CSR Analysis: Transparency in Corporate Governance Rankings

Last Friday, Ethicsblogger asked an interesting question about criteria for assessing governance in CSR reports:

Do you know of a corporate ethics / csr ranking that gives attention to governance and lists specific criteria in that area? Thx

Rather than jump the gun, I offered to give it some thought and respond in a post early the following week, which is now.

Before I offer an answer, I should say that I like this question a lot.  Just last week, I had commented on the lack of transparency found in most CSR rankings, expressing frustration that the developers of such rankings typically refuse to be transparent about the metrics they use or the weights they assign to different criteria.  Ethicsblogger’s question offers an opportunity to test my point and determine whether my criticism has any merit.

With this in mind, I decided to use this post as a forum for analyzing what the various CSR rankings I have explored in this blog say about how they evaluate the issue of corporate governance (please note that I see corporate ethics and corporate governance as slightly different, so chose to focus exclusively on governance for the sake of relative simplicity).  For answers, I looked to the methodology section of each of their websites.  I learned that most CSR rankings incorporate a “corporate governance” criterion but are vague in how they define it.  To give a few examples, CRO and Ethisphere offer their own definitions and weights, while to my knowledge DJSI does not elaborate on what it encompasses within the category of governance.  Corporate Knights does not incorporate any sort of broad governance evaluation, although it points out that its scores for leadership diversity and CEO-to-average-worker pay have some relevance to the subject.

Now, it occurred to me that this lack of granularity might indicate that broad CSR rankings are not the best resource for people looking for rigorous evaluations of corporate governance.  When I searched for governance rankings, I ended up instead finding myself redirected to websites for several leading governance research organizations like Institutional Shareholder Services (ISS), GovernanceMetrics International (GMI), the Corporate Library (TCL), and Audit Integrity.  Of these four, only Audit Integrity publishes rankings, but although it describes a few criteria evaluated under the corporate governance category, a cursory look at its methodology section provides little additional granularity).

For the sake of rigor, I should mention that I did find a couple of additional governance rankings, including a short list by IR Global Rankings and a 2009 "winners and losers" list by the Canadian Globe and Mail, but still wonder if the general lack of rankings from major governance groups begs the question of whether it makes sense to rank governance in the first place.  After all, what would it mean to be the #1 company from a board governance perspective?  In fact, a study published by Stanford’s GSB investigates the same query about the validity of rating governance, indicating that this is not the first time such questions have been raised.

Of course, this brings me back to a few questions about CSR rankings, which often do assign scores for corporate governance as part of their larger CSR ratings.  How are the groups publishing these rankings evaluating corporate governance and how meaningful are their scores in this area?  Without more transparency, it is hard to assess what these rankings actually tell us.

So, ethicsblogger, I’d love to hear whether you are surprised by what I learned.  Should we be seeing more transparency in governance rankings within the larger CSR rankings or, alternatively, more independent rankings focusing specifically on corporate governance?  And more importantly, did I answer your question in the first place?

Photo credit: SFO CP