RANK COMPANY SECTOR SCORE CLASSIFICATION · 16 CIC Petroleum, lubricants, chemicals and pharmaceuticals 61.65 ... tent to which a company measures its performance against ... out

101 – FEBRUARY 2010 – LMD

2 Cargills Food, beverage and tobacco 77.65

3 Maga Engineering Manufacturing and construction 75.90

4 Aitken Spence Diversified holdings 75.85

5 Ceylon Tobacco Food, beverage and tobacco 74.80

6 Brandix Apparel, footwear and textiles 73.40

7 John Keells Holdings Diversified holdings 71.45

8 Coca-Cola Beverages Food, beverage and tobacco 65.95

9 John Keells Hotels Hotels and travel 65.55

10 Union Assurance Banking, finance and insurance 65.50

11 HNB Banking, finance and insurance 64.65

12 NDB bank Banking, finance and insurance 64.35

13 E-wis ICT and telecommunications 63.85

14 Aitken Spence Hotels Hotels and travel 63.35

15 DIMO* Motor and logistics 62.15

16 CIC Petroleum, lubricants, chemicals and pharmaceuticals 61.65

17 Softlogic Diversified holdings 60.60

18 Asian Hotels Hotels and travel 60.30

19 Hayleys Diversified holdings 59.10

20 People’s Leasing* Banking, finance and insurance 57.10

21 Commercial Bank* Banking, finance and insurance 54.00

22 Ceylon Cold Stores Food, beverage and tobacco 53.00

23 Hayleys Advantis Motor and logistics 52.55

24 LOLC* Banking, finance and insurance 51.00

25 Eagle Insurance* Banking, finance and insurance 50.70

26 SriLankan Airlines* Hotels and travel 49.80

27 Hayleys MGT* Apparel, footwear and textiles 43.75

28 Dipped Products* Manufacturing and construction 43.20

29 DFCC Bank* Banking, finance and insurance 42.25

30 Richard Pieris* Diversified holdings 41.60

31 Chevron Lubricants* Petroleum, lubricants, chemicals and pharmaceuticals 39.90 Unclassified

32 Singer* Consumer durables 39.40 Unclassified

33 Ceylon Grain Elevators* Manufacturing and construction 38.65 Unclassified

34 NSB* Banking, finance and insurance 38.40 Unclassified

35 Colombo Dockyard* Manufacturing and construction 38.10 Unclassified

36 Sampath Bank* Banking, finance and insurance 38.00 Unclassified

Nestlé Lanka* Food, beverage and tobacco 38.00 Unclassified

38 Bank Of Ceylon* Banking, finance and insurance 37.90 Unclassified

39 Hemas Holdings* Diversified holdings 37.80 Unclassified

40 Sunshine Holdings* Diversified holdings 37.00 Unclassified

41 Janashakthi Insurance* Banking, finance and insurance 36.90 Unclassified

42 Browns* Diversified holdings 36.50 Unclassified

43 Nations Trust Bank* Banking, finance and insurance 36.40 Unclassified

MBSL* Banking, finance and insurance 36.40 Unclassified

45 Kuruwita Textiles* Apparel, footwear and textiles 34.00 Unclassified

46 Haycarb* Manufacturing and construction 33.85 Unclassified

47 Airport & Aviation Services* Hotels and travel 33.00 Unclassified

48 State Mortgage & Investment Bank* Banking, finance and insurance 32.90 Unclassified

People’s Bank* Banking, finance and insurance 32.90 Unclassified

50 Tokyo Cement* Manufacturing and construction 32.55 Unclassified

51 Sri Lanka Telecom* ICT and telecommunications 32.20 Unclassified

52 Ceylon Theatres* Diversified holdings 30.50 Unclassified

53 United Motors* Motor and logistics 29.40 Unclassified

54 HDFC Bank* Banking, finance and insurance 28.60 Unclassified

55 Ceylon Tea Services* Food, beverage and tobacco 28.40 Unclassified

56 Lanka IOC Petroleum, lubricants, chemicals and pharmaceuticals 27.75 Unclassified

57 ACL Cables* Manufacturing and construction 27.50 Unclassified

58 Ceylinco Insurance* Banking, finance and insurance 26.00 Unclassified

59 Central Finance* Banking, finance and insurance 24.00 Unclassified

60 Seylan Bank* Banking, finance and insurance 22.20 Unclassified

61 Bukit Darah* Diversified holdings 20.90 Unclassified

62 State Pharmaceuticals Corporation* Petroleum, lubricants, chemicals and pharmaceuticals 19.90 Unclassified

63 C. W. Mackie* Diversified holdings 14.70 Unclassified

64 Lanka Ceramic* Manufacturing and construction 13.50 Unclassified

