CSRHub Blog Research on ESG metrics and comments on sustainability best practice

HBR’s Top Performing CEOs List - Financial Results and Sustainability—A Complex Relationship

[fa icon="calendar'] Oct 26, 2016 8:00:00 AM / by Bahar Gidwani

 

The Harvard Business Review (HBR) recently published its 2016 list of the world’s top 100 CEOs.  As in the past, HBR’s staff looked at the financial and ESG (environment, social, governance) performance of the CEOs of 1,200 large companies.  They used a measure of financial performance developed by a team of Harvard academics for 80% of their score.  The remaining 20% came from averaging two overall measures of corporate sustainability performance, including CSRHub.

HBR has been publishing this list since 2010 and CEOs apparently intently study their “rank” and any year-to-year changes.  The list originally included only measures of financial return.  In 2015, HBR started including ESG performance, such as those CSRHub gathers and reports.

Is there a connection between a CEO’s financial performance measure and the corporate social responsibility (CSR) or ESG performance of the CEO’s company?  Those of us who care about sustainability would expect (hope?) the answer is “Yes.”  Unfortunately, details we uncovered during this year’s rating process say that the answer is probably “Maybe” or “It depends.”

 

Are the Top 100 Different From The Rest?

CSRHub rates the perceived ESG performance of 16,550 companies in 133 countries.  We have full ratings on 1,180 of the 1,200 companies that HBR studied.  The table below compares the average performance for the top companies against the rest of the list, for community, employee, environment, and governance issues.  (HBR included 104 companies in its Top 100 list, due to a number of ties.)

 

Comparison of the CSRHub Corporate Social Responsibility Rankings for HBR Top 100 Companies and Those Not Chosen

Comparison of the CSRHub Corporate Social Responsibility Rankings for HBR Top 100 Companies and Those Not Chosen

 

As you can see, the top companies had only slightly better perceived sustainability performance than the rest of the companies.  When we adjust for the different number of companies in each of the two groups, there is a significant (P<0.02) difference only in the Community area.

This suggests that the best CEOs out of this sample of companies pay a bit more attention to issues associated with the sustainability of their Products, have good Philanthropy programs, and care about Human Rights and their Supply Chains.  But, they don’t seem to pay significantly more attention than other CEOs to issues relating to Employees, the Environment, or to their corporate Governance.  And, they still rank in their community efforts below the average of the other 15,000+ companies we track.

 

Are the Top 50 Financial Performers Better Than the Next 50?

What about the “best of the best?”  If we divide the HBR Top 100 into two groups by their HBR financial performance scores, would the top financial performers have better or worse social performance than the bottom group?

The table below shows the answer to this question.  It is probably an answer that many sustainability professionals will not want to hear.  The top financial performers had much worse perceived sustainability performance than those with somewhat worse financial performance.

Comparison of the CSRHub Corporate Social Responsibility Rankings for Top 50 Companies and the next 54 Companies as Ranked By Their HBR Financial Performance Score

 

Comparison of the CSRHub Corporate Social Responsibility Rankings for Top 50 Companies and the next 54 Companies as Ranked By Their HBR Financial Performance Score

 

These results are good evidence that some CEOs may emphasize good shareholder returns (high profit margins, high turnover of assets, strong stock performance, etc.) rather than good social performance (good community relations, happy employees, a clean environment, etc.).  Of course, the HBR study focuses only on very large, publicly-traded companies and there are only 104 companies where we have full data.  But, there is virtually no probability—P < 0.000001—that the top 50 do not trail the next 54 on both overall ratings and on all four categories of social responsibility.

 

Does It Make Sense to Combine Financial With Social?

The table above illustrates why HBR decided to integrate social issues into their ranking.  Using a single financial scale wasn’t teasing out the best CEO performance.  Using only social measures wasn’t doing it either.  Instead, HBR integrated the two measures in a balanced way that resulted in the surprising result shown below.

Comparison of the CSRHub Corporate Social Responsibility Rankings for Top 10 Companies and the next 94 Companies, as Ranked by their Overall HBR Score

 

Comparison of the CSRHub Corporate Social Responsibility Rankings for Top 10 Companies and the next 94 Companies, as Ranked by their Overall HBR Score

 

The financial scores within the Top 100 are pretty similar.  By using a social performance signal to differentiate among these financially similar performers and create an Overall HBR Score, HBR was able to pick a top group that had both good financial returns and strong sustainability performance.  This shows it is possible to both “do well” and “do good.”  Thanks to HBR, CEOs who manage this difficult balance have a shot at getting the recognition they deserve.

 


Bahar GidwaniBahar Gidwani is CEO and Co-founder of CSRHub.  He has built and run large technology-based businesses for many years. Bahar holds a CFA, worked on Wall Street with Kidder, Peabody, and with McKinsey & Co. Bahar has consulted to a number of major companies and currently serves on the board of several software and Web companies. He has an MBA from Harvard Business School and an undergraduate degree in physics and astronomy. He plays bridge, races sailboats, and is based in New York City.

 

CSRHub provides access to the world’s largest corporate social responsibility and sustainability ratings and information.  It covers over 16,000 companies from 135 industries in 132 countries. By aggregating and normalizing the information from 461 data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices, and seek ways to improve corporate sustainability performance.

 

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[fa icon="comment"] 0 Comments posted in Bahar Gidwani, Corporate Social Resonsibility, governance, Harvard Business Review, human rights, social, sustainability, ESG ratings, HBR financial performance scores, philanthropy, products, supply chains, CSRHub, employees, environment, HBR, esg performance, top 50 financial performers

HBR Publishes List of Best Performing CEOs in the World

[fa icon="calendar'] Oct 19, 2016 8:00:00 AM / by CSRHub Blogging

The Harvard Business Review released their ranking of the world’s 100 best performing Harvard Business ReviewCEOs, based on both financial and ESG (environment, social, governance) measures of the leaders’ entire time in office to highlight those executives that have established a lasting track record. CSRHub is proud to be one of the two research providers for this year’s list.

HBR wrote in its November 2016 article covering the ranking, “one persistent criticism of ESG data is that it can be subjective, and indeed, when you examine how various research organizations rank the same firm using ESG criteria, you’ll often find significant differences.  This year HBR used ratings from CSRHub, a firm that collects and aggregates ESG data to help companies better understand what they can do to improve. By incorporating two ESG components, we hope to increase our accuracy and reduce the odds that any company may unduly benefit from or be penalized by a single firm’s rating.” (For more details, see “How We Calculated the Rankings,” page 6.) “The revised approach, along with ups and downs in world stock markets, brought 33 new CEOs onto the list. At the same time, 30 CEOs have made the list for the third year in a row.”

See which leaders and companies made the top list here, https://hbr.org/2016/11/the-best-performing-ceos-in-the-world.

 

About CSRHub

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 16,550 companies from 135 industries in 133 countries. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.

 
Contact: Cynthia Figge, COO and Cofounder, Cynthia@csrhub.com

 

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Shared Value: CSR Re-branded?

[fa icon="calendar'] Jan 17, 2011 10:31:41 PM / by Carol Pierson Holding

By Carol Pierson Holding

 

Harvard Business Review’s cover story this month, “Creating Shared Value,” should be a celebration of how far CSR (Corporate Social Responsibility) has taken us. Just look at how much closer we are to accepting CSR as a core competitive strategy. As fans of authors Michael Porter and Mark Kramer know, these two have been proponents of CSR for years, pushing the field forward with new ideas like “Strategic Philanthropy” and now, “Shared Value.” Most impressive about their latest article is its place on the cover of this conservative business journal.

 

Two years after Harvard Business School ran an alumni conference on the future of capitalism (which eerily coincided with Lehman’s collapse and market’s 900+ point drop), that institution’s journal leads with this article, subtitled “How to reinvent capitalism — and unleash a wave of innovation and growth.” Finally, the argument about whether CSR is key to our future or just window dressing seems to be put to rest.

 

I applaud the authors. But why, aside from promoting their consulting business, would they insist that CSR is discredited and should be replaced by Shared Value? They misstate CSR’s mission as “doing good” when in fact it is “doing well by doing good,” which is the same as their concept of Shared Value. In fact, until recently, they were huge supporters of CSR. In their 2006 article, “Strategy and Society: The Link Between Competitive Strategy and Corporate Social Responsibility,” they pointed out flaws in CSR but weighed in heavily in its support.

 

Whether you call it Shared Value, CSR, ESG, or Corporate Citizenship, or Sustainability, or Corporate Responsibility, or Triple Bottom Line or any of the other terms people use, we are all pushing the same agenda—to do well by doing good. And the term “CSR” is well known and accepted in business.

 

It has been written about extensively in the business press. Most controversially, it has appeared twice on the cover of The Economist. First, to dismiss it per Milton Friedman’s “The business of business is business,” then a second time, in support of the concept. CSR has a set of metrics in place through the 20+ year old SRI ratings, a self-reporting structure in GRI, and a requirement in many companies’ RFP’s for a CSR report. Insurance, risk assessment, accounting bodies including FASB and many other industries and institutions all have “CSR” or “Sustainability” efforts underway. Porter/Kramer do a great service in lifting the issue to the front page of business, but why would we want to abandon all the progress made under the CSR rubric?

