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Benchmarking: turning the focus inwards
14/08/2007

Summary of presentation by csrnetwork senior consultant Todd Cort at the CSR Delivery, Engagement and Leadership conference in April 2007 in London

Corporate social responsibility is still a young discipline, and there aren't many absolute standards for CSR managers to follow - certainly none that cover the whole range of CSR issues. So external benchmarking - via indices, ratings and awards - can be very useful in gauging your organisation's CSR performance, as well as learning about good practices elsewhere. Getting a relative ranking for your company can also be helpful in securing attention - and funding - from senior management.

However, at csrnetwork we believe external benchmarking - a comparison of your company with the outside world - is just the tip of the iceberg. There's much more to benchmarking than that.

External benchmarking

First, let's deal with external benchmarking, as it clearly has much to offer CSR managers.

There are three main kinds of tool we could loosely call external benchmarks:
• Annual award schemes you can choose to enter.
• Indices aimed at investors.
• Ratings that rank companies according to certain aspects of their performance.

The two big award schemes are the BiTC Award for Excellence and the ACCA Awards for Sustainability Reporting.

Both of them have a pretty high profile, and winning an award carries a certain amount of kudos. Also, they both subject your report to thorough scrutiny. And whether or not you win, you do get feedback on what the judges see as your strengths and weaknesses.

On the downside, it's just your report that gets assessed, not your strategy, systems or performance. So a company with a good CSR programme but a badly written report wouldn't win. And of course if you don't think you're going to win, you're probably not going to enter, so the opportunities for learning for those of you who aren't advanced reporters are pretty limited.

Next, the indices aimed at professional investors. The two notable examples are the Dow Jones Sustainability Index and the FTSE4Good Index.

Both these indices are a welcome innovation in the CSR field. They allow investors to get a good indication of companies that are best-in-class CSR performers and are carrying the lowest levels of social and environmental risk. And it's worth noting that companies in the Dow Jones index have outperformed the base index over the last three years - so there's a fact you can throw in next time you're trying to make a business case for CSR.

The main drawback of these indices is that they rely mainly on companies' answers to a questionnaire. The questionnaires are comprehensive, and we've heard of plenty of organisations who've put something like 20 man-days into responding. But because the data is provided by the company, neither index can really claim to be scientifically objective.

Also, both indices are voluntary - companies actively choose to appear in them - so tend to reflect good practice rather than giving a picture of actual practice.

Finally, the ratings. Two key examples are the Global Reporters survey from the SustainAbility organisation, which has been around for number of years, and the Accountability Rating, a newer metric co-developed by csrnetwork .

Global Reporters aims to identify the year's 50 best non-financial reports worldwide, and takes into account existing rankings from other sources. It's a very worthwhile and useful survey, but is fairly restrictive in that it looks just at the quality of reporting.

Meanwhile, the Accountability Rating is a method for measuring whether companies have put responsible practices at the heart of their business. It's run by csrnetwork in partnership with AccountAbility. We use a methodology that assesses companies on everything from their strategy and governance to their management systems and public disclosure.

Every year, we use the Rating to examine the accountability of the world's biggest companies - good performers and bad - and the results are published by Fortune magazine.

The Rating also has a practical application beyond the survey of the top companies because we use it to do bespoke benchmarking for clients. What you get is a detailed assessment of your accountability across all the criteria we use in the Rating, and a comparison of your performance with whatever benchmark you're interested in: big corporations, the leaders in accountability, or your competitors. We finish by suggesting what you need to do to improve, and we give you examples of best practice to follow.

Overall, external ratings can provide a fairly reliable indication of who the top performers in the field are, and they allow you to see how you measure up, even if they don't always tell you how to close the gap. Some of them also provide opportunities for learning, and you can get feedback on how you can improve your reporting or how you present your CSR programme.

Internal benchmarking

Data on other companies can only get you so far. In the end, you have to understand your own company in great detail if you want to drive meaningful change in your organisation.

Your chief financial officer would know exactly what the financial targets and performance are in every part of the company, and would know what financial policies are in place and how the books are kept. And it would all be checked and reported by Internal Audit. But what about for non-financial issues?

That's where what we might call internal benchmarking can help. This is where you drill down into your regions and business units to discover how their practices and systems compare with one another, and with global strategy and policies.

To do the internal benchmarking, there are a variety of information-gathering vehicles you can use:
• Interviews with global managers
• Interviews with regional or business-unit managers
• Interviews with stakeholders, and reviews of key stakeholder issues, both at global and regional or business-unit level
• A common framework to evaluate the processes and systems within the company to be able to identify best practice and gaps in performance.