65 Ceylon Brewery* Food, beverage and tobacco 7.00 Unclassified

66 Distilleries* Food, beverage and tobacco 4.90 Unclassified

* These companies did not respond to STING Consultants’ questionnaire and have therefore been rated purely on the basis of publicly available information.

RANK COMPANY SECTOR SCORE CLASSIFICATION

STING

CO

RPO

RA

TE AC

CO

UN

TAB

ILITY IN

DEX

Platinum

Platinum

Platinum

Platinum

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Gold

Silver

Silver

Silver

Silver

Silver

Silver

Silver

Bronze

Bronze

Bronze

Bronze

Bronze

1 Dialog Telekom ICT and telecommunications 82.15

Companies in THE LMD 50and 10 key State Owned En-terprises (SOEs) were ratedon a compulsory basis (sincewe had access to their annualand sustainability reports),

and invitations to participate were ex-tended to the largest private companies.Only six private companies acceptedour invitation to complete a question-naire, which took the total number of en-tities on our index to 66.

Businesses are categorised into broadbands (Platinum, Gold, Silver andBronze), to provide an indication of thelevels of advancement of their CSR per-formance. This hierarchical ranking willenable businesses to benchmark them-selves against each other, and it is hopedthat this will be a stimulus for improve-ment in the years to come.

Classification is based on the scoresachieved as follows… Platinum: 75-100, Gold: 60-74.9, Silver: 50-59.9,Bronze: 40-49.9. The minimum scorefor classification is 40, so companiesthat scored below this level haven’t been classified.

The scores are derived from a proprietary model that STINGConsultants has developed to reflect a holistic approach toCSR, sustainability and governance. This model is based ona set of qualitative questions that are converted into a quan-titative score through our expert panel of consultants.

All LMD 50 companies and the SOEs ranking as the largestin THE LMD STATE 20 had the option of completing thequestionnaire and providing supporting evidence. However,only 15 responded. The rest were therefore scored on the ba-sis of information in their annual reports, websites and sus-tainability reports.

When evaluating CSR, it is also crucial to take into accountthe ethical implications of a company’s products. For this rea-son, organisations that manufacture ‘negative products’ suchas tobacco and alcohol had penalty points deducted from theirtotal scores. The scores presented in our index reflect theirperformances in terms of CSR, after deducting the penaltypoints.

The STING Corporate Accountability Index evaluates com-panies across six key areas, which together are the founda-tions of holistic CSR. In each of these areas, we rate compa-

nies against a range of criteria that en-ables us to determine whether or notthey have incorporated into their overallmanagement approach the basic ingredi-ents required to operate in an account-able and responsible manner.

These key areas are weighted accord-ing to their relative importance in facil-itating CSR (see pie chart) – and they aresummarised as follows.

CORPORATE VALUES: Assesseswhether a company has made an effortto define a set of high-level values thatportray the role it wants to play in soci-ety, by incorporating principles of ac-countability and social responsibility inits corporate statements – such as a vi-sion, a mission and so on.

STAKEHOLDER ENGAGEMENT:Assesses the extent to which a companyengages with its key stakeholders andwhether it provides adequate responsesto key issues, concerns or grievancesraised by stakeholders.

IDENTIFYING IMPACTS, RISKSAND OPPORTUNITIES: Assesses the

extent to which a company is aware of the key impacts onsustainability that occur as a result of its operations, as wellas whether it can identify and respond to credible risks andopportunities arising from such impacts.

POLICY COVERAGE: Assesses the extent to which a com-pany has policies in place with regard to managing environ-mental impacts, labour practices, human rights and societalconcerns.

