SRI
Research                                 CORPORATE SOCIAL RESPONSIBILITY RATINGS




                Social ratings in...
Agenda
                                                                               2.

                             - V...
Vigeo research methodology:
       Definition of CSR                                                                 3.
 C...
Vigeo research methodology:
               CSR domains under review                                    4.
6 domains of Cor...
Vigeo research methodology:
    Sustainability drivers in the Human Resources domain                                   5.
...
Responsible corporate restructurings:
               A material issue in the current economic context
                    ...
Managing restructurings responsibly :
                 Extra costs or sound risk management ?
                            ...
How does Vigeo measure a responsible
        restructuring ?
                                                             ...
How does Vigeo measure a responsible
     restructuring ?
                                                                ...
Overall performance of companies is weak
                                                                                 ...
Companies are more reactive than proactive
                                                                               ...
Performance by country
                                                                                                   ...
0
                                                                      5
                                                ...
Social dialogue, career management and training
          are key
                                                        ...
Linking social ratings and financial indicators
                                                                          ...
Staff costs/EBIT:
             an indicator of the likelihood of restructuring                                            ...
Net Restructuring Risk =
                                  Risk (Staff costs / EBIT) / Restructuring skills
              ...
Auto: high risk, low EBIT margins, good
                                               restructuring skills               ...
Software: most exposed sector
                                                                                            ...
Positive link to financial performance
                                                                                   ...
Positive link to financial performance
                                                                                   ...
VIGEO
                                          Les Mercuriales - 40 rue Jean Jaurès
                                     ...
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Social ratings in a financial perspective: Case study on corporate restructurings

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Estelle Mironesco, SRI Department Director - Vigeo Group - France

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Social ratings in a financial perspective: Case study on corporate restructurings

