A foray into the character and practices of ‘Corporate

Values’ and ‘CSR related Board Committees’ of global

corporations from Corporate Governance perspective

Abstract
Corporate values provide tools to corporations for effective implementation of CSR initiatives.
Corporate governance mechanisms such as ownership model, board composition and
stakeholder influence are likely to influence the type of values that a corporation may adopt. A
vast majority of global organizations have adopted corporate values, with ethics/integrity
being the core element. Increased shareholder activism and visibility of CSR have led to
boards being directly involved in CSR governance. However, only a fifth of global
corporations have established CSR related board committees. Empirical evidence does not
suggest that by adopting such committees, companies enhance their social performance and/or
reputation. Increased risk exposure seems to be a possible determinant of adopting such
committees.

Submitted by : Vineet Budhiraja, MBA-HSG 2006

To: Prof. Winfried Ruigrok

Towards partial fulfillment of the coursework of

Intergrative Seminar – Corporate Governance

December 11, 2006

 Table of Contents

1. Introduction ............................................................................................................................................................1

2. Understanding and engaging ‘Corporate Values’ ...........................................................................................2

2.1 ‘Corporate Values’ - defined ..........................................................................................................................2

2.2. Why corporations adopt ‘Corporate Values’ ..............................................................................................3

2.3. Global practices ...............................................................................................................................................4

2.4. Impact of ‘Corporate Governance’ structure on ‘Corporate Values’ .......................................................7

3. Growing Importance of Corporate Social Responsibility (CSR)..................................................................8

3.1 CSR – definition, business reasons and interrelation with ‘Corporate Values’.......................................8

3.2 CSR governance structures and involvement at board level ...................................................................10

4. Empirical Research of ‘Values’ adoption practices and CSR related committees at board level .........11

4.1 Objectives ........................................................................................................................................................11

4.2 Data and Method ...........................................................................................................................................12

4.3 Findings and analysis ....................................................................................................................................15

4.3.1 ‘Values’ adoption practices of studied companies ............................................................................15

4.3.2 Existence of CSR related board committees in the studied companies ..........................................19

4.3.3. Evidence check for impact on social performance by adopting CSR related board level

committees. ......................................................................................................................................................21

4.3.4. Evidence check for impact on corporate reputation by adopting CSR related board level

committees. ......................................................................................................................................................21

4.3.5. Risk Exposure as factor of adopting such committees.....................................................................21

6. Limitations and Scope for further work..........................................................................................................22

7. Conclusion ............................................................................................................................................................23

References

Appendices
1. Introduction

A series of issues have hit the corporate world in the beginning years of the 21st century. These

issues range from the worsening global environment condition to corporate governance,

accounting frauds, to leaks of confidential corporate information. Simultaneously, society is

demonstrating increased expectations toward Corporate Social Responsibility (CSR). In

response to these challenges, corporations have toughened their view of trust and ethics based

management as an essential of CSR. More and more companies are adopting ‘code of conduct’,

‘principles of action’ ‘principles of corporate behavior’ and ‘corporate values’ to not only

mitigate the potential CSR risks but also to enhance their reputation amongst current

employees, prospective employees, consumers, suppliers and all other stakeholders in general.

Moreover, corporations have the options of choosing from a variety of CSR related governance

structures including CSR related board committees to ensure an effective implementation and

independent evaluation of their CSR initiatives.

To begin with the present paper endeavors to ascertain why corporations adopt corporate

values and also highlights the findings of a global comprehensive survey jointly conducted by

Booz Allen Hamilton1 and Aspen Institute2 on the ‘corporate values’ adoption practices of

global corporations. Within this section an attempt has then been made to establish the

interrelation between genesis of corporate values and corporate governance mechanisms. The

next section of the paper ventures into understanding the CSR related practices and governance

structures of corporations. This section also draws attention to the studies that have proved that

there is a positive impact on financial performance of a corporation of an enhanced CSR

performance. The third and last section of this paper brings to light the findings of an empirical

research performed by the author for the purpose of this paper. An investigation has been made

into 146 companies out of the Fortune Global 5003 list representing 11 industry segments. The

empirical research attempts to investigate:

1
Booz Allen Hamilton is a renowned Management and Strategy consulting firm
2
Aspen Institute is a nonprofit and nonpartisan forum focused on values-based leadership and public policy. The
complete survey report can be downloaded from their website – www.aspeninstitute.org
3
This list is compiled annually by the Fortune magazine and is based on net revenues of global corporations. The
complete list can be found at http://money.cnn.com/magazines/fortune/global500/2006

1
 i. The number and type of companies (region, country, and industry segment) that

have adopted corporate values

ii. The number and type of companies (region, country, and industry segment) that

have established CSR related board committees

iii. The impact on social performance and reputation by adopting CSR related board

committees

iv. Risk Exposure as a factor of adopting CSR related board committees

2. Understanding and engaging ‘Corporate Values’

2.1 ‘Corporate Values’ - defined

Rokeach (1973) defines Corporate Values in a classical sense as “beliefs that help companies

make choices among available means and ends” and Thomsen (2004) takes this definition to a

more technical level by calling ‘Corporate Values’ as the “weight

which corporate decision makers attach to alternative goals when making their decisions”. In

simple terms, Corporate Values can be understood to be the influencing factors that guide

corporate behavior.

Example from practice: As recent as September 2005, Epson, a global name in printing and

imaging technology chose to define its corporate values in a very interesting and holistic

manner. The company enacted a set of ‘Principles of Corporate Behavior’ as a basis of its CSR,

aimed at ensuring that its business operations are transparent, just, and fair. Epson defined

‘Corporate Value’ as the combination of the three sets of values illustrated in the figure below:

financial values, social values, and personnel values (notion of triple bottom line).