MANAGEMENT AND GOVERNANCE: Assesseswhether globally-recognised management systems are inplace in respect of the environment, health and safety, quali-ty and workplace practices. This section also assesses the na-ture of governance, and the extent to which accountability andsocial responsibility are given importance in corporate gov-ernance.

MEASUREMENT AND DISCLOSURE: Assesses the ex-tent to which a company measures its performance againstkey environmental and social indicators. This section also as-sesses whether the company publishes a sustainability reportthat addresses its environmental, social and economic perfor-mance and impacts – and the quality, comparability and cred-ibility of information in these reports.


ST ING CORPORATE ACCOUNTAB I L I TY I NDEX

METHODOLOGY

4%

20%

18%20%

18%

20%

Corporate valuesStakeholder engagementIdentifying impacts, risks and opportunitiesPolicy coverageManagement and governanceMeasurement and disclosure

KEY ATTRIBUTES OF

CSR

3 Apparel, footwear and textiles 50.40

4 Motor and logistics 48.00

5 Diversified holdings 44.20

ABOVE-AVERAGE SECTORS1 ICT and telecommunications 59.40

2 Hotels and travel 54.40

3 Consumer durables 39.40

4 Manufacturing and construction 37.90

5 Petroleum, lubricants, chemicals and pharmaceuticals 37.30

BELOW-AVERAGE SECTORS1 Food, beverage and tobacco 43.71

2 Banking, finance and insurance 42.00

With the Sri Lankan economypoised for takeoff and business-es gearing themselves to grow,invest and make more money, afundamental question needs tobe addressed. How should big

business behave? How should it balance neg-ative impacts such as utilising more resourceswith the resultant impact on the environmentwith, for example, the economic benefits ofgenerating employment?

The STING Corporate Accountability In-dex provides some answers to this. And it setsout a report card on the ethical and trans-parency standing of Sri Lanka Inc.

As businesses grow and become more prof-itable, the common perception is that theyneed to give something back to the commu-nity. So invariably, the next step is to make agenerous donation to a school in the vicinityor help an employee under the name of thelatest business trend: Corporate Social Re-sponsibility (CSR). Yet another trend is to beenvironmentally friendly, so a business wou-ld undertake a tree-planting initiative.

But these are ad-hoc initiatives that are bolt-ed on to the company. Many of these actionsaren’t linked to the business the company isengaging in – and so, they are not integratedand nor are they sustainable.

CORPORATE ACCOUNTABILITY: Ourdefinition of what we refer to as ‘CorporateAccountability’ encompasses a holistic ap-proach which – when integrated into the dai-ly functions of a company – enhances its abil-ity to create economic, environmental and so-cial value.

To achieve this, companies must look atCSR (a term which encompasses both sus-tainability and governance) in a fully-inte-grated manner. Companies must take owner-ship of their impacts on the economy, societyand the environment (in other words, on allstakeholders), and thus work hard to min-imise all the negative impacts that occur as aresult of their day-to-day operations whilstmaximising all the positive impacts that theycreate.

They must do so transparently, providingstakeholders with all the facts (whether theyare positive or negative), so that all parties areaware of what is being done – and more im-portantly, of what more needs to be done toestablish a sustainable future for us all.

The capability of an organisation to inte-grate this approach into its business opera-tions is what is measured by the STING Cor-porate Accountability Index.

RELEVANCE OF ECONOMIC DOWN-TURN: On the basis of this definition, CSRis not something that businesses can afford toignore these days. This is evidenced by the

fact that the collapse of various well-knownfinancial institutions both at home and over-seas was fundamentally due to a lack of ac-countability to their stakeholders, whetherthey be shareholders, customers, employeesor other groups.

Furthermore, in the current context of re-cessions and crises, failing to address corpo-rate accountability and impacts on stakehold-ers (both internal or external) will prove tothe public that businesses that go to greatlengths to show that they are responsiblewhen times are good are doing nothing morethan green-washing.

CSR is not something that can be discard-ed when the going gets tough, if it is to be be-lieved. What’s more, the public is no longerinterested in what organisations say. Rather,they want to see what they do – and they willbase their patronage (whether this is bymeans of investing in shares, consuminggoods or seeking services or employment) onthis basis.

