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November 29, 2006
Corporate Accountability Improves, Progressing on Stakeholder Engagement But Not Assurance
    by Bill Baue

Vodafone, BP, and Shell top the annual Global Accountability Rating by AccountAbility and CSRnetwork, with Home Depot rising 10 percentage points and Chevron falling 20.

A corollary of the well-worn maxim "what gets measured gets managed" is "what gets rated and ranked gets managed." A testament to the increasing significance of corporate accountability, the arena where social responsibility meets corporate governance, is the existence of ratings and rankings. AccountAbility, a UK-based think tank that promotes accountability and sustainability, and CSRnetwork, a UK-based corporate social responsibility (CSR) consultancy, recently announced results of their third annual Global Accountability Rating.

Topping the rankings were Vodafone (ticker: VOD.L) with a score of 72 percent (on a 100-percent scale), last year's top performer BP (BP--71 percent), and Shell (RD--69). Top-ranking US-based companies included General Motors (GM--49) in thirteenth place, General Electric (GE--48) in fourteenth place, and Ford (F--48) in sixteenth place.

"Overall, business has shown improvement in the last year," said Simon Zadek, chief executive of AccountAbility. "It is gratifying to see business becoming better at engaging with stakeholders, for example."

The report attributes this to more comprehensive and systematic stakeholder engagement practices among average and low performing companies.

"Yet there still remains a great deal to be done in implementing CSR policy into everyday business practice, and in particular gaining third party assurance to verify a company's stated actions," Mr. Zadek added.

Only 13 out of 64 used some form of external assurance, according to the report.

The raters examined global sustainability and annual reports of the Fortune Global 50--the world's 50 largest companies by revenue. They added another 14 other companies in order to examine at least ten companies in each of five sectors: automotive; computer, electronics and telecommunications; energy and utilities; financial services; and petroleum refining. Ratings evaluated six domains that mirror AccountAbility's AA1000 framework: stakeholder engagement (20 percent), strategy (20), governance (15), performance management (15), public disclosure (15), and assurance (15).

The AA1000 framework, which includes the AA1000 Assurance Standards and the AA1000 Stakeholder Engagement Standard, defines corporate accountability based on transparency, responsiveness to stakeholders, and compliance with voluntary standards and mandatory regulations.

The ratings divided the field into leaders (60 percent and above), challengers (in the 50 percent range), participants (in the 35 percent range), and bystanders (15 percent and under). Ratings and rankings changed significantly for some companies compared to last year's results. For example, Home Depot (HD) raised its score ten percentage points since 2005.

"The increase in score is the result of a substantial improvement in strategy area as well as allowances for Home Depot's transparency in describing the activities of its Board," the report states.

This explanation may come as a surprise to observers of Home Depot's 2006 annual meeting--not a single board member attended to face accountability to shareholder anger over excessive executive compensation. The report acknowledges limitations of the methodology, which is based primarily on corporate reporting, so actual performance (both positive and negative) can slip through the cracks if not included in sustainability or annual reports.

The raters tried to address this limitation by beefing up the criteria since last year. Specifically, they revised the "strategic intent" criterion, expanding it to cover "strategy" encompassing not only whether the company is "talking about non-financial issues" but also if it is "acting on these strategic elements."

"The governance domain has been expanded to include a more detailed evaluation of board level governance controls and structures to ensure accountability at the highest levels of the company," states the methodology.

While this may not explain Home Depot's improvement, the general fortification of criteria may help explain the fate of Chevron (CVX--35), which slid the furthest since last year--dropping 20 percentage points to fall from tenth to thirtieth position.


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