Figure 1: Definition of Corporate Value at Epson (Source: www.epson.co.jp)

2
Thus, ‘Corporate Values’ signify the standards of a company’s behavior towards its

stakeholders. The key difference between CSR and ‘Corporate Values’, is that, former is the

end whereas the latter provides means to that end. In other words, CSR is the expected action

by a company towards its stakeholders, whereas ‘Corporate Values’ provide the script for

that action. ‘Corporate Values’ are one of the tools for achieving the broader objective of

CSR. Even in the above mentioned example of EPSON, the company has adopted values to

define its corporate behavior as a basis for its CSR.

2.2. Why corporations adopt corporate values

Paine4 (2002) in her book ‘Value Shift’ argues that companies cannot consider themselves apart

from the society anymore. The relationship between companies and society at large necessitates

bringing an ethical dimension to decision making. Companies are increasingly being taken to

task for a host of moral failings—neglecting consumer and employee safety, ignoring civil

rights, polluting the environment, violating election laws, misleading investors. Expectations

for corporate behavior are constantly evolving; conduct that would have been ethically

acceptable in one era becomes unacceptable as expectations rise. Moreover, globalization has

given rise to new cross-cultural dilemmas.

Paine (2002) notes that key reasons why companies are making a shift to values, focusing on

ethics, values, and examining company culture are:

o Risk management

o Organizational functioning

o Market positioning, and

o Civic positioning

What is important to note here is that, although risk management is a key reason why

companies adopt corporate values it is not the only reason. This notion is further corroborated

by the Booz-Allen/Aspen survey, mentioned above and discussed in detail in the next sub-

section.

4
Lynn S. Paine is a Harvard Business School professor. For the purpose of this paper her Q&A on the topic,
published on http://hbswk.hbs.edu/item/3179.html has been referred to.

3
Example from practice: When Philips5 renewed its values in 2002, the reasoning for renewal and

adoption of values given by the CEO Gerard Kleisterlee was: “Over the past 20 years, companies of

all shapes and sizes have begun to realize the significance of adopting a values-based approach to business.

Operating in this way has been shown to improve financial performance, increase employee motivation

and enhance customer loyalty and corporate reputation. When companies talk about values they’re

referring to the ideals and beliefs they consider to be core to their company and use as anchors to guide the

behavior of their employees. These are the principles that determine all aspects of the way the company

does business – from simple day-to-day decision-making through to defining its mission and vision.”

Thus, there are a multitude of reasons ranging from risk management to corporate reputation

to employee motivation to customer loyalty that lead to companies adopting ‘Corporate

Values’.

2.3. Global practices

Booz Allen Hamilton and the Aspen Institute surveyed approximately 9,500 senior executives
from over 350 companies around the world in 2004-05 to understand how companies are dealing
with the challenges of managing values.
For the purposes of the study, ‘Corporate Values’ were defined as “a corporation’s institutional
standards of behavior.”
The key findings of the survey were:

1. Benefits of corporate values transcend legal and regulatory compliance (refer Figure 1).

According to the respondents values are deemed most critical in two strategic areas: reputations

and relationships. Strong brand equity and the overall standing of the company correlate

highly with a commitment to corporate values. So does the strength of the firm’s associations

across its value chain, from suppliers to employees to customers. The factors in the upper right

quadrant are those which most companies cite as both important to strategy and strongly

affected by values (corporate reputation, employee recruitment, customer loyalty, and product

quality/innovation) and those are the ones that the practitioners should focus on. The upper left

5
Source: http://www.newscenter.philips.com/About/News/publications/mondial/Section-13297/article-2203.html

4
quadrant includes factors that are strongly affected by values but are important only to some

firms.

Figure 1: Factors Important to Business Strategy and Strongly Affected by Values

2. Ethical behavior is a core component of company activities and corporate values (refer

Figure 2). 89 percent of the respondent companies had written corporate values statement, and

out which 90 percent specified ethical conduct as a principle. The other major values included in

the value statement were: commitment to employees, commitment to customers, commitment

to shareholders, teamwork and trust.

Figure 2: Values Included in Corporate Values Statements (All Respondents)

5
3. Values practices vary significantly by region (refer Figure 3). Asian and European

companies are more likely than North American firms to emphasize values related to the

corporation’s broader role in society, such as social and environmental responsibility. Three-

quarters of Asian/ Pacific firms include social responsibility/corporate citizenship in their values

statements, followed by European firms, at 69%. Only 58% of North American companies

include social responsibility. Environmental responsibility also ranks significantly higher in

Europe and Asia than in North America. North American companies, however, are significantly

more likely to cite ethical behavior than firms in Europe and Asia- probably a reflection of both

the recent attention to corporate scandals in the United States, and the history of media scrutiny

of business in the U.S.

Figure 3: Values Included in Corporate Values Statements (by Region)

6
In an another survey conducted among the top 150 companies in Germany, Austria, and

Switzerland conducted by Booz Allen Hamilton in the year 20036, Ninety-five percent of

companies believe that living their corporate values pays off economically, seventy-six percent

of companies expect values to play an increasingly importance role in the future.

Thus, ethics is the key value element and reputation is the key drivers for values adoption

and practitioners believe that living values pays off in the long run.

2.4. Impact of ‘Corporate Governance’ structure on ‘Corporate Values’

Thomsen (2005) argues that corporate values are determined by corporate governance in a

broad sense of the word. It is proposed that repeated interaction with customers, employees

and other stakeholders shape corporate values by way of corporate reputation and corporate

culture. This implies, for example, that firms do not necessarily hold certain values because they

are inherently better in an instrumental or moral sense, but because of their corporate

governance structure. The author goes on to propose that

internalization of stakeholder preferences takes place in a hypothetical three-stage process as

represented in Figure 4. The influencing governance mechanisms are: 1. Allocation of

ownership rights. 2. Board composition. 3. The influence of important stakeholders.