This is reflected in our rating model, as cor-porate values (what organisations say) onlyaccount for four per cent of the holistic mod-el, whilst all other areas look at how compa-

nies manage what they do – and therefore, to-gether they account for the remaining 96 percent (go to Methodology).

To ensure sustained growth, the businesscommunity has to make sure that it is ac-countable to all stakeholders and minimiseany negatives that may occur as a result ofwhat it does. If not, there will be more busi-ness collapses, more lost reputations and aneven greater loss of investor confidence – andwith Sri Lanka being subject to ever-increas-ing scrutiny by the international community,there is a likelihood that international pres-sure groups will begin to campaign againstour business.

This would naturally be detrimental to thenational economy, considering our depen-dence on exports and tourism, both of whichrest on the whims of the ever-growing move-ment of ethical consumerism in the West.

Given the importance of CSR for businessin Sri Lanka, it is time to analyse the statusquo, to determine whether or not organisa-tions are able to take advantage of thetremendous opportunities brought about byembedding accountability and responsibilityinto how business is conducted.


ETH ICS AND TRANSPARENCY

CORPORATE CULTURE

Dialog is thus one of thefew companies that hasproperly integrated CSRinto its core business…

REPORT CARD: Sadly, the outlook israther gloomy. The average score of SriLanka’s largest businesses is a mere44.1 on the index, which means that ourstudy places Sri Lanka Inc. at only abronze level of accountability.

Why is this the case? Very few com-panies are transparent about their im-pacts, we find. Hardly any seem torecognise social and environmental as-pects as presenting potential risks or op-portunities. And very few have policiesin place to address these factors.

Hardly any engage with their stake-holders in a meaningful way and leavethemselves open to facing conflictinginterests, a lack of confidence, stake-holder unrest and as a result, a potentialloss of reputation.

Almost none have embedded CSR in-to their governance processes – somedon’t even have adequate systems ofcorporate governance in place. Veryfew have externally-certified systems tomanage areas of environment, healthand safety, or working conditions andhuman rights.

And rarely do they measure their im-pacts or report these to their stakehold-ers in a balanced and credible manner.

The end-result is that very few busi-nesses are well placed to ride the wavesof peace and experience sustainablegrowth – for themselves and the econ-omy – over the long run.

But there are a few who are... For instance, Dialog Telekom (whose

CSR focus is determined by feedbackfrom stakeholders, enabling it to ad-dress the most material issues) clearlyunderstands that CSR is not the same asphilanthropy. This is evident from Dia-log’s clear distinction between ‘integralCR’ and ‘outreach CR’.

Dialog recognises that a businessmust first manage itself internally byminimising all negative impacts – as itdoes, for instance, through its mobile-waste management programme, there-by addressing the growing problem of adirect by-product of its business activi-ty.

Furthermore, it realises that outreachCR must also be strategic if it is to beviable in the long run. The majority ofthe company’s outreach activity usesthe core competency of the business(i.e. ICT) in order to engage in what itrefers to as “innovative connectivity-based social-development initiatives”.

Dialog is thus one of the few compa-nies that has properly integrated CSRinto its core business.

Being one of the country’s largestbuyers of produce and livestock,Cargills has a huge impact on rural far-ming communities. The company re-alises this impact and also the impor-tance of establishing solid relationshipswithin its supply chain.

Strong links have therefore been es-tablished between Cargills and farmercommunities through its direct-pur-chasing model, thereby guaranteeingfarmers’ livelihoods whilst facilitatingaffordable prices for food supplies to itscustomers at the same time.

Cargills is therefore fostering socialand economic development within aframework of sound environmentalpractices through its core business op-eration.

Then there is Maga Engineering, acompany that doesn’t have publicshareholders to be accountable to – thestakeholder group that is mistakenlygiven exclusive priority by a majority ofcompanies – but has nevertheless takensteps to improve its CSR performance

MED

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Tiara Anthonisz and Ruchi Gunewardene discuss the ideals of business culture in the context of

being transparent and doing business ethically. SHOCK!