  1. 1. SRI Research CORPORATE SOCIAL RESPONSIBILITY RATINGS Social ratings in a financial perspective: Case study on corporate restructurings TBLI, Amsterdam, 13 November 2009 www.vigeo.com
  2. 2. Agenda 2. - Vigeo research methodology - Responsible restructuring: a material theme Vigeo ratings on responsible restructurings - Social ratings on restructuring - Weak overall performance - Staff costs / EBIT: an indicator of restructuring risk Linking social ratings & financial indicators - Low restructuring risk + high restructuring skills could lead to better performance TBLI – 13 November 2009
  3. 3. Vigeo research methodology: Definition of CSR 3. Corporate Social Responsibility is the commitment from the company management to take into account stakeholders expectations. Managing impacts on stakeholders is a means to mitigate risks (on its reputation, human capital, operating efficiency, legal security) and ultimately is a source of opportunities and continuous improvement for the company. Stakeholders Company TBLI – 13 November 2009
  4. 4. Vigeo research methodology: CSR domains under review 4. 6 domains of Corporate Social Responsibility evaluated: TBLI – 13 November 2009
  5. 5. Vigeo research methodology: Sustainability drivers in the Human Resources domain 5. Material sustainability drivers identified within each sector Human Resources HRS1.1 Promotion of labour relations HRS1.2 Encouraging employee participation HRS2.3 Responsible management of restructurings HRS2.4 Career management and promotion of employability HRS3.1 Quality of remuneration systems HRS3.2 Improvement of health and safety conditions HRS3.3 Respect and management of working hours TBLI – 13 November 2009
  6. 6. Responsible corporate restructurings: A material issue in the current economic context 6. 60% of companies in the universe under review have carried out restructurings since January 2007 Corporate restructurings, although inherent to the market economy, are amplified by the current economic crisis A cause of concern for employees, companies and investors Restructuring: the crisis catalyst 80 000 45 70 000 40 35 Out of 206 EU companies: 60 000 30 50 000 25 40 000 Since January 2007 20 30 000 146 social plans 15 20 000 by 126 companies 10 10 000 5 0 0 Q1 - 2007 Q2 - 2007 Q3 - 2007 Q4 - 2007 Q1 - 2008 Q2 - 2008 Q3 - 2008 Q4 - 2008 Q1 - 2009 Number of Jobs Number of plans Sourc e: SG Equity Researc h, ERM TBLI – 13 November 2009
  7. 7. Managing restructurings responsibly : Extra costs or sound risk management ? 7. Responsible management of restructurings: In Vigeo’s opinion, benefits should outweigh extra costs through a better control of associated risks: Operational Legal Human Capital Reputation Efficiency Security Ability to retain skills Avoiding social Maintaining positive Avoiding legal and know-how conflicts brand image liabilities Supportive social Maintaining high Ability to attract new climate productivity skills Keeping employee motivation high TBLI – 13 November 2009
  8. 8. How does Vigeo measure a responsible restructuring ? 8. EU Directive on Collective ILO conventions OECD guidelines for Dismissals (98/59/EC) (C 158, R 166) multinationals Vigeo assesses companies' ability to : employee representatives Inform and consult before / during restructuring process - to prevent and limit redundancies Put in place measures - to mitigate the negative effects on employees Vigeo does not provide an opinion on the strategic relevance of the management’s decision to restructure TBLI – 13 November 2009
  9. 9. How does Vigeo measure a responsible restructuring ? 9. Vigeo analysts review… LEADERSHIP Company policies and commitments Extent of measures and processes implemented IMPLEMENTATION - Basic measures: severance pay, early retirement - Advanced measures: support to internal/external mobility, business creation, re-training RESULTS Reporting and results achieved …based on information from: Corporate documentation and exchanges with COMPANIES companies STAKEHOLDERS Information from trade unions TBLI – 13 November 2009
  10. 10. Overall performance of companies is weak 10. European companies only partially achieve their objectives to manage restructurings responsibly Overall distribution of European companies by level of performance – responsible restructuring Advanced 9% Strong 14% Average score: 31/100 Maximum score 88/100 Weak 53% Minimum score 0/100 Average 24% Source: Vigeo TBLI – 13 November 2009
  11. 11. Companies are more reactive than proactive 11. Few framework policies or agreements show that companies fail to anticipate restructurings Most companies do not implement significant measures to mitigate layoffs Few companies go beyond legal compliance: focus on processes rather than results A v e r a g e s c o r e (/ 1 0 0 ) b y m a n a g e m e n t d im e n s io n 100 90 80 70 60 Controversies on 50 40 3% of companies 30 20 10 0 L e a d e r s h ip Im p le m e n ta tio n R e s u lts S o u r c e : V ig e o TBLI – 13 November 2009
  12. 12. Performance by country 12. A v e ra g e s c o re b y c o u n t ry o f o rig in 50 45 40 35 30 25 20 15 10 5 0 Luxembourg Denmark Germany Norway Sweden Kingdom Greece Belgium France Portugal Italy Netherlands Ireland Austria Switzerland Spain Finland United The S o u r c e : V ig e o Low performing countries are marked High performing countries are by weak legal frameworks (UK, Ireland) marked by a consensus-driven model (Netherlands, Germany) TBLI – 13 November 2009
  13. 13. 0 5 10 15 20 25 30 35 40 45 role of historic the state S o u r c e : V ig e o Travel & Leisure Food & Beverage High sectors strong unions Industrial Goods & performing presence of Services A v e ra g e s c o re b y s e c to r Financial Services highly Personal Household labour qualified Goods Technology Healthcare Media Performance by sector Retail Oil and Gas Insurance Telecommunications Automobiles & parts Construction & materials Banks Basic resources Chemicals TBLI – 13 November 2009 13.