There is a logical causal connection between the stages. Ownership determines the allocation

of residual control rights across potential owners. The owners appoint board members and

delegate responsibilities to them. The board determines the nature of implicit contracts with the

constituencies of the firm

Figure 4: Corporate governance mechanisms as determinants of corporate values

6
The summary of the report ‘How Corporate Values Translate Into Value at the Bottom Line’ can be viewed at
http://www.boozallen.com/publications/article/658789?lpid=827466

7
A pilot study of 72 Danish companies by the same author found that the expressed values were

partially related to proxies for governance and stakeholder structure, but had no significant

impact on subsequent profitability.

3. Growing Importance of Corporate Social Responsibility (CSR)

3.1 CSR – definition, business reasons and interrelation with ‘Corporate Values’
Definition - The World Business Council for Sustainable Development in its publication

"Making Good Business Sense"(2000)7 by Lord Holme and Richard Watts, used the following

definition. "Corporate Social Responsibility is the continuing commitment by business to behave

ethically and contribute to economic development while improving the quality of life of the workforce and

their families as well as of the local community and society at large.

A variety of definitions and terminologies such as sustainability, corporate citizenship, and

corporate responsibility are prevalent. In essence, CSR is about a company recognizing and

responding to the needs of its key stakeholders, and demonstrating this publicly. This means

focusing on its impact on the environment, its people, the marketplace, and the wider

community.

Business Reasons- In the same publication (i.e. Making Good Business Sense), which was a

result of two year study effort the authors conclude that:

- a coherent CSR strategy, based on integrity, sound values and a long-term approach, offers

clear business benefits to companies and a positive contribution to the well-being of society;

- a CSR strategy provides the opportunity to demonstrate the human face of business.

Today, it is difficult to find a public listed company which does not engage in or at least

highlights it’s CSR activities under the banner of CSR, sustainability, corporate citizenship etc.

A meta-analysis of 52 previous yielding a total sample size of 33,878 observations studies

conducted by Orlitzy et. al. (2003) suggests that corporate virtue in the form of social

responsibility and, to a lesser extent, environmental responsibility is likely to pay off.

7
The complete paper can be downloaded from www.sustainablefinance.net/web/publications/csr2000.pdf

8
Enact consulting, UK8, which specializes in CSR consulting, lists solid business reasons for

adopting CSR practices:

Figure 5: Business Reasons for investing in CSR

Interrelation with ‘Corporate Values’ – As stated elsewhere in the paper ‘Corporate Values’

provide tools for effective CSR implementation. To further substantiate this belief let us look at

the services provided by the largest CSR solution non-profit organization Business for Social

Responsibility (BSR)9:

BSR helps to address a broad spectrum of CSR issues

Business Ethics - Community Investment – Environment - Governance & Accountability

Human Rights - Marketplace, - Mission,Vision, Values -Workplace

It may be noted that values have been identified as one of the CSR issues; hence there is a

clear interrelation and distinction between the two.

8
http://www.enactconsulting.com
9
www.bsr.org

9
3.2 CSR governance structures and involvement at board level
As CSR has become a more high-profile issue - and as companies have begun to recognize the

significant opportunities for both competitive advantage and risks associated with their CSR

performance - boards of directors are becoming increasingly involved in shaping and assessing

policies and practices on a wide range of social issues

Three prevalent CSR related governance10 options at board level are:

Role expansion of existing committees: Companies are expanding the charters of existing

board committees to include responsibility for CSR issues.

Full-Board Involvement: Some companies are choosing to address CSR at the full-board level.

Pharma giant Pfizer is the most cited example for this case.

Dedicated board committees: Some companies are choosing to address CSR at the board level

through committees with specific responsibility for identifying and providing guidance on

social and environmental issues.

According to the National Association of Corporate Directors' 2003-2004 Public Company

Governance Study11 of 5,000 companies found that companies reported having the following

committees: Environmental Policy (5.5 percent); Public Affairs/Policy/Social Responsibility (7.1

percent); Crisis Management (0.8 percent); and Ethics/Compliance (9.2 percent).

Two possible reasons why companies adopt dedicated CSR related board committees are:

Increased visibility of CSR: Corporate social responsibility has become the subject of

significant media attention as the public has developed a growing interest in and awareness of

companies' behavior on a range of social issues.

Growth in Investor Pressure: Socially responsible investing has experienced tremendous

growth in recent years, with investor groups increasingly pressuring companies to address

social issues. It is matter of prestige now for companies to be listed in sustainability indices such

as Dow Jones Sustainability Index and FTSE4good.

10
Source: www.bsr.org – CSR Governance structures
11
Source: www.bsr.org – CSR Governance structures

10
Example from practice: At this point it is interesting to note the following excerpt from the CSR

report 2006 if the Insurance giant AVIVA. This excerpt provides a practical insight into why

companies adopt CSR related committees at board level.

Board ownership
In January 2006, the Aviva board agreed to set up a CSR committee. It is to be chaired by the senior independent
non-executive director, Wim Dik, and counts the group’s Chairman, the CEO and three other non-executive
directors among its members. The terms of reference for this committee are available on our website. The committee
will meet at least twice a year. Among its functions will be the task of reviewing CSR policy and progress more
closely than is possible at the annual full board meeting and also of helping to determine and review Aviva’s
position on some of the most difficult CSR challenges. In this respect, it will take over the function of the former
high-level issues group.
The appointment of this committee will greatly strengthen the involvement of the board in the direction,
monitoring and management of the CSR programme.

