longer is it acceptable for companies merely to act within the confines of the law or to compensate for the ‘free-reins’ given to them by an open marketplace with generous philanthropic contributions. Society is now calling companies to account to a higher level of moral responsibility with a greater focus on the company being tuned to a ‘social license to operate’.

There is now a well-argued case for corporate responsibility. Proponents of corporate responsibility argue that this will better position companies to ensure their longer term sustainability through managing the broader array of risks while also maximising the opportunities presented by an ever changing operating environment. This view is supported by numerous studies showing positive links between sustainability and investment performance. For example, a recent study by AMP Capital found ‘companies with a higher CSR rating outperformed by more than 3% per annum over four and 10-year periods after removing the effects of other identified factors’.¹

While corporate responsibility is becoming more widely accepted as the general standard of good business practice, there remains considerable debate of these issues. Of note, in Australia there are currently two reviews underway of directors’ duties through the 2005 Parliamentary Joint Committee on Corporations and Financial Services: Inquiry into Corporate Responsibility, and the Corporations and Markets Advisory Committee (CAMAC) inquiry.

It is likely from these that we will see further demands for board members and executive teams to consider the non-financial risks and opportunities that may have an impact on the business.

The Corporate Responsibility Index (CRI) was developed in this context, in response to the call for a reliable and standardised tool to examine how companies are managing, integrating and reporting on their impact on society and the environment, and to enable them to benchmark their performance against their peers.

Corporate responsibility is achieved when a business adapts all its practices to ensure that it operates in ways that meet, or exceed, the ethical, legal, commercial and public expectations that society has of business. To be considered effective, corporate social responsibility must be an integrated part of day-to-day business, engaging all stakeholders and including strategies to support individual managers to make socially responsible decisions, conform to ethical behaviour and obey the law.

The CRI is essentially a management tool. It was developed by Business in the Community (a UK based not-for-profit organisation) with guidance from 80 leading businesses in the UK and Australia. It is designed to assist companies to measure and report upon the various impacts they have upon society and the environment, and provides a mechanism through which they can benchmark their management processes and performance against those of others. It is not a tool being imposed on business from outside. Rather it is something developed by business, for business in order to achieve improved performance.

The CRI works on the maxim that what gets measured gets managed. It is not about ‘feelgood’ projects peripheral to core business. Rather than providing an opportunity for corporate greenwashing and PR spin, the Index is a rigorous and voluntary self-assessment process with all claims submitted by participants validated by an external independent party and automatic score generation.

The CRI Model

The CRI was developed to help improve companies’ integration of corporate responsibility principles and practices by providing a systematic process that compares companies’ management practices and performance with those of others in their sector and broader operating environment. It is based on a framework of four key components as depicted in the following model.

The Corporate Strategy section looks at how a business’ activities influence its company values, how these tie into strategy and how they are addressed through risk management, development of policies and responsibilities held at a senior level in the company.

The CRI Model

The Integration section examines how companies organise, manage and integrate corporate responsibility throughout their operations. Is it part and parcel of the company culture? Is it integrated into the strategic decision-making processes of the company and linked through into internal governance and risk management systems?

Successful integration is assessed through the Management Practice section where the processes for managing different stakeholder relationships are reviewed. It examines the policies, objectives and targets set to manage key issues in the Community, Environment, Marketplace and Workplace arenas, and how these are communicated, implemented and monitored.

The Performance and Impact section looks at how a company is actually performing in practice across a range of social and environmental impact areas and whether targets for performance and management improvement are being set and met across these impact areas.

Benefits of participating in the CRI

With the prospect of companies being required to report on their environmental and social issues, the CRI provides a useful framework for assisting companies to identify and report on these non-financial risks. Feedback from the first years of the CRI highlights that companies who complete the Index purely as a box ticking exercise get little value from the process. However, those who use the CRI as an internal management tool to raise awareness of corporate responsibility risks and opportunities have found it useful in identifying how the integration of corporate responsibility can build value to the business. The questions themselves provide a valuable roadmap for companies seeking to integrate corporate responsibility within their business.

The benefits to companies of using the CRI as a business management tool are as follows:

• it provides a systematic approach and focus for companies to measure, monitor and report upon the various impacts that they have upon society and their environment;

• it brings different functions in the organisation together to understand and manage the key issues for the business;

• it provides a practical framework for improving and communicating performance;

• it reinforces the good work that is already being done throughout the business;

• it enables companies to develop a strategic action plan for future CSR activity; and

• it publicly demonstrates the company’s commitment to corporate responsibility.

Learning from the CRI

To date 32 Australian, and one New Zealand, organisations have participated in the Australasian CRI. Results published annually in The Sydney Morning Herald and showcase the work of these leading companies undertaking a voluntary, public self-examination of their corporate responsibility practices. Particular recognition should go to Westpac, who in 2004 topped not only the Australian Index for the second time but also the Index in the UK. Westpac achieved this result despite competing against companies operating under an environment of greater regulation in the UK. This lends encouragement to other Australian companies who may be daunted by their ability to perform competitively on a global scale.

The best scoring section of the Index has to date been Corporate Strategy, reflecting the importance placed on responsible business practices at the highest level. The challenge to Australian companies however remains translating these high-level values into everyday business practices by integrating them throughout their organisations.

While Australian companies are recording strong performance in community investment and occupational health and safety, areas such as human rights are not yet at the forefront of the agenda. The other area requiring greater attention in Australian organisations is supply chain management.

Findings from the CRI suggest the key focus areas for companies addressing corporate responsibility within their organisations are:

• the ability to identify key issues across the organisation and the processes in place for managing these;

• delegation and accountability for corporate responsibility issues and appropriate training for designated individuals;

• the company’s approach to stakeholder engagement;

• transparency and disclosure of practices and performance; and

• assurance—or the verification and reliability of information, systems and data collated and reported.

With corporate responsibility now a key performance indicator underpinning management practices of the world’s leading companies, it is important that Australia has an accurate methodology for tracking performance in this area. This is precisely what the Corporate Responsibility Index provides.

Executive Director of St James Ethics Centre, Dr Simon Longstaff said that the greatest accolade should be reserved for those companies that have stuck with the Index process—even though they are not (yet) at the top end of the table.

‘It’s far easier to participate when general acclaim is the most likely result than to do so knowing that the results will reveal a daunting list of further challenges. The companies that persist demonstrate gritty leadership of a kind that will hopefully inspire others to embrace this measurement as the first step to improving performance.’

Participating companies are currently completing their submissions for the third CRI in Australia, with results to be released in May 2006.

* Emily Albert manages the Corporate Responsibility Index project at St James Ethics Centre.

The author wishes to acknowledge the role of the St James Ethics Centre’s partners in the project: Business in the Community (UK); The Sydney Morning Herald and The Age; Ernst & Young; the Business Leaders Forum on Sustainable Development; and project catalyst, Pilotlight Australia.

For further information on the CRI please contact Emily Albert at St James Ethics Centre on [phone] or visit the CRI web site at <www.corporate-responsibility.com.au>

Endnotes

1. AMP Capital Insights paper ‘Financial payback from environmental and social factors’, 30 March 2005 at <www.ampcapital.com.au> at 17 November 2005.