  14. 14. Social dialogue, career management and training are key 14. A link between a company’s ability to manage restructurings responsibly and to : Promote labour relations Success in the consultation and negotiation with Constructive social dialogue employee representatives • Correlation of 0.6 between scores of the two criteria Promote career management and training Ensuring employability Promoting mobility Success in anticipating employment trends & Matching employment needs Achieving internal and external reemployment & skill requirements • Correlation of 0.6 between scores of the two criteria TBLI – 13 November 2009
  15. 15. Linking social ratings and financial indicators 15. Are there financial indicators enabling to foresee imminent restructurings? Is a responsible management of restructurings solely an additional cost for companies or does it enable companies to better control the associated risks? Is there a link between a company’s willingness and ability to undertake socially responsible restructurings and its economic performance? A joint research carried out by Vigeo and SG Securities introduces an innovative approach to this theme, combining both social and financial considerations. TBLI – 13 November 2009
  16. 16. Staff costs/EBIT: an indicator of the likelihood of restructuring 16. Restructuring Plans and Staff costs / EBIT parallel evolution 45 1.90 40 1.80 35 1.70 30 Perfect parallelism 25 1.60 20 1.50 No time-lag 15 1.40 10 1.30 5 0 1.20 Q1 - 2007 Q2 - 2007 Q3 - 2007 Q4 - 2007 Q1 - 2008 Q2 - 2008 Q3 - 2008 Q4 - 2008 Q1 - 2009 Number of plans Staff costs / EBIT Source: SG Equity Research, Datastream/IBES for EBIT forward estimates – coverage: common universe SG-Vigeo, sample median, elimination of non significant data (negative EBIT) TBLI – 13 November 2009
  17. 17. Net Restructuring Risk = Risk (Staff costs / EBIT) / Restructuring skills (qualitative score) 17. Net restructuring risk: a sectoral view over 2001-2008 55.0 Utilities 50.0 Semico nducto rs & A uto mo biles & Co mpo nents Semico nducto r Equipment Techno lo gy Hardware & Ho useho ld & P erso nal 45.0 ☺ P ro ducts Teleco mmunicatio n Services Equipment Energy P harmaceuticals & 40.0 B io techno lo gy A VERA GE M aterials Fo o d & Staples Retailing Ho tels Restaurants & Leisure 35.0 M edia Capital Go o ds Transpo rtatio n So ftware & Services Co nsumer Durables & A pparel 30.0 Fo o d B everage & To bacco 25.0 Health Care Equipment & Services 20.0 Retailing 15.0 Co mmercial Services & Supplies 10.0 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Restructuring Risk (Staff Co sts / EB IT) Source: SG Equity Research TBLI – 13 November 2009
  18. 18. Auto: high risk, low EBIT margins, good restructuring skills 18. Restructuring skills vs. restructuring risk 90.0 Peugeot Citroen PSA 80.0 Renault Social Performance (Vigeo) 70.0 Daimler 60.0 Volkswagen (Pref.) BMW 50.0 Faurecia Michelin Valeo Fiat 40.0 Pirelli 30.0 20.0 Porsche Continental 10.0 0.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Risk (Staff cost to EBIT) Source: SG Equity Research, Vigeo, Companies => Restructuring Performance: defined as Vigeo score on restructuring ([0;100] scale) & Restructuring Risk defined as Staff costs / EBIT (EBIT multiple: historical data for 2001-2008 and SG estimates for 2009 YTD); Daimler included Chrisler until 2007 Low EBIT margins driving to Good restructuring skills, as the sector has a unmanageably high fixed costs history of frequent downsizing TBLI – 13 November 2009
  19. 19. Software: most exposed sector 19. Restructuring skills vs. restructuring risk 70.0 60.0 Indra Sistemas SA Social Performance (Vigeo) 50.0 Dassault Systèmes Capgemini 40.0 Steria Logica SAP Atos Origin 30.0 Sage Group 20.0 Alten Altran Technologies 10.0 0.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 Risk (Staff cost to EBIT) Source: SG Equity Research, Vigeo, Companies => Restructuring Performance: defined as Vigeo score on restructuring ([0;100] scale) & Restructuring Risk defined as Staff costs / EBIT (EBIT multiple: historical data for 2001-2008 and SG estimates for 2009 YTD) Staff costs / EBIT > 8x Dassault Systèmes, Indra and SAP: best net risk profiles TBLI – 13 November 2009
  20. 20. Positive link to financial performance 20. Investing in companies with either : good restructuring skills or a low restructuring risk could OUTPERFORM B a c kte st 2 0 0 7 - 2 0 0 9 : re struc turing risk a nd skills (p e rfo rm a nc e ) 1 1 5 .0 1 1 0 .0 1 0 5 .0 1 0 0 .0 9 5 .0 9 0 .0 d é c -0 6 m a rs -0 7 ju in -0 7 s e p t-0 7 d é c -0 7 m a rs -0 8 ju in -0 8 s e p t-0 8 d é c -0 8 m a rs -0 9 S e c to r - L o w R is k S e c to r - H ig h R is k S e c to r - L o w P e rf S e c to r - H ig h P e rf S o u rc e : S G Eq u it y R e s e a rc h , Vig e o TBLI – 13 November 2009
  21. 21. Positive link to financial performance 21. D e t a ile d b a c k - t e s t : 2 0 0 7 - 2 0 0 9 1 1 5 .0 1 1 0 .0 1 0 5 .0 1 0 0 .0 9 5 .0 9 0 .0 d é c -0 6 m a rs -0 7 ju in - 0 7 c t o s e pLt o0 7 R is d é-c L 0 7 P mr a r s - 0 8 Se r - - w k - ow e f ju inc- t o8 - L s e p R 0 8 - H ig c - 0 8 r f m a r s - 0 9 Se 0 r o w t - is k dé h Pe S e c t o r - H ig h R is k - L o w P e r f S e c t o r - H ig h R is k - H ig h P e r f S o u r c e : S G E q u it y R e s e a rc h Mixing up Low restructuring risk with Good restructuring skills could deliver an even BETTER PERFORMANCE TBLI – 13 November 2009
  22. 22. VIGEO Les Mercuriales - 40 rue Jean Jaurès 93170 Bagnolet - France T: +33 1 49 72 46 00 - F: +33 1 49 72 46 10 CORPORATE SOCIAL RESPONSIBILITY RATINGS www.vigeo.com PARIS BRUXELLES MILAN CASABLANCA Estelle Mironesco – Director, SRI Research T +33 1 55 82 32 56 estelle.mironesco@vigeo.com

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