4. Empirical Research of values adoption practices and CSR related committees at board
level

4.1 Objectives
An empirical investigation was carried out to determine and understand the following:

1. What percentage and which type of companies (in the selected industry segment) adopt

formal ‘corporate values’ in the form of value statements or key core values terms such

as Integrity, Honesty, Respect and thus portraying a stakeholder oriented image.

2. What percentage and which type of companies (in the selected industry segment) have

formed Board level committees specifically focusing on Corporate Responsibility issues

and thus ensuring top-most level commitment to the implementation of adopted values

and stakeholder interest.

3. Is there a positive impact on reputation and social performance due to adoption of such

board level committees?

4. Is exposure to risk a reason why companies form such board level committees?

11
4.2 Data and Method
For the purpose of the investigation 146 companies representing 11 industry segments were

chosen from the list of Fortune Global 500 companies. The chosen industry segments, number of

companies in each segment and the regional origin of the companies are as follows:
Industry Segment No. of companies listed in Fortune Global 500 list
and their regional origin
Total Asia Europe N America S America
Building Materials, Glass 06 01 04 01 00
Chemicals 10 04 03 03 00
Electronics, Electrical Equipment 18 11 04 03 00
Energy 08 00 06 02 00
Engineering, Construction 10 05 05 00 00
Food Consumer Products 06 00 03 03 00
Industrial & Farm Equipment 07 02 03 02 00
Metals 12 05 04 03 00
Pharmaceuticals 12 00 05 07 00
Petroleum Refining 34 13 10 09 02
Utilities 23 07 12 04 00
Total 146 48 59 37 02

The above sample of companies and industry segments were selected for two primary reasons:

i. Brick and Mortar: These industry segments represent the so called ‘brick and

mortar’ companies and thus encompass the entire spectrum of supply chain

from concept to consumer including research, design, manufacturing and

delivery. The breadth and depth of the stakeholder interaction for these

industry segments is higher and thus the companies in these segments are

more susceptible to corporate social responsibility issues.

ii. Proportionate regional representation: In general, the Fortune Global 500 list

is very USA heavy, as there 170 US companies in the list. The selected

industry segments provide a fairly proportionate regional representation

from Asia, Europe and North America. Even in the full Fortune Global 500

list, South America represents only about 1% of the companies.

Methodology

1. Selection of companies: As mentioned above companies were selected from the Fortune

Global 500 list.

12
 2. Adoption of formal ‘Values Statement’/’Values’: Corporate websites and latest annual

reports/publications such as Code of Ethics, CSR report of the 146 selected companies

were studied thoroughly. It may be noted that at times, companies name their adopted

values as ‘principles of action’, these principles of action were considered as a positive

indication of adopting ‘values’. On the other hand, mission and vision statements, codes

of conduct and similar ‘commitment’ statements were not considered positively. In 41

instances, keywords such as – ‘core values’, ‘values’ ‘corporate values’, ‘group values’

were searched for on the site search functions of the corporate websites. In 2 instances

Google search was performed using the name of the company and the keyword ‘values’.

3. Existence of CSR related board level committees : All of the 146 companies had details of

the Board published on their corporate websites. State owned companies such as China

National Petroleum had no information regarding the board committees on their

website and thus were considered not to have any such committee. For companies listed

in Japan, the regulation allows them to choose between having an audit committee at the

board level and a separate Board of Corporate Auditors. Companies which have opted

for a separate Board of Corporate Auditors also did not publish any other details

regarding any other committee at the board level and thus were also considered not to

have any such committee. All the other publicly listed companied irrespective of the

stock exchange they are listed on had complete information regarding board committees

and their charter.

4. Impact on Reputation: To assess whether by adopting such committees companies

enhance their reputation, a search was made for all the 146 companies in the list of 200

most reputed companies of 2006 – ‘The Global RepTrak™Pulse2006’, compiled and

researched by Reputation Institute12 (RI), New York, USA and is also published by the

Forbes Magazine. The detailed methodology can be found on the institute’s website and

the complete list of world’s most reputed corporations can be found on the Forbes

website13.

12
http://www.reputationinstitute.com
13
http://www.forbes.com/2006/11/20/leadership-companies-reputation-lead-managing-cx_hc_1120rep_list.html

13
 5. Impact on Social Performance: To reckon whether adoption of such committees at the

board level enhances the social performance of a firm, an investigation was made in the

‘The Global 100 Most Sustainable Corporations in the World’. This project is initiated by

Corporate Knights Inc., a Canadian media company specializing in sustainability

coverage, and Innovest Strategic Value Advisors Inc., a research firm specializing in

analyzing “non traditional” drivers of risk and shareholder value, including companies’

records on social, environmental and strategic governance issues. The Global 100 is a list

of publicly-traded, MSCI World-listed companies that have the best developed abilities

to manage the environmental, social and governance (ESG) risks and opportunities they

face, relative to their industry peers. The companies were selected from the universe of

around 1,800 securities. Launched in 2005, the annual Global 100 is announced each year

at the World Economic Forum in Davos, Switzerland. The detailed methodology and

complete list can be found on the Global 100 website14.

6. Reason for adopting such committees at board level: One key outcome of the literature

review was that ‘Risk’ is a major reason why companies adopt ‘values’ and possibly

corporate responsibility related committees at the board level. To further assess this

outcome a comprehensive exercise was carried out whereby the ‘Risk Exposure’ of

companies in a selected Industry segment was quantified. The selected industry

segment was ‘Pharmaceuticals’, because this was the segment with a reasonable number

of companies listed (12) and almost an equal proportion of companies that had such

committees at the board level. However, the drawback of choosing this segment was

that no company from Asia was listed in this segment.

