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Corporate Responsibility Scorecards

 

Background

Ask ten people what they think about the influence of corporations, and there will surely be a broad range of opinions. Of course, the responses evoked from ten people on Wall Street would diverge greatly from ten people asked in government-supported housing. Responses would probably be correlated to how well each person feels that they have benefited or suffered from the corporate world.

Regardless of the range of opinions, it is undeniable that the corporate structure is, and will continue to be, a vital component of society in developed nations. It is in the best interest of host communities to foster a positive climate for the corporations which locate operations there, as the economic impacts are often the lifeblood of the communities themselves. Corporations are treated as a “person” in the eyes of the law, as well.

But, just as the antagonists should accept the role which corporations play, the proponents should acknowledge the need for corporations to be responsible "persons". No longer can corporations view themselves solely as profit-making machines. Along with rights come responsibilities. In the coming decades, with the further growth of the corporate presence, there must be an increased premium on responsible conduct.

Presently, corporate responsibility is most often defined by governmental regulation. This approach is reactive. The usual cycle is for a corporate malfeasance to surface, leading to a public outcry and sometimes spurring government to craft legislation or executive agency regulations that prohibit a recurrence of that specific impropriety. Corporations resist the new rules while they are being developed, and then begrudgingly comply with the results to the degree necessary to abide by the law. This attitude engenders resentment among many who are not tied to the corporate structure, and portrays the corporation as an entity that is focused just on its own best interests, to the detriment of other elements of society.

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There certainly are exceptions, and they are hailed with great kudos, largely because they are such refreshing exceptions (e.g., Ben and Jerry’s, Newman’s Own, Patagonia, and The Body Shop). Some companies even have very detailed proactive corporate social responsibility programs, with staff dedicated to those functions, and there are even organizations dedicated to promoting corporate responsibility and good corporate citizenship. But these examples are dwarfed in occurrence by the usual sequence, and it would be an illusion to suggest that they are the norm.

Ideas / Solutions

A new approach is possible, by crafting a concrete initiative with proactive corporate “good citizenship” as its cornerstone. Corporations should be encouraged to harmonize their long-term interests with those of the communities that they serve and in which they operate. Responsible, constructive corporate citizenship supports the interdependence between corporate imperatives and a combination of (environmental, social, and economic) sustainable business practices, a positive corporate image or reputation, and its moral obligations to benefit the communities from which it benefits. Conformance with these principles, and the corresponding standards of conduct, would then earn the corporation a valuable governmental "Seal Of Approval", as described below.

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This coalescence is consistent with corporate objectives such as maximizing shareholder value, responding to marketplace pressures, or maximizing consumer choices. The considerable impact that businesses have on their employees' quality-of-life necessitates companies' establishment of socially conscious policies. The conditions that enable profitability and long-term prosperity are profound, both for billion-dollar enterprises and for small companies (up to 250 and even 500 employees can be "small", according to some governmental definitions). In all cases, there is no longer an excuse for acting just for the entity’s own needs.

The "Sarbanes-Oxley" law has had a tremendous impact in the past few years toward ensuring against improprieties such as those which occurred at Enron and MCI-Worldcom. Its focus is on internal financial management, accounting, and accountability, all of which are critical in establishing corporate responsibility. But that doesn't cover the full picture of corporate behavior and good corporate citizenship, as this law was a response to specific problems.

The idea of Corporate Responsibility Scorecards would enable companies to demonstrate that they are playing by the rules, and even going beyond the basic requirements to establish themselves as valued institutions. The Scorecards would annually rate the corporations’ conduct in an array of areas, and be accessible on the Internet, as well as through a central clearinghouse, which could be either a governmental or non-governmental agency. The Scorecard criteria could be established by the SEC or through legislation, in consultation with representatives of corporations, consumers, professional associations, unions, charitable and community-based organizations, and government regulators such as OSHA, EPA, and the FTC.

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These Scorecards would include a variety of useful information that would provide a snapshot of the corporation’s citizenship activities, beyond their products and services, and their financial information.  Among the areas that would be addressed are:

  • compliance with environmental protection laws and regulations, and going beyond legal baselines to minimize their impact on the environment;
  • compliance with workplace health and safety laws and regulations, and going beyond legal baselines to provide healthy, reasonable working conditions;
  • employee quality-of-life programs, such as to promote HIV-avoidance and provide clean drinking water onsite;
  • transparent disclosure of the status of their working conditions, workforce relations, environmental practices, and other operations at their international facilities, including those with which they contract;
  • developing programs to encourage appropriate corporate behavior of their vendors and suppliers;
  • establishment of corporate policies and practices that affect employees, such as child care benefits, family leave policies, health care benefits, anti-sexual harassment protocols, continuing education benefits, and diversity in recruitment efforts;
  • contributions to charitable organizations and civic activities, in terms of both cash contributions, supporting employee volunteerism, and other policies;
  • disclosure of donations to political candidates and lobbying expenses;
  • compensation policies for employees and management at all levels, including a system for benchmarking compensation of the highest paid indivuals as a multiple of that of the lower-paid employees;
  • compliance with Sarbanes-Oxley; and
  • disclosure of resolved and pending inquiries into violations of law and appropriate business practices, such as accounting irregularities, lawsuits filed against the company, and fair trade practices.

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Additional metrics could be added to the above enumeration, and could include measures on financial management, management compensation, shareholder value enhancement, and disclosures and communications to advance transparency and accountability.  An extensive identification of such metrics is embodied in the Aspen Principles for Long-Term Value Creation, developed by the Aspen Institute's Corporate Values Strategy Group in 2007.

A Scorecard would provide accountability and enable a company to be recognized for its activities and achievements beyond that which is required of them. It would establish a public record of its performance that could be used as a benchmark in valuing the company, and in comparing it to other companies. At the same time, it would provide a platform for them to highlight their creativity in helping causes other than their own bottom line. Their Corporate Responsibility Score could be prominently displayed, engendering greater goodwill and public recognition.

The Federal government could incentivize high performance on the Scorecard and the underlying practices by crafting a government "Seal Of Approval" for high performance on the Corporate Responsibility Scorecard, and charging qualifying companies a fee for the endorsement (as discussed in another chapter as a means for generating additional governmental revenues).  It would be in the interest of an eligible corporation to pay the fee for the Seal Of Approval because of the high value that it will carry among their employees, in the public eye as goodwill, among consumers who may patronize the company, and among officials and communities where the company does business or seeks to expand. Additional incentives could be provided to Seal holders, such as reduced export-import tariffs and administrative fees, expedited processing of requests, etc.

Scorecards will not hinder the operations of corporations. To the contrary, it will enhance their value, and promote their long-term viability by entrenching the corporation’s position as an asset to society.

 
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