Together, these methods have the potential to answer some important questions about your organisation. Things like:
• How are business units implementing corporate CSR policies at the front line?
• Who are our stakeholders in the different regions, and how well are they being engaged around the world?
• What management systems are in use around the regions, and how good are they?
• What is the governance model in each of the business units? Does it fit with the global model?
• Are regions complying with corporate standards?
• What are the risks and opportunities region-by-region or business-by-business?

Case study: Arcelor Mittal

This holistic approach to benchmarking is something we've put into practice for Arcelor Mittal.

As well as being the world's largest steel company, Mittal Steel (as it was then before its merger with Luxembourg's Arcelor) came to us with a strategic ambition to be the world's most admired steel company. And it knew that integrating CSR into the company's core business strategy and decision-making was vital to that ambition.

Here's what Mittal's global manager for CSR told us in our brief: "Every business unit has to understand that, when they take decisions, they must be driven as much by social considerations as economic ones" and "If we factor social issues into everything we do, the business benefit of our CSR activities will accrue to the business units".

That's quite some challenge, and we knew that to get to grips with it, Mittal would need a very clear picture of the state of CSR across 16 countries and four continents. So we turned to benchmarking.

To begin with, we applied an external benchmark to compare Mittal's overall accountability with its competitors and other global businesses - using the Accountability Rating. From this we were able to provide some general recommendations for company-wide improvement. The focus for this initial step was to identify the processes, risks, metrics and language being used by others in the sector, top-performing practitioners, newly emerging CSR stand-outs and some of the company's customers. This effort was really to frame the questions - where should we start when we go about assessing where Mittal stood in this spectrum? So this was really just getting them to first base.

We then turned to an extensive process of internal benchmarking. To do this, we employed a framework developed by csrnetwork called the Reality Check. For each social aspect, we defined 10 levels of performance, from "starting up" through to "leadership" together with detailed descriptions of each level of performance.

These descriptions were based on our understanding of the sector, CSR generally, and the results of the external benchmarking. Moreover, we looked at the ability of Mittal to achieve progress in each of these social aspects.

Obviously, this kind of framework must be tailored to the topics the company is interested in as well as the position in which it sits (e.g. for companies early in CSR development, the descriptions must be more robust at the bottom of the spectrum). So, we revised and improved this framework during the assignment, and this ended up becoming the company's overarching methodology for managing CSR.

We then took the Reality Check into the business by visiting sites all around the world, including Kazakhstan, Algeria, Poland and Romania. It is only by seeing the issues on the ground that we can make intelligent decisions about what CSR means to the company and its stakeholders.

In each business unit, we applied the Reality Check to assess the management of non-financial issues. We examined local strengths, weaknesses, risks and opportunities, and scored the processes we found on the one-to-10 scale.

That work involved all the components of internal benchmarking we looked at earlier - global manager interviews, regional manager interviews, stakeholder interviews and reviews, as well as organisational, process and risk-and-opportunity evaluations. The end result was a very detailed and coherent picture of CSR performance in a wide range of categories right across Mittal.

This is the kind of information that can be very elusive when you're in an HQ role, but if you don't have it, it's very hard to properly manage CSR or bring about real change in the organisation. With this kind of information, we can draw roadmaps for improvement and set specific, measurable targets within key areas to drive improvement where it is most needed.

There were some other important and tangible outcomes of the benchmarking we did for Mittal, too.
• We pulled together a catalogue of regional best practices with suggestions for how these could be shared across the group.
• We drew up a regional risk register showing all the key non-financial risks to the business.
• We made detailed recommendations for how Mittal could bring all their regions up to an acceptable standard across the different aspects of CSR we looked at. We helped them agree local and global targets that would take them towards their ultimate goal of being the most admired steel company.
• And we also helped establish, for the first time, a network of CSR champions around the business. By engaging with local managers - some with a specific CSR brief, and some who were just taking an interest in the issues - we were able to engage them in the corporate CSR mission, and secure their buy-in to being part of the global programme. They're now the principal change agents for CSR at Arcelor Mittal.

Conclusion

In essence, benchmarking is the way you gather information that you need to develop your CSR strategy and manage your CSR programme. It's as fundamental as that.

External ratings are just one small element. They help you identify the gap between your global performance and a position of leadership. But it's through internal benchmarking that you can make the biggest impact in bringing operations up to the standards you expect at the centre. After all, isn't that just about the biggest challenge for a CSR manager in a global business - how to implement a CSR programme worldwide and achieve consistently high standards of performance while remaining responsive to local needs?

Of course, internal benchmarking is much more challenging and time-consuming than simply entering an award, or filling a questionnaire for an index. But the value you get from it will make all the hard work worthwhile.

csrnetwork's benchmarking service