For quantifying the ‘Risk Exposure’ of the companies in this segment following method

was used:

i. A list of all the countries where these companies have significant operations

and principal subsidiaries and associate companies was drawn. Corporate

websites, annual reports, SEC filings were thoroughly researched to draw

this list and only countries where these companies have significant

14
www.global100.org

14
 operations and not only sales were included. The trading subsidiaries based

in countries such as Cayman Islands, Guernsey were omitted from the list.

ii. Country risk ratings published by Global Insight were used to find the risk

score of each country where the company has significant operations. Global

Insight15 has developed a unique country risk-rating system under which the

political, economic, legal, tax, operational, and security environments are

separately rated for 203 countries. It provides a comprehensive image on

quality of conditions and level of stability encountered by investors in each

country.

iii. The country risk score for each of the country where a company is operating

were then added to arrive at the total ‘Risk Exposure’ score of a company.

Lower the score lower the risk exposure of a company. The detailed excel

sheets containing company-wise calculations are provided in Appendix E.

4.3 Findings and analysis

4.3.1 Values adoption practices of studied companies

1. Adopting ‘Corporate Values’ is becoming a global phenomenon with North America

leading the pack (refer Table 1 and Table 2). About 3/4th of the total selected companies have

adopted ‘Corporate Values’ whereas 95% of the North American companies have stated

‘Corporate Values’ publicly. About 75% of the European companies have explicitly stated their

‘Values’ whereas only about half (52%) of the Asian companies have clearly stated ‘Corporate

Values’. Companies from the USA are clear leaders in adopting ‘Corporate Values’ with 32

(approx. 97%) out of the 33 studied companies having clearly stated values. The most logical

explanations for this could be found in the ‘over your shoulder’ approach of the US media and

over cited corporate scandals. It is difficult to image that companies would adopt ‘Corporate

Values’ due to regulatory pressures. One US company which does not have any stated

corporate values is Plains All American Pipeline, L.P. which is an NYSE listed company

15
The complete list and methodology can be downloaded from www.globalinsight.com, however the access is
restricted to registered users, but one can use the HSG library account for the same.

15
engaged in the transportation, storage, terminalling and marketing of crude oil, refined

products and LPG only in US and Canada. The company is relatively new and was formed in

1990.

Amongst the European countries, all the 14 companies from France and 7 companies from UK

have clearly stated corporate values, and only one German company out of 7 has not adopted

formal ‘Values’ statement. 2 out of 5 Dutch companies and one out of the 5 Swiss companies

have also not adopted formal ‘values’. The German company ‘ThyssenKrupp’ which has not

adopted ‘Values’ statements has adopted a descriptive ‘Commitment’ , which is mentioned

right on its home page, but due to data consistency reason it was not considered as adoption of

values. For same data consistency reasons Swiss company ‘Holcim’ was not considered to have

adopted ‘Values’, as they are not stated publicly yet, despite author’s awareness of a values

program in pipeline. One of the two Dutch listed companies that has not adopted values

statement is Mittal Steel (considered separately from Arcelor Mittal), which incidentally also

has been in news for dubious corporate governance practices (family members of the founder

being on the board). The other Dutch company with no values statement is Gasunie, which is in

similar business to that of Plains All American Pipeline. For such a small sample size it is risky

to generalize that those companies which primarily cater to local market and are in basic B2B

businesses tend not to adopt formal ‘Corporate Values’.

Amongst the Asian companies, the low value adoption rate of 52% can be attributed to two

reasons. Most of the non-Japanese companies that were studied had state ownership or majority

and it is these companies that tend not to adopt formal value statements. As they are

monopolistic in nature (Oil, refineries, energy, railway construction) and have little motivation

to impress upon stakeholder. Even in Japan only 14 out of the studied 26 companies have

adopted value statements, with biggest surprises being global electronic, electrical equipment

giants Hitachi and Sony. A deep study into these companied revealed that even if formal

‘Value’ statements have not been adopted at the corporate, there are instances when a big

subsidiary in UK or USA have adopted formal values statements. Again, for data consistency

reasons values adoption at subsidiary level was not considered.

16
2. More the frequency of consumer interaction higher the chances of ‘Values adoption’.

From the perspective of Industry segments (refer Table 1), 100% of the companies in

Pharmaceuticals and Food consumer products segments, irrespective of the regional origin have

adopted ‘values’. This could be attributed to high frequency of interaction with end consumer

for both these segments. In the Engineering, construction, Energy and Petroleum refining

segment only 60% of the total studied companies have adopted values, but this could once

again be attributed to state ownership of Asian companies. It is interesting to note that while

none of the North American companies out of 2, and only one out of 5 Asian companies have

adopted values in the Engineering, Construction segment, all of the 5 European companies in

the segment have adopted values.

Table 1: Region-wise and Industry segment-wise breakup of companies in which have adopted values (data
relates only to the 146 studied companies, figures in brackets indicate total companies studied for that
segment/region)

Asia Europe N America S America Segment Total % age

-wise total companies
Building Materials, Glass 1 (1) 3 (4) 1 (1) 5 06 83.33%
Chemicals 2 (4) 3 (3) 3 (3) 8 10 80.00%
Electronics, Electrical Equipment 8 (11) 3 (4) 3 (3) 14 18 77.78%
Engineering, Construction 1 (5) 5 (5) 0 (2) 6 10 60.00%
Industrial & Farm Equipment 2 (2) 2 (3) 2 (2) 6 07 85.71%
Metals 3 (5) 3 (4) 3 (3) 9 12 75.00%
Pharmaceuticals 0 5 (5) 7 (7) 12 12 100.00%
Energy 0 4 (6) 1 (2) 5 08 62.50%
Food consumer products 0 4 (3) 3 (3) 6 06 100.00%
Petroleum refining 5 (13) 7 (10) 8 (9) 1 (2) 21 34 61.76%
Utilities 3 (7) 9 (12) 4 (4) 16 23 69.57%
Region-wise total 25 47 35 1 108 73.97%
Total studied companies 48 59 37 02 146
% age 52.08% 79.66% 94.59% 50.00% 73.97%

