Ethical Performance
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our role is to question, not merely observe

May 2004

Alan MacDougall takes issue with Peter Knight’s recent attack on ‘tick-box political correctness’

A response is needed to Peter Knight’s claim in last month’s guest column that ‘self appointed judges’ such as Pensions and Investment Research Consultants lay a ‘pathetic emphasis on political correctness’ by marking down companies that fail to reflect the diversity of society or show evidence of engaging with stakeholders. So here we go:

Self-appointed judges: Like Context, Pirc provides services to clients on a commercial basis, and we hope we do it in a socially responsible manner. Peter, perfectly respectably, takes money to help companies present their story to the best possible effect.

We work for investors willing to pay for our research and an independent view. We do not act as company consultants. We try to convince others of the merit of our ideas, and many of our guidelines on corporate governance are in the revised Combined Code published last year. The economic impact of publicly listed companies means that accountability is important. If we are ‘self-appointed’, then so too are all equity analysts.

CSR pundits say we should reflect the diversity of the society around us: Until Peter’s business becomes a listed company, we couldn’t care less about Context’s diversity, although his multinational clients may wonder to what extent his firm can tailor appropriate messages that recognize cultural differences. The reference to his engineering firm client is revealing. How does he back up his claim that the pool of talented engineers is limited to what – by his description – are a type of white, male ‘anorak’? The same way British boardrooms justify the absence of diversity among their directors? Or previous generations argued that women couldn’t succeed in business?

Pirc marks down these mono-crop companies when they rank them in The Times: False. Diversity is not considered in our ratings. But if a company has a lot of staff from ‘minority’ backgrounds (however defined), though none in its upper echelons, shouldn’t it investigate whether it is getting the best out of all its people or whether an assumed mould is creating hidden barriers?

They do the same if businesses can’t demonstrate that they engage with their stakeholders: Here we plead guilty. We do take this into account, as we believe it is something investors need to know. For a consumer goods company, consumers will be the major stakeholder group. But not the only one. Managing stakeholder engagement can assist both risk control and better performance. On all of these issues there is room for different opinions. Our positions reflect 16 years’ experience of looking at CSR and corporate governance issues from a portfolio investor’s perspective. Pirc doesn’t sit Hobbit-like in a hole, but goes out and debates with companies and investors. We look forward to continuing to do so!

Alan MacDougall is managing director of Pensions
and Investment Research Consultants Limited.
email: AlanM@pirc.co.uk




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