CORPORATE SOCIAL RESPONSIBILITY RATINGS
www.vigeo.com
SRIResearch
Social ratings in a financial perspective:
Case study on corporate restructurings
TBLI, Amsterdam,13 November 2009
2.
TBLI – 13 November 2009
Agenda
- Social ratings on restructuring- Weak overall performance
- Vigeo research methodology- Responsible restructuring: a material theme
Vigeo ratings on responsible restructurings
- Low restructuring risk + high restructuring skills could lead to better performance
- Staff costs / EBIT: an indicator of restructuring risk
Linking social ratings& financial indicators
3.
TBLI – 13 November 2009
Vigeo research methodology:Definition of CSR
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.
CompanyStakeholders
4.
TBLI – 13 November 2009
Vigeo research methodology:CSR domains under review
6 domains of Corporate Social Responsibility evaluated:
5.
TBLI – 13 November 2009
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
Vigeo research methodology:Sustainability drivers in the Human Resources domain
Material sustainability drivers identified within each sector
6.
TBLI – 13 November 2009
Responsible corporate restructurings: A material issue in the current economic context
Restructuring: the crisis catalyst
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
Q1 - 2007 Q2 - 2007 Q3 - 2007 Q4 - 2007 Q1 - 2008 Q2 - 2008 Q3 - 2008 Q4 - 2008 Q1 - 20090
5
10
15
20
25
30
35
40
45
Number of Jobs Number of plans
Source: SG Equity Research, ERM
Out of 206 EU companies:
Since January 2007146 social plansby 126 companies
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
7.
TBLI – 13 November 2009
Managing restructurings responsibly : Extra costs or sound risk management ?
Avoiding social conflicts
Maintaining high productivity
Human Capital Operational
EfficiencyReputation
LegalSecurity
Ability to retain skills and know-how
Supportive social climate
Keeping employee motivation high
Avoiding legal liabilities
Maintaining positive brand image
Ability to attract new skills
Responsible management of restructurings:
In Vigeo’s opinion, benefits should outweigh extra costs through a better control of associated risks:
8.
TBLI – 13 November 2009
How does Vigeo measure a responsible restructuring ?
Vigeo does not provide an opinion on the strategic relevance of the management’s decision to restructure
- to prevent and limit redundancies - to mitigate the negative effects on employees
employee representatives before / during restructuring processInform and consult
Put in place measures
Vigeo assesses companies' ability to :
OECD guidelines formultinationals
EU Directive on Collective Dismissals (98/59/EC)
ILO conventions(C 158, R 166)
9.
TBLI – 13 November 2009
How does Vigeo measure a responsible restructuring ?
Vigeo analysts review…
…based on information from:
Extent of measures and processes implemented- Basic measures: severance pay, early retirement
- Advanced measures: support to internal/external mobility, business creation, re-training
Company policies and commitmentsLEADERSHIP
IMPLEMENTATION
Reporting and results achievedRESULTS
Corporate documentation and exchanges withcompaniesCOMPANIES
Information from trade unionsSTAKEHOLDERS
10.
TBLI – 13 November 2009
Overall performance of companies is weak
Overall distribution of European companies by level of performance – responsible restructuring
Advanced9%
Strong14%
Average24%
Weak53%
Source: Vigeo
Average score: 31/100Maximum score 88/100Minimum score 0/100
European companies only partially achieve their objectives to manage restructurings responsibly
11.
TBLI – 13 November 2009
Companies are more reactive than proactive
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
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
1 0 0
L e a d e r s h i p I m p l e m e n t a t i o n R e s u l t s
S o u r c e : V i g e o
Controversies on
3% of companies
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
12.
TBLI – 13 November 2009
Performance by country
A v e ra g e sc o re b y c o u n try o f o rig in
0
5
1 0
1 5
2 0
2 5
3 0
3 5
4 0
4 5
5 0
Irela
nd
Luxe
mbo
urg
Por
tuga
l
Uni
ted
King
dom
Gre
ece
Aust
ria
Swed
en
Switz
erla
nd
Finl
and
Spai
n
Den
mar
k
Italy
Belg
ium
Ger
man
y
The
Net
herla
nds
Fran
ce
Nor
way
S o u rc e : V ig e o
High performing countries are marked by a consensus-driven model (Netherlands, Germany)
Low performing countries are marked by weak legal frameworks (UK, Ireland)
13.
TBLI – 13 November 2009
Performance by sector
highly qualified labour
Highperforming
sectors
strong presence of
unions
historic role of the state
A v e ra g e s c o re b y s e c t o r
05
1 01 52 02 53 03 54 04 5
Trav
el &
Lei
sure
Food
& B
ever
age
Indu
stria
l Goo
ds &
Ser
vice
s
Fina
ncia
l Ser
vice
s
Per
sona
l Hou
seho
ld
Goo
ds
Tech
nolo
gy
Hea
lthca
re
Med
ia
Ret
ail
Oil
and
Gas
Insu
ranc
e
Tele
com
mun
icat
ions
Aut
omob
iles
& p
arts
Con
stru
ctio
n &
mat
eria
ls
Ban
ks
Bas
ic re
sour
ces
Che
mic
als
S o u r c e : V i g e o
14.