17
Table 2: Country-wise breakup of ‘Values’ adoption practices and CSR related board committees of the
studied companies

Country Total Companies Companies that have %age of %age of companies that
Companies that CSR related board companies have CSR related board
Studied have committees that have committees
adopted values adopted values
Austria 1 1 0 100.00% 0.00%
Brazil 1 1 0 100.00% 0.00%
Canada 1 1 1 100.00% 100.00%
China 8 2 0 25.00% 0.00%
France 14 14 3 100.00% 21.43%
Germany 7 6 0 85.71% 0.00%
India 4 2 1 50.00% 25.00%
Ireland 1 1 0 100.00% 0.00%
Italy 2 1 0 50.00% 0.00%
Japan 26 14 0 53.85% 0.00%
Luxembourg 1 1 0 100.00% 0.00%
Malaysia 1 1 0 100.00% 0.00%
Mexico 3 1 0 33.33% 0.00%
Netherlands 5 3 1 60.00% 20.00%
Norway 2 2 0 100.00% 0.00%
Russia 4 0 0 0.00% 0.00%
S Korea 6 5 1 83.33% 16.67%
S Arabia 1 0 0 0.00% 0.00%
Spain 5 4 0 80.00% 0.00%
Sweden 3 2 0 66.67% 0.00%
Switzerland 5 4 1 80.00% 20.00%
Taiwan 1 0 0 0.00% 0.00%
Thailand 1 1 0 100.00% 0.00%
UK 9 9 5 100.00% 55.56%
USA 33 32 14 96.97% 42.42%
Venezuela 1 0 0 0.00% 0.00%
Total 146 108 27 73.97% 18.49%

3. Country practices overrule industry segment practices (refer Table 1 and 2). Based on the

study of country-wise and industry segment wise practices of the values adoption it could be

understood that irrespective of its industry peers a company is more likely to adopt or not

‘values’ to match its country peers. For instance, almost all the companies in the US have

adopted ‘values’, whereas some of the large global companies based in Japan have not adopted

values, despite their overseas subsidiaries doing so.

18
4.3.2 Existence of CSR related board committees in the studied companies

1. CSR related board committees are not a universal phenomenon yet but Anglo-Saxon

countries tend to favor formation of such committees (refer Table 2 and 3).

Only 27 out of 146 companies (approx. 19%) have established CSR related board committees,

with more than half of these companies based in the US. Asian companies once again lag, with

only 2 out of 48 companies having such committees at the board level. Even in Europe only

about 17% of the companies have adopted such committees, with Germany, Norway and

Sweden scoring a blank. Even in France only 3 of the 14 studied companies have formed such

committees. Although in UK more than 50% (5 out of 9) of the studied companies have formed

such committees. Shell is the only Dutch company in which such a committee is established.

Table 3: Region-wise and Industry segment-wise breakup of companies in which CSR related board
committees exist (data relates only to the 146 studied companies, figures in brackets indicate total companies
studied for that segment/region)

Asia Europe N America S America Segment Total % age

-wise total companies
Building Materials, Glass 0 (1) 0 (4) 0 (1) 0 06 0.00%
Chemicals 0 (4) 0 (3) 1 (3) 1 10 10.00%
Electronics, Electrical Equipment 0 (11) 0 (4) 0 (3) 0 18 0.00%
Engineering, Construction 0 (5) 1 (5) 0 (2) 1 10 10.00%
Industrial & Farm Equipment 0 (2) 0 (3) 1 (2) 1 07 14.29%
Metals 1 (5) 0 (4) 3 (3) 4 12 33.33%
Pharmaceuticals 0 2 (5) 5 (7) 7 12 58.33%
Energy 0 1 (6) 0 (2) 1 08 12.50%
Food consumer products 0 1 (3) 0 (3) 1 06 16.67%
Petroleum refining 1 (13) 2 (10) 5 (9) 0 (2) 8 34 23.53%
Utilities 0 (7) 3 (12) 0 (4) 3 23 13.04%
Region-wise total 2 10 15 0 27 18.49%
Total studied companies 48 59 37 02 146
% age 4.17% 16.95% 40.54% 0.00% 18.49%

19
2. Variances in practices across industry segments do exist. About 60% of the studied

companies in the Pharmaceutical industry segment have formed such board level committees.

The second spot going to the Metal industry with a distant 33% of the studied companied

having formed such committees. The Metal industry is followed by Petroleum refining with

23% of the companies adopting board committees for CSR related issues. Rest of the industry

segments have less than 20% of studied companies that have adopted such committees, with no

instance of such committees found in Building Materials, Glass and Electronics, Electrical

equipment industry segments. According to Pricewaterhouse Coopers (PWC) industry analysis

Pharmaceutical and life sciences companies are among the most analyzed and evaluated

organizations in business today and in the Metal sector there is an increased need for

transparency and disclosure in financial statements. Corporate Social Responsibility (CSR)

reporting. This probably explains the higher tendency of these companied to adopt CSR related

board committees.

3. Nomenclatures vary but objectives are similar. The 27 board committees that were found to

exist had more than 10 different nomenclatures ranging from Ethics committee to Corporate

responsibility committee to Environment, Health and Safety committee. However, a further

study into the charters of these committees revealed that the objectives of these differently

christened committees are quite similar to each other. The complete list of 27 committees can be

found in Appendix 1. Two sample ‘purposes’ from different countries, different industry

segments and different nomenclature are present below.

