Reflecting on the Corporate Responsibility Index

By Simon Longstaff

This article was published in Living Ethics: issue 80 winter 2010

The Corporate Responsibility Index (CRI) is a strategic management tool that helps improve corporate responsibility by providing a systematic process that assists companies to identify their non-financial risk, as well as develop and improve corporate responsibility in line with their business strategy. St James Ethics Centre is licensed to deliver the CRI in Australia and New Zealand. Simon Longstaff reflects on the latest results.

If the great American historian, Barbara Tuchman, were still alive, then I am sure that she would enrol the Global Financial Crisis (GFC) in her catalogue of ‘Acts of Folly’.

As the world staggers back to its economic feet, it should be remembered that the GFC was self-induced, self-defeating and entirely preventable. There are bound to be some who will disagree with me about this. For example, there are those who accept Voltaire’s dictum that ‘history never repeats itself, man always does’. In this light, the GFC is thought to be like one of the deadly earthquakes predicted to devastate California – difficult to predict but inevitable.

I am not prepared to accept that major economic collapses are just part of an inexorable cycle of highs and lows within the markets. Nor are the more sophisticated investors emerging from the wreckage of the past couple of years. What such investors are recalling is the basic principle that the rewards ultimately go to those best able to price risk and opportunity with accuracy.

This principle applies equally in physical and financial markets. If you cannot assess and understand what you are buying, then you are bound to make costly mistakes (as proved by those who purchased derivatives of such complexity and opacity that even their creators struggled to understand their attributes).

So, one of the lessons learned from the GFC (and there have been a couple learned, after all) is that it is just plain foolish to make decisions without adequate information. Yet, this is exactly what occurs when boards and managers fail to measure their company’s performance in the workplace, marketplace, environment and community.

Those corporations that fail to measure and report on the full spectrum of their performance consequently limit the capacity of investors (and others) to make informed decisions. As such, one might reasonably expect the value of such opaque organisations to be discounted.

All of which brings me to the participants in this year’s Corporate Responsibility Index. One might admire such companies for the things they do – as revealed in their results on the Index. However, the more significant point may be that such companies are prepared to measure and report at all – and specifically in a context where their relative performance becomes so evident.

The CRI is a searching instrument – only adopted by those who really wish to learn and improve. Indeed, the most common observation of participants is that the CRI is a great learning tool. And those who are prepared to learn are least likely to commit acts of folly.