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firms ‘too defensive’ on CSR

November 2006

Companies engaged by investors on corporate responsibility issues can become too defensive and bogged down in debating specific allegations about their performance rather than looking at the wider picture, according to new research.

A study by three European organizations – insurance company Dexia, Paris-based rating agency Vigeo and Ghent University – found that companies were generally open to engagement, but their responses too often focused on over-specific points and denying responsibility.

The study looked at engagement carried out using Portfolio21, a service that screens companies for ‘systemic breaches’ of International Labour Organization conventions. Of the 18 international companies with which engagement was attempted between 1 November 2004 and 1 July 2005, 13 responded and nine invited further discussion.

The researchers say this shows that generally companies want to talk. However, in 16 of the 33 alleged breaches by the 13 respondents, the companies claimed there was actually no wrongdoing. A further eight said that breaches had occurred, but they were not to blame.

Wim Vandekerckhove, a researcher at the Centre for Ethics and Value Inquiry at Ghent University, summed up the typical response (24 of the 33 cases) – as: ‘That’s not what happened and it’s not my fault anyway.’

This did not mean engagement was necessarily ineffective, but it showed investors have difficulty in getting issues properly considered and in moving the discussion beyond the details of a case to the underlying issues.

‘We have to move beyond the bickering,’ said Vandekerckhove. ‘We need to get away from whether something has actually happened or not, and to look at how to deal with such cases in general. The investors have to say: “Let’s just say something had happened – how would you be able to respond, what kind of policy do you have in this area, and how do you implement it?” Of course, there are still facts to talk about, but we need to be much more process-focused.’

Vandekerckhove, who conducted the study with Jos Leys, Dexia’s sustainable development officer, and Dirk Van Braeckel, Vigeo’s head of SRI research, said the companies that disputed allegations may have been correct in their assertions, but their focus was wrong. And too many wanted to believe breaches were not their fault or were unavoidable.

‘One corporation said that since they were a big business they were bound to have more social conflicts than smaller companies,’ Vandekerckhove said. ‘Only a minority were bold enough to say: “Yes, it happened. Yes, it was a breach of an ILO convention. But this is what we’re doing to prevent future breaches.”’

In separate research on engagement, the SRI fund manager Insight Investment has found that in its experience in the UK, engagement does lead to change. Insight, which is the asset management arm of HBOS, studied 36 UK-based companies in the extractive and utility sectors in which it holds shares, comparing their performance on biodiversity issues in 2004 – before engagement took place – with their performance at the end of 2005, after Insight had engaged with them. It found that almost nine in ten had improved their overall performance.




Further Information
vandekerckhove@ugent.be
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