Company: Exxon Mobil , Country: USA, Name of the Committee: Public Issues
The primary purpose of the Public Issues Committee (the "Committee") is to review and provide advice, as the
Committee deems appropriate, regarding the Corporation's policies, programs and practices on public issues of
significance including their effects on safety, health and the environment.

Company: Roche Group, Country: Switzerland, Name of the Committee: Corporate Governance and
Sustainability
The Corporate Governance and Sustainability Committee shall assist the Board of Directors in matters relating to
corporate governance and in promoting sustainable management of the Company’s activities’. The Committee shall
supervise compliance of internal business principles and principles of behaviour with respect to legal as well as
safety and environmental matters. The Corporate Governance and Sustainability Committee shall oversee the
preparation of the sustainability report.

20
4.3.3. Evidence check for impact on social performance by adopting CSR related board level
committees.

As explained in the methodology a check was made in the Global 100 list of most sustainable

companied in the world. These companies are supposed to be world’s best social performing

companies. The results of the check are provided in Appendix 2.

Out of the 146 studied companies, 17 companies figured in the Global 100 list of most

sustainable companies in the world. Although all the 17 companies have explicitly stated

‘values’ only 6 companies have formed CSR related board committees.

Thus, based on the citrus paribus assumption that such board committee should lead to a

better social performance, the empirical evidence suggests that having such a committee is

not a determinant of improved social performance of companies.

4.3.4. Evidence check for impact on corporate reputation by adopting CSR related board level
committees.

As explained in the methodology a check was made in the RepTrak list of world’s most reputed

companies. The results of the check are provided in Appendix 3.

Out of the 146 studied companies, 23 companies figured in the list of 200 most reputed

companies of the world. 18 of the 23 companies have explicitly stated ‘values’, only 4 companies

have formed board level committees.

Thus, based on the citrus paribus assumption that such board committee should lead to a

better corporate reputation, the empirical evidence suggests that having such a committee is

not a determinant of enhanced corporate reputaion.

4.3.5. Risk Exposure as factor of adopting such committees

To determine whether Risk Exposure is a reason why companies adopt such committees, Risk

Exposure of the studied companies in the Pharmaceutical sector was calculated. The

21
methodology of Risk Exposure calculation and the reasoning for selecting Pharmaceutical

companies have already been explained in the method and data section.

The calculated Risk Exposure of the companies is given in Table 4:

Table 4: Calculated Risk Exposure of selected pharmaceutical companies
Company Country Values CSR committee Risk Exposure
Sanofi-Aventis France 1 0 101.63
Novartis Switzerland 1 0 67.16
AstraZeneca UK 1 0 73.33
Bristol-Myers Squibb USA 1 0 51.39
Pfizer USA 1 0 84.49
Average Risk Exposure 75.6
Johnson & Johnson USA 1 1 116.61
GlaxoSmithKline UK 1 1 87.71
Roche Group Switzerland 1 1 100.95
Abbott Laboratories USA 1 1 142.25
Merck USA 1 1 113.28
Wyeth USA 1 1 74.09
Eli Lilly USA 1 1 101.69
Average Risk Exposure 105.23

The Average Risk Exposure of the companies that have established CSR related board level

committees is much higher than that of companies that have not established CSR related board

level committees. Moreover at individual company level also it is evident that companies that

do not have such committees at the board level have lower Risk Exposure with the exception of

Sanofi-Aventis, which has been merged as an entity only recently, thus one may assume that its

Risk Exposure has increased only recently.

Thus the empirical evidence suggests that Risk Exposure is a possible factor why companies

adopt CSR related committees at Board level.

6. Limitations and Scope for further work

1. Due to time and information constraints a detailed statistical analysis could not be performed

on assessing the social and financial impact of ‘values’ adoption and establishing CSR related

22
board committees. Thus, the inferences have been based only on empirical evidence. There is a

scope of carrying out a detailed statistical analysis.

2. Only 146 companied across 11 industry segments and over 20 countries were studied for the

purpose of this paper, there is a scope of increasing the sample size and performing inter and

intra country/segment analysis.

7. Conclusion
This paper focused on understanding practices pertaining to ‘Corporate Values’ and ‘CSR

related Board Committees’ global companies. I have discussed that ‘Values’ indicate the

intended corporate behaviors, whereas CSR translates these intended behaviors to actions that

benefit the stakeholders at large. Through literature review I have also tried to establish that

corporate governance mechanisms lead to determination of ‘Corporate Values’. Forming board

level CSR related committees is one of the CSR governance options that corporations have and

thus is still not a very prevalent option as proved in the empirical research. Empirical evidences

also suggest that ‘Values’ adoption is becoming a global phenomenon, with companies in US,

UK and France adopting this practice completely. Industry segments such as Pharmaceuticals

and Food consumer products, which have higher consumer interaction, are more likely to adopt

corporate values. But the country practice prevails over industry practice. When it comes to

establishing CSR related board committees once again USA and UK companies pioneer.

Empirical evidence did not seem to suggest that establishing such committees leads to

improved social performance or corporate reputation. However, higher Risk Exposure seems to

be a possible reason why companies establish such committees.

23
8. References

Holme Richard and Watts Phil (2000), ‘Making good business sense’,
http://www.sustainablefinance.net/web/publications/csr2000.pdf

Kelly, Chris, and Kocourek, Paul and McGaw, Nancy and Samuelson Judith, (2005), ‘Deriving
values from corporate values’, Booz Allen Hamilton, and Aspen Institute study,
www.aspeninstitute.org

Orlitzky Marc and Schmidt Frank L. and Rynes Sara L.(2003), ‘Corporate Social and Financial
Performance:A Meta-analysis’, Organization Studies, SAGE publications

Rokeach, M. (1973), ‘The Nature of Human Values’, Free Press, New York, NY.

