I am at Bentley University, in Massachussets, attending the Bentley Global Business Ethics Symposium, sponsored by State Street Foundation.The tittle of the symposium is “the Future of Capitalism: Ethics, Sustainable Practice & the Global Economy.” Stephen B. Young, global executive director of the Caux Round Table, has just shared his views on how Corporate Social Responsibility (CSR) standards need to be used to rate and evaluate companies.”
The Caux Round Table is an international network of experienced business leaders who advocate a principled approach to global capitalism. Steve has published Moral Capitalism, a well-received book written as a guide to use of the Caux Round Table ethical and socially responsible Principles for Business.
Stephen B. Young states that the most profitable companies have one thing in common: they focus on maximizing the value of their intangible assets. He cited a study of Brand Finance indicating that 80% of the value of S&P companies comes from intangible assets. In fact, for tech companies, 90% of total enterprise value comes from intangible assets.
Mr Young, listed among the 23 persons noted as creating the corporate social responsibility movement in Sandra Waddock’s The Difference Makers (Greenleaf Publishing, 2008), mentioned Starbucks, Facebook, and Apple as examples of companies that focuses on intangible assets to create value. According to the global executive director of Caux Round Table, coffee beans in a Starbucks Grande cup (medium size) costs only 2 cents. Nonetheless, people accept to pay over 3 US$.
So, let’s assume you agree that companies should invest in intangible assets to create value. How to go about that? Mr Young’s answer: invest in corporate social responsibility. He affirms that we should use CSR standards and metrics to value companies. However, today there is no reliable rating/valuation methodology to measure CSR standards. He suggests the that The Global 100, which ranks the most sustainable corporations in the world, is not good enough. The Global 100, announced each year during the World Economic Forum in Davos, is the most extensive data-driven corporate sustainability assessment in existence, but inclusion is limited to a select group of the top 100 large-cap companies in the world. By the way, Natura a Brazilian cosmetics company, was ranked second worldwide. The other Brazilians companies ranked are Bradesco and Petrobras.
Therefore, we need a new rating/valuation methodology that uses CSR standards to rate and valuate companies. However, when proposing solutions, Mr Young only proposed what Caux Round Table offers.
I am not aware of many tools proposing valuation by analyzing CSR. However, the focus on intangible assets made me think about the book “Firms of endearment” by Raj Sisodia, David Wolfe, and Jagdish N. Sheth, which advocates that companies with a clear stakeholder relationship management (SRM) business model develop a significant and lasting competitive advantage over their counterparts who subscribe to the more traditional shareholder perspective. These firms of endearment, like Whole Foods, Southwest Airlines, Google, Traders Joe’s, pay their employees very well, provide great value to customers, and have thriving, profitable suppliers. However, they have also rewarded shareholders well above the norm, returning 1025% over the past 10 years, compared to only 122% for the S&P 500.
I am not aware about what the best way to measure enterprise value. However, I leave the conference “future of capitalism” I am sure things are changing. Tomorrow, I am attending the “Conscious Capitalism” conference. I am sure I will come across many interesting propositions.