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August 13, 2003
Will Ford's Transparency Affect Its Performance?
    by William Baue

While lauding the transparency of Ford's 2002 Corporate Citizenship Report, analysts caution that it remains to be seen whether such reports and the Global Reporting Initiative reporting guidelines will help improve corporate performance (part two of a two-part article).


Yesterday's article focused on the transparency of Ford Motor Company's (ticker: F) 2002 Corporate Citizenship Report, which uses Global Reporting Initiative (GRI) guidelines as its reporting platform. Today's article looks at the company's performance as it is reported using GRI guidelines. Analysts express concern that praise over Ford's transparency may obscure the company's shortcomings with regard to its actual environmental and social performance.

"Ford presents a wealth of detailed data and overall seems willing to address the tough challenges: climate change and appropriate technology advances; overseas labor and human rights efforts; and product safety--especially the SUV rollover issue," said Andrew Brengle, an analyst with KLD Research & Analytics, a socially responsible investment (SRI) research firm.

Mr. Brengle points to a graphic on page 20 of the report depicting a collage of unflattering newspaper headlines, revealing that Ford tunes into critiques of the company's policies and practices. The report also presents information on Ford's more positive social and environmental initiatives, such as community giving, minority contracting, diversity in the workplace, and pollution prevention in its manufacturing plants, among many other things.

"For these reasons, I believe the report will help Ford's image and possibly market position," Mr. Brengle told SocialFunds.com. "On the other hand, if the expectation is that GRI will give audiences the straight story on Ford, I don't think the format necessarily guarantees that."

Ford's report, however, does explicitly state cases where it has failed to meet its environmental goals.

For example, Ford predicted in 2000 that it would increase its overall product fuel efficiency 25 percent by model year 2006, and the report candidly admits that the company will not meet this projection. While Ford is to be applauded for this transparency, the fact remains that its slower rate of improving fuel efficiency impacts the environment.

Sports utility vehicles (SUVs), which fall under the "light truck" category, are largely to blame. Trucks, which constitute Ford's largest product line, get the worst gas mileage according to Mr. Brengle (an estimated 21.3 miles per gallon, compared to 28.3 miles per gallon for Ford cars). Mr. Brengle notes the irony that Ford's progress toward its fuel economy target for SUVs actually took a step backward. While fuel economy improved 8.4 percent in the 2002 model year, it improved just 5.2 percent in the 2003 model year.

"Recently, Ford lobbied Congress to not increase the CAFE [Corporate Average Fuel Economy] standards," said Pierre Trevet, an analyst with the research firm Innovest Strategic Value Advisors.

Congress defeated the proposed legislation requiring new vehicles to average 40 miles per gallon by 2015. Claiming to be a responsible corporate citizen while simultaneously funding such lobbying opens Ford up to criticism.

"The report does demonstrate the limits of a voluntary reporting protocol on substantive progress," Mr. Brengle said. "No matter how well-organized and readable a report is, it is not going to have much of an influence [on company performance] in the near term."

A specific point of criticism of Ford's report is that it is not audited or verified by a third party.

"In our 2002 report, much data has been verified internally and/or externally," explained Rob Frederick of Ford's corporate responsibility department, but he admitted that "we have not certified the report in its entirety."

In contrast, many of Ford's competitors had their corporate social responsibility (CSR) reports on social and environmental performance audited.

"DaimlerChrysler (DCX) has invited NGOs [nongovernmental organizations] to verify their CSR report, Volkswagen (VOW) had their report audited by KPMG, and Toyota (TM) had theirs audited by Deloitte & Touche," Mr. Trevet told SocialFunds.com. Renault (RNO) and Porsche (PSEPF.PK) also had their CSR reports audited, according to Mr. Trevet.

Despite this criticism, analysts find much value in the Ford report and the GRI format, likening their potential positive effects to those of the Toxic Release Inventory (TRI), which requires companies to disclose data on their toxic chemical emissions.

"I am one who is willing to give GRI time to see if some kind of binding transparency mandates or TRI-like sunshine effects result from the exercise," said Mr. Brengle. "It's still a good idea."

 

 
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