Thomsen, Steen (2004), ‘Corporate values and corporate governance’, Corporate Governance, Vol 4,
No. 4 2004 pp.29-46

Thomsen, Steen (2005), ‘Corporate governance as a determinant of corporate values’, Corporate

Governance, Vol 5, No. 4 2005 pp.10-27

White, Allen (2006), The stakeholder fiduciary: CSR, governance and future of boards, Business for
Social responsibility, www.bsr.org

www.bsr.org Issue Brief: ‘CSR Governance structures’, Business for Social responsibility,

http://money.cnn.com/magazines/fortune/global500/2006 - List of Fortune Global 500

companies

www.epson.co.jp – ‘Principles of corporate behavior as basis for CSR’

http://hbswk.hbs.edu/item/3179.html - ‘Where Morals and Profits Meet:

The Corporate Value Shift’

www.global100.com – ‘World’s most sustainable companies’

www.globalinsight.com – Global Risk Overview

http://www.reputationinstitute.com – ‘Global pulse RepTrak2006- World’s most reputed companies’

http://www.forbes.com/2006/11/20/leadership-companies-reputation-lead-managing-
cx_hc_1120rep_list.html- ‘Global pulse RepTrak2006- World’s most reputed companies’
Corporate websites of all studied companies

24
Appendix 1: CSR/Ethics related Board Committees observed (27 in 146 studied
companies)
All these companies have also adopted values!

Country Industry Segment Company Name Name of the Board Committee

Canada Metals Alcan Environmental, Health & Safety
France Engineering, Construction Bouygues Ethics and Sponsorship
France Energy Suez Ethics, Environment and
Sustainable Development
France Utilities Électricité De France Ethics
India Petroleum refining Reliance Industries Environmental, Health & Safety
NL Petroleum refining Royal Dutch Shell Social Responsibility
S Korea Metals POSCO Insider Trading Committee
CH Pharmaceuticals Roche Group Corporate Governance and Sustainability
UK Pharmaceuticals GlaxoSmithKline Responsibility
UK Food consumer products Unilever Corporate responsibility & reputation
UK Petroleum refining BP Ethics and environment assurance
UK Utilities Centrica Corporate Responsibility
UK Utilities National Grid Risk & Responsibility
USA Chemicals Dow Chemical Environmental, Health & Safety
USA Industrial & Farm Equipment Caterpillar Public Policy
USA Metals Alcoa Public Issues
USA Metals United States Steel Public Policy
USA Pharmaceuticals Johnson & Johnson Public Policy
USA Pharmaceuticals Abbott Laboratories Public Policy
USA Pharmaceuticals Merck Public Policy and Social Responsibility:
USA Pharmaceuticals Wyeth Corporate Issues
USA Pharmaceuticals Eli Lilly Public Policy and Compliance
USA Petroleum refining Exxon Mobil Public Issues
USA Petroleum refining Chevron Public Policy
USA Petroleum refining ConocoPhillips Public Policy
USA Petroleum refining Sunoco Public Affairs
USA Petroleum refining Tesoro Environmental, Health & Safety
Appendix 2: List of studied companies found in the Global 100 list (1 – yes, 0 – no)

Industry Company Country Values CSR Global 100

committee
Electronics, Electrical Equipment Matsushita Electric Industrial Japan 1 0 1
Pharmaceuticals GlaxoSmithKline UK 1 1 1
Food consumer products Unilever UK 1 1 1
Building Materials, Glass Lafarge France 1 0 1
Chemicals BASF Germany 1 0 1
Electronics, Electrical Equipment Royal Philips Electronics NL 1 0 1
Engineering, Construction Skanska Sweden 1 0 1
Industrial & Farm Equipment ABB CH 1 0 1
Metals Arcelor Lux 1 0 1
Metals Alcoa USA 1 1 1
Metals Alcan Canada 1 1 1
Pharmaceuticals Johnson & Johnson USA 1 1 1
Pharmaceuticals Novartis CH 1 0 1
Food consumer products Groupe Danone France 1 0 1
Petroleum refining BP UK 1 1 1
Utilities Scottish & Southern Energy UK 1 0 1
Utilities Iberdrola Spain 1 0 1

1
Appendix 3: List of studied companied found in list of most reputed companies list
(1 – yes, 0 – no)

Industry Company country Values CSR committee Reptrak

Building Materials, Glass Saint-Gobain France 1 0 1
Building Materials, Glass Cemex Mexico 1 0 1
Chemicals Akzo Nobel NL 1 0 1
Electronics, Electrical Equipment Siemens Germany 1 0 1
Electronics, Electrical Equipment Hitachi Japan 0 0 1
Electronics, Electrical Equipment Samsung Electronics S Korea 1 0 1
Electronics, Electrical Equipment Matsushita Electric Industrial Japan 1 0 1
Electronics, Electrical Equipment Sony Japan 0 0 1
Electronics, Electrical Equipment LG S Korea 1 0 1
Electronics, Electrical Equipment Toshiba Japan 1 0 1
Electronics, Electrical Equipment Sharp Japan 1 0 1
Electronics, Electrical Equipment Electrolux Sweden 0 0 1
Industrial & Farm Equipment Caterpillar USA 1 1 1
Industrial & Farm Equipment Deere USA 1 0 1
Metals Norsk Hydro Norway 1 0 1
Pharmaceuticals GlaxoSmithKline UK 1 1 1
Food consumer products Nestlé CH 1 0 1
Food consumer products Unilever UK 1 1 1
Food consumer products PepsiCo USA 1 0 1
Food consumer products Sara Lee USA 1 0 1
Petroleum refining SK S Korea 0 0 1
Petroleum refining Lukoil Russia 0 0 1
Utilities Électricité De France France 1 1 1