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CSR ‘has no bearing on big corporate scandals’

March 2004

It is naive and unrealistic to expect that socially responsible companies should be less prone to internal fraud or accounting scandals, delegates at a Rome conference have been told.

Walter Cerfeda, confederal secretary of the European Confederation of Trade Unions, said Italy’s Parmalat scandal showed the inadequacy of CSR both as an indicator of corporate risk and of the likelihood that a company’s behaviour on financial matters was ethical. Parmalat executives are being questioned by police after €4billion ($5bn, £2.75bn) went missing.

Cerfeda reasoned that food company Parmalat appeared to take its social responsibilities quite seriously – but the alleged fraud by senior executives showed CSR programmes had little effect on the company’s underlying ethics.

Cerfeda’s comments echo others made by commentators who have pointed out that Enron was well regarded by some CSR and SRI analysts. Food retailer Ahold, which recently admitted to a €1.21bn hole in its accounts, was also seen as one of the better CSR performers. In both cases, critics have said CSR and SRI analysts were no better at picking up on the scandals than were their financial counterparts.

Other speakers said such views were disingenuous. Marco Tronchetti Provera, chief executive of Telecom Italia, told delegates it was unreasonable to suggest that poor performance in the CSR arena should indicate possible dishonesty, or that good performance should make corporate fraud less likely. ‘Crooks are crooks and fraud is fraud,’ he said.

Philippe Spicher, chair of Sustainable Investment Research International, said it was the job of financial analysts to detect accounting misconduct, not of those reviewing corporate social performance. ‘We can put too much expectation on CSR analysts. If financial analysts miss something, they can’t expect CSR analysts to see it.’

Piet Sprengers, executive director of the Dutch Association of Investors for Sustainable Development, said the Ahold and Parmalat scandals had put European CSR and SRI specialists on the back foot. ‘Ahold was selected quite a lot as a high-level CSR company, so in the Netherlands people are asking us what went wrong.’ He said CSR performance was an indicator of operational risk in supply chains and elsewhere, not an early warning system to detect fraud.

Alan MacDougall, managing director of European Corporate Governance Services, a partnership of governance research and advisory bodies, said those involved in CSR should make more use of financial indicators. ‘This community is still particularly bad at reading balance sheets, forecasts and analysts’ assessments of internal management,’ he said. ‘CSR research has to get to grips with the traditional indicators.’

Some delegates at the conference – organized by the Italian Social Investment Forum – said Parmalat’s CSR activities were not in any case as good as they had been painted, and it had been criticized for its treatment of dairy farmers in Brazil.




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