FOOD, BEVERAGE AND TOBACCO

1 Cargills 77.65 Platinum

2 Ceylon Tobacco 74.80 Gold

3 Coca-Cola Beverages 65.95 Gold

4 Ceylon Cold Stores 53.00 Silver

5 Nestlé Lanka 38.00 Unclassified

6 Ceylon Tea Services 28.40 Unclassified

7 Ceylon Brewery 7.00 Unclassified

8 Distilleries 4.90 Unclassified

AVERAGE 43.71

Rank Company Score Classification

DIVERSIFIED HOLDINGS

1 Aitken Spence 75.85 Platinum

2 John Keells Holdings 71.45 Gold

3 Softlogic 60.60 Gold

4 Hayleys 59.10 Silver

5 Richard Pieris 41.60 Bronze

6 Hemas Holdings 37.80 Unclassified

7 Sunshine Holdings 37.00 Unclassified

8 Browns 36.50 Unclassified

9 Ceylon Theatres 30.50 Unclassified

10 Bukit Darah 20.90 Unclassified

11 C. W. Mackie 14.70 Unclassified

AVERAGE 44.20


APPAREL, FOOTWEAR AND TEXTILES

1 Brandix 73.40 Gold

2 Hayleys MGT 43.75 Bronze

3 Kuruwita Textiles 34.00 Unclassified

AVERAGE 50.40


ICT AND TELECOMMUNICATIONS

1 Dialog Telekom 82.15 Platinum

2 E-wis 63.85 Gold

3 Sri Lanka Telecom 32.20 Unclassified

AVERAGE 59.40


MANUFACTURING AND CONSTRUCTION

1 Maga Engineering 75.90 Platinum

2 Dipped Products 43.20 Bronze

3 Ceylon Grain Elevators 38.65 Unclassified

4 Colombo Dockyard 38.10 Unclassified

5 Haycarb 33.85 Unclassified

6 Tokyo Cement 32.55 Unclassified

7 ACL Cables 27.50 Unclassified

8 Lanka Ceramic 13.50 Unclassified

AVERAGE 37.90


by establishing a corporate-sustainabilityframework within which all its business op-erations are undertaken.

This puts to shame a large number of listedcompanies who fail to recognise the impor-tance of corporate accountability, as the lackof relevant information in their annual reportssuggests.

Ceylon Tobacco (a. k. a. CTC) is anothercompany that clearly understands and recog-nises the importance of properly implement-ed CSR, driven as it is by the sensitive natureof its business.

It is interesting to note that other companiesin similarly sensitive sectors (for example,oil, extractives and alcohol) are at the verybottom of our rankings. This is strangely mis-aligned with global trends, where businessesin these sectors are at the forefront of CSR,probably so that they can maintain their re-spective licences to operate.

But CTC has ensured that CSR is embed-ded across the entire organisation, by incor-porating sustainability into the governanceprocedures of the company through a board-level CSR steering committee. This meansthat all business decisions are made withthese issues in mind.

Furthermore, the company realises the im-portance of transparency in accountability,and it discloses balanced and comparablemeasurements of its sustainability perfor-mance in its social reports. The additional is-sues addressed through these reports are alsonot what the company decides are appropri-ate to talk about (as is the case in most othercompany reports); but rather, what its stake-holders have asked CTC to address – stake-holders are the key audience of such reports,after all.

CTC is a benchmark that others shouldstrive to follow. Despite being penalisedthrough our rating process (go to Methodol-ogy overleaf) for its product being unsafe, itstill scores a high 74.8.

Other organisations should make it their ob-jective to improve their accountability prac-tices to such an extent that they can scoremore than this – they will not, after all, besubject to product-related penalties.

So while a few businesses have integratedCSR into their operations, it is no longer suf-ficient for a handful of corporates to addressit while the rest sit on their heels.

Corporate failure has such a reverberatingimpact on all of us (think Golden Key) that itisn’t good enough if only a few do well… ifbut one or two fail, the entire economy is like-ly to follow.

WINNERS AND LOSERS: A sector-wiseanalysis of results creates further cause forconcern, with sectors that have the largest im-

pact (on both society and the environment)ending up as the poorer performers in termsof CSR.

ICT and telecommunications; hotels andtravel; apparel, footwear and textiles; motorand logistics; and diversified holdings areabove average. On the other hand, food, bev-erage and tobacco; banking, finance and in-surance; consumer durables; manufacturingand construction; petroleum, lubricants, che-micals and pharmaceuticals emerge as beingbelow average.

It must be remembered that the averagescore is just 44.1, so this still doesn’t saymuch for Sri Lankan business – the highestscorer (ICT and telecommunications) man-ages an average of just 59.4.

Tourism and apparel being above average isan indication of the role international expo-sure has to play in encouraging proper prac-tices of accountability and responsibility.

Western consumers (and investors) are in-creasingly looking at where the products theyinvest in have been produced – and more im-portantly, under what conditions. As Sri Lan-ka becomes more and more interconnectedwith the global economy, businesses in other

sectors will also be forced to adopt similarpractices. It is in their best interests to makethese changes voluntarily, before regulationstake hold.

Though the most visible diversified hold-ings have taken great steps to ensure account-ability and responsibility, much work is stillneeded as this sector barely achieves anabove-average status.

Given their size and wide-ranging interests,these groups of companies have an impact onthe most extensive variety of stakeholdersand thus the potential to set this country onthe most sustainable path of social and eco-nomic development. It is their duty, there-fore, to raise their levels of accountability tothese stakeholder groups and reduce all neg-ative impacts of their operations.

Consider also that ‘stakeholders’ aren’t justgroups affected by the activities of an organ-isation… stakeholders themselves can great-ly affect a business. The greater the variety ofstakeholders that can affect a company orgroup of companies, the more effort it mustmake to be accountable and responsible tothem all.

The banking and finance sector being be-


ETH ICS AND TRANSPARENCY

CORPORATE CULTURE

Cargills is promoting socialand economic development,within a framework ofsound environmentalpractices through its corebusiness operation…

low average is a very disappointing out-come. These entities are the providersof capital to the rest of the economy andtherefore have the potential to be thedriving force for other sectors to embedCSR into their business operations (andthereby ensure sustained as well as sus-tainable economic growth) throughloan conditions, for instance. Much im-provement is needed in this sector inparticular.

And the food and beverage sector be-ing below average is very disappointingtoo, since it has the greatest impact onrural farming communities. This meansthat more work should be done to en-sure stable supply chains (the food se-curity of the nation depends on this, asdoes the productivity of the Sri Lankanworkforce).

Manufacturing and construction, andpetrochemicals, create the largest nega-tive environmental impact because ofthe nature of their operations. And withgrowing awareness of how they con-tribute to climate change, and the ever-increasing awareness of the effects of

climate change itself, these sectors facethe greatest risk from not being moreproactive in regard to CSR.

International regulations and localpressure groups will force these sectorsto change their practices if they want toremain competitive, as buyers of man-ufactured products shift their demand tocleaner producers and public scrutiny of‘dirty industries’ increases.

Furthermore, if Sri Lanka is to meetits carbon-reduction targets and estab-lish itself as an all-round clean destina-tion, it is up to these sectors to mitigatetheir impacts, as they are amongst thelargest contributors to the country’s car-bon footprint.

There is little point in promoting ourisland as a carbon-clean tourist destina-tion if the manufacturing and petro-chemical sectors continue to underminethis.

THE FUTURE: CSR is clearly still ata fledgling stage of development in SriLanka. Those who fail to take sustain-ability seriously will now find it evenharder in the future, given the constantstate of change in the global economyas well as in the biosphere. It isn’t toolate to act, however.

If an organisation wants its stakehold-ers to really believe it is responsible andaccountable, now is the time to makechanges.

Companies that prove they are doingtheir utmost to be accountable, even inthe face of financial turmoil, can winthe trust of stakeholders who will be-lieve they are genuinely making an ef-fort. All that is required is a change ofattitude. The rest will follow...

As for our index, the current method-ology looks at the process of managingCSR and whether or not this has beenintegrated throughout a business. As theindex – and the state of affairs in SriLankan business – develops, we willbegin to assess the extent to which com-panies are improving their performanceyear-on-year.

It is our hope that this will give com-panies the momentum to make constantchanges to their management approach-es and thereby conduct business in thebest way possible, enjoy the benefitsthat occur as a result and contribute to-wards sustainable development of thenation as a whole.


CSR is clearly still at a fledgling stage of developmentin Sri Lanka. Those who fail to take sustainability

seriously will now find it even harder in the future…❞

❝

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SHOCK!

Tiara Anthonisz is the Business Analyst and Ruchi Gunewardene

CEO of STING Consultants.

BANKING, FINANCE AND INSURANCE

1 Union Assurance 65.50 Gold

2 HNB 64.65 Gold

3 NDB bank 64.35 Gold

4 People’s Leasing 57.10 Silver

5 Commercial Bank 54.00 Silver

6 LOLC 51.00 Silver

7 Eagle Insurance 50.70 Silver

8 DFCC Bank 42.25 Bronze

9 NSB 38.40 Unclassified

10 Sampath Bank 38.00 Unclassified

11 Bank Of Ceylon 37.90 Unclassified

12 Janashakthi Insurance 36.90 Unclassified

13 Nations Trust Bank 36.40 Unclassified

14 MBSL 36.40 Unclassified

15 State Mortgage & Investment Bank 32.90 Unclassified

16 HDFC Bank 28.60 Unclassified

17 People’s Bank 32.90 Unclassified

18 Ceylinco Insurance 26.00 Unclassified

20 Seylan Bank 22.20 Unclassified

19 Central Finance 24.00 Unclassified

AVERAGE 42.00


MOTOR AND LOGISTICS

1 DIMO 62.15 Gold

2 Hayleys Advantis 52.55 Silver

3 United Motors 29.40 Unclassified

AVERAGE 48.00


CONSUMER DURABLES

1 Singer 39.40 Unclassified

AVERAGE 39.40


PETROLEUM, LUBRICANTS, CHEMICALSAND PHARMACEUTICALS

1 CIC 61.65 Gold

2 Chevron Lubricants 39.90 Unclassified

3 Lanka IOC 27.75 Unclassified

AVERAGE 37.30

4 State Pharmaceuticals Corporation 19.90 Unclassified


3 Asian Hotels 60.30 Gold

4 SriLankan Airlines 49.80 Bronze

5 Airport & Aviation Services 33.00 Unclassified

AVERAGE 54.40

HOTELS AND TRAVEL

1 John Keells Hotels 65.55 Gold

2 Aitken Spence Hotels 63.35 Gold


Corporate Social Responsibility (CSR) has nowbeen widely accepted as a business practice.Even its most ardent critics have come around.The Economist, for instance, published a harshcritique of CSR in 2005, only to do the oppo-site three years later – it published an extensive

Special Report on the merits of this management practice. Whilst CSR has been adopted by Sri Lankan compa-

nies, the report card on the performance of Sri LankaInc. is only a Bronze or a ‘Pass’ grade equivalent.

The reason for this is clear. Businesses in this countryare aware of the need for CSR, but they simply don’thave a clear understanding of what it really entails. Thisis evident when 83 per cent of corporates that appear inthe index talk about CSR (or at least, what they believeCSR to be) in their annual reports, which is a clear indi-cation of their awareness of the need to engage in prac-tices of responsibility.

However, the majority of these are mere PR exercisesthat portray the feel-good activities of an organisation. Tountangle the perception of what should be addressed inthe name of CSR, it is prudent to define it in the first place.

MYTH VS. REALITY: CSR is abouthow companies manage their businessprocesses to create a positive impact onall stakeholders. This involves manag-ing their operations in a manner thatminimises all negative impacts on soci-ety and the environment, whilst max-imising the positive impacts.

This must be done with transparency,so that all stakeholders are aware of theimpacts created by business and canhold it accountable for them.

CSR therefore includes aspects thatrange from environmental managementto supply-chain management, to ensur-ing healthy and satisfied employees, toproviding customers with safe productsand to becoming involved in developinglocal communities.

The practice of business involvementin communities – known as CorporateCommunity Involvement or Investment