TBLI – 13 November 2009
A link between a company’s ability to manage restructurings responsibly and to :
• Correlation of 0.6 between scores of the two criteria
• Correlation of 0.6 between scores of the two criteria
Social dialogue, career management and training are key
Constructive social dialogue Success in the consultation and negotiation with employee representatives
Ensuring employability Promoting mobilityMatching employment needs & skill requirements
Success in anticipating employment trends& Achieving internal and external reemployment
Promote labour relations
Promote career management and training
15.
TBLI – 13 November 2009
Linking social ratings and financial indicators
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 undertakesocially 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 financialconsiderations.
16.
TBLI – 13 November 2009
Staff costs/EBIT: an indicator of the likelihood of restructuring
Restructuring Plans and Staff costs / EBIT parallel evolution
0
5
10
15
20
25
30
35
40
45
Q1 - 2007 Q2 - 2007 Q3 - 2007 Q4 - 2007 Q1 - 2008 Q2 - 2008 Q3 - 2008 Q4 - 2008 Q1 - 20091.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
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)
Perfect parallelism
No time-lag
17.
TBLI – 13 November 2009
Net Restructuring Risk = Risk (Staff costs / EBIT) / Restructuring skills
(qualitative score)
Net restructuring risk: a sectoral view over 2001-2008
Automobiles & Compo nents
Capital Goods
Commercial Services & Supplies
Energy
Foo d & Staples Retailing Ho tels Restaurants & LeisureM edia
Teleco mmunication Services
Transportatio n
Utilities
Co nsumer Durables & Apparel
Fo od Beverage & TobaccoHealth Care Equipment &
Services
Househo ld & Personal P roducts
M aterials
Pharmaceuticals & B io techno lo gy
Retailing
Semiconducto rs & Semiconducto r Equipment
So ftware & Services
Techno logy Hardware & Equipment
A VERAGE
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00
Restructuring Risk (Staff Costs / EB IT)
☺
Source: SG Equity Research
18.
TBLI – 13 November 2009
Auto: high risk, low EBIT margins, good restructuring skills
Restructuring skills vs. restructuring risk
BMW
Continental
Daimler
FaureciaFiatMichelin
Peugeot Citroen PSA
Pirelli
Porsche
Renault
Valeo
Volkswagen (Pref.)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
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)
Soc
ial P
erfo
rman
ce (V
igeo
)
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 unmanageably high fixed costs
Good restructuring skills, as the sector has a history of frequent downsizing
19.
TBLI – 13 November 2009
Software: most exposed sector
Restructuring skills vs. restructuring risk
Alten Altran Technologies
Atos Origin
CapgeminiDassault Systèmes
Indra Sistemas SA
Logica
Sage Group
SAPSteria
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
Risk (Staff cost to EBIT)
Soc
ial P
erfo
rman
ce (V
igeo
)
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 > 8xDassault Systèmes, Indra and SAP: best net risk profiles
20.
TBLI – 13 November 2009
Positive link to financial performance
Backtest 2007- 2009: restructuring risk and skills (perform ance)
90.0
95.0
100.0
105.0
110.0
115.0
déc-06 mars-07 ju in -07 sept-07 déc-07 mars-08 ju in -08 sept-08 déc-08 mars-09
Sector - Low R isk Secto r - H igh R isk Sector - Low Perf Secto r - H igh Perf
So urc e : SG Eq u ity Researc h , Vig eo
Investing in companies with either : good restructuring skills or a low restructuring risk
could OUTPERFORM
21.
TBLI – 13 November 2009
Positive link to financial performance
D e t a ile d b a c k - t e s t : 2 0 0 7 - 2 0 0 9
9 0 .0
9 5 .0
1 0 0 .0
1 0 5 .0
1 1 0 .0
1 1 5 .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 9S e c to r - L o w R is k - L o w P e r f S e c to r - L o w R is k - H ig h P e r fS e c to r - H ig h R is k - L o w P e r f S e c to 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 i t y R e s e a rc h
Mixing up Low restructuring risk with Good restructuring skills
could deliver an even BETTER PERFORMANCE
VIGEOLes Mercuriales - 40 rue Jean Jaurès93170 Bagnolet - FranceT: +33 1 49 72 46 00 - F: +33 1 49 72 46 10
www.vigeo.comCORPORATE SOCIAL RESPONSIBILITY RATINGS
PARISBRUXELLESMILANCASABLANCA Estelle Mironesco –
Director, SRI Research T +33 1 55 82 32 56 [email protected]
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