US: US Companies Lag in Responsibility, Accountability

U.S. companies remain less accountable than European and Asian ones despite recent years' damaging revelations of management chicanery involving finances, labor relations, environmental performance, and consumer protection, a global survey said Friday.

U.S. corporations generally score poorly on stakeholder engagement, non-financial reporting, and third-party assurance or independent reviews. They are also far less likely than European counterparts to comply with internationally recognized labor, human rights, and environmental standards.

The findings, to be published in the Oct. 3 international editions of Fortune magazine, came on the heels of fresh demands by international pressure groups for legally binding global social and environmental standards to help stop what they termed corporate abuses.

Energy major BP topped the 2005 Accountability Rating of companies on Fortune's list of the 100 largest global firms.

Competitor Royal Dutch Shell Group came in second, followed by telecom provider Vodafone (No. 3); banking major HSBC Holdings (No. 4); retailer Carrefour (No. 5); Ford Motor (No. 6); Tokyo Electric Power (No. 7); Electricite de France (No. 8); car maker Peugeot (No. 9); and Chevron (No. 10).

This year's ratings, the second in an annual series, reflect a business -- not a moral -- judgment, and seek to identify the smart rather than label the good or the bad, said Simon Zadek, CEO of think tank AccountAbility, which conducted the study with international consultancy CSRnetwork.

''The rating shows which companies recognize that implementing accountable management and addressing social and environmental issues today will build business value tomorrow,'' Zadek said.

BP topped the list for the second year running with a score of 78 out of 100. The top ten scored an average of 63 each, almost double the 32-point average across all 100 companies.

The ratings were based on published reports from Fortune Global 100 companies to measure how seriously they considered non-financial factors in running their businesses.

Points were awarded for how firms engaged diverse stakeholders including investors, communities affected by their operations, workers, and activists; governance, or the balance of power and decision-making process at the executive and director levels; and business strategy. Other criteria include performance management, non-financial reporting, and whether firms used independent reviews to double-check internal research and decision-making.

''The Accountability Rating is the only index that assesses and compares the world's 100 biggest grossing companies,'' said Mark Line, director of CSRnetwork. ''Most other indices look only at the companies which have volunteered to be scrutinized and therefore expect or hope to do well.''

The rating shows an improvement in corporate accountability among the 100 companies, with the average score rising by eight points since last year. This year, one-third of the firms earned a passing grade of 40 points, compared to one-tenth in 2004.

Even so, the figures remained ''disturbingly low'' for the world's largest companies, said Zadek.

''The gap between the leaders and laggards raises important questions about the latter's ability to manage underlying risks and exploit emerging opportunities,'' he said.

HSBC posted the largest gain, rising 41 places to stand fourth in the 2005 ranking.

''In the past two years, HSBC has named a subcommittee of its board to oversee corporate responsibility and make it its number one strategic goal,'' according to a statement announcing the ratings.

HSBC boosted its standing this year in large part by deciding to use the World Bank's Equator Principles in deciding whether to lend to dam and forestry projects. The principles cover firms' treatment of the environment and communities displaced or otherwise affected by such projects.

Europe continues to lead the field, with European companies scoring an average of 40 and accounting for seven of the top ten firms, AccountAbility and CSRnetwork said.

By contrast, U.S. corporations scored an average of 24 points--an improvement over last year's rating of 16 but still behind the Europeans and even Asian competitors, which scored an average of 28 points.

''U.S. corporations generally score poorly on stakeholder engagement, non-financial reporting, and third-party assurance'' or independent reviews, the study said. ''They are also far less likely than European counterparts to comply with internationally recognized labor, human rights, and environmental standards.''

Proponents of greater corporate responsibility and accountability long have pointed to research showing a strong correlation, if not a causal link, between these non-financial aspects of firms' performance and improved total returns, sales growth, and profitability.

Zadek struck a similar note.

''It will be interesting to see which corporations get smart first in aligning their business strategies to emerging social and environmental risks and opportunities,'' he said. ''One thing is clear: Those that will not or cannot change their strategies will ultimately not maintain their rankings in the Fortune Global 100.''

While organizations such as his seek to bring business around by voluntary means, however, others continue to press for increased regulation--saying that ensuring corporations don't harm people and the planet is too serious an undertaking to leave to firms themselves.

OECD Watch, an international coalition of pressure groups, called Thursday for ''legally binding international social and environmental standards for corporations to help stop corporate abuses, particularly in developing countries.''

The OECD's revised Guidelines for Multinational Enterprises had failed to wring reform from firms, the coalition said in releasing a five-year review of 45 complaints brought against firms by community groups under the terms of the document.

''There are a number of inherent weaknesses in the guidelines, the most notable being that companies cannot be sanctioned for irresponsible behavior because the guidelines are voluntary,'' said Paul de Clerk of Friends of the Earth International.

AMP Section Name:Corruption
  • 104 Globalization
  • 183 Environment
  • 184 Labor
  • 185 Corruption

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