 

With CSR finally accepted as a core business strategy, Porter/Kramer now jump into the fray not with ideas of how to move more companies into the “Doing well to do good” camp, but with arguments about why their new name and model is better than CSR. Worse, even though they have several branding pros on the staff of their consulting firm, they dismiss the value of communications in support of CSR as mere promotion, ignoring the importance of communication in changing consumer behavior. Many of the companies Porter/Kramer cite as examples of Shared Value have used their brand to change consumer behavior for the better (think ads and promotion for GE Energy Smart CFL light bulbs). Yet Porter/Kramer fail to mention this.

 

Watching TV last week, I came across a great example of CSR communications’ power to increase sales while saving the planet.  The EPA confirms that in many cities, “The personal automobile is the single greatest polluter.” A key component to reducing these emissions will be the Electric Vehicle. Current ads for the Chevy Volt, the leading American-made Electric Vehicle (EV), are clearly good for Chevy’s brand reputation. But dismissing the ads as mere promotion misses the more important story: the advertising reduces fear of the EV by showing how easy it is to recharge, thereby persuading more consumers to buy EVs.  If this is CSR, I’ll take it over Shared Value any day.

 


 

Carol Pierson Holding is a writer and an environmentalist; her articles on CSR can be found on her website at  http://www.holding.com/Index%20links/articles.html.

 

 

 

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[fa icon="comment"] 9 Comments posted in capitalism, corporate social responsibility, CSR, Electric vehicle, ERI, Harvard Business Review, Harvard Business School, strategic philanthropy, Uncategorized, Milton Friedman, sustainability, The Economist, Mark Kramer, Shared Value, Triple Bottom Line, Carol Pierson Holding, corporate citizenship, CSRHub, Michael Porter, Nissan Volt

Transparency and the Mega Trend

[fa icon="calendar'] Apr 30, 2010 5:41:16 PM / by Cynthia Figge

By Cynthia Figge

A recent article in the Harvard Business Review by David Lubin and Daniel Esty should bring cheer to anyone who has been concerned about how slowly corporations seem to be adopting sustainability strategies.  The article titled “The Sustainability Imperative” argues persuasively that incorporating sustainability practices into corporate behavior is a “mega trend”.

A section titled “Reporting and communication” made me especially happy.  The authors say, “Developing metrics that allow companies to measure benefits and understand costs is essential to adapting and refining their strategy, as well as communicating results.”  Companies need an external measure of their sustainability progress —and they need benchmarks that compare them to their competitors, so they know how much further they need to go.  We have spent two years developing a measurement instrument we call CSRHUB—a tool we hope can provide this type of broad and uniform metric.

The authors go on to point out something I and my partners at EKOS International have seen in many of the companies we have worked with.  “When the assessments were based only on publicly available information and a company’s external reporting, we got scores that were almost always lower, and often significantly so, than scores developed in consultation with the company and with full inside information.”  In other words, many companies may be doing better on sustainability issues—and on their corporate social responsibility performance in general—than is publicly known.

For example, if you look at the default ratings on the CSRHUB site for Wal-mart and Costco, you will find Wal-mart gets a score of 56 and Costco gets a 48 (on a scale of 0 to 100).  As a Costco customer I hope that this difference may be overstated, but it’s difficult to know. Some of the difference our sources perceive between these two companies may be driven by their varying policies of disclosure. One explanation for the rating difference is that it’s the penalty for lack of transparency.   Costco is followed by fewer data sources:  Only twelve sources report on Costco compared to seventeen for Wal-mart. Wal-mart has expanded its website coverage of CSR, while Costco has only recently published a first report on sustainability.

If you are a subscriber to our system, you can see more of the picture.  Subscribers will see that Costco gets a 39 on its corporate transparency and reporting compared to 52 for Wal-mart, and 45 on its environmental policy and reporting compared to 63 for Wal-mart.  In contrast, we show closer ratings for a more fundamental element—environmental resource management (Costco gets a 51 rating while Wal-mart gets a 59).

I hope more companies come to understand both points this HBR article makes regarding communication. First, companies need to develop metrics that enable them to track their own progress.  Second, companies should contribute to the metric-forming process by revealing their policies and practices.  Doing both will strengthen transparency, and give good-performing companies credit where due for the improvements they have made, and hopefully serve as a catalyst to “manage sustainability as a business megatrend”.

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[fa icon="comment"] 4 Comments posted in benchmarks, comparison, competition, corporate social responsibility, Costco, CSR, CSRHUB opinion, Cynthia Figge, Harvard Business Review, megatrend, sustainability, transparency, social performance, Wal-Mart, corporate communications, environment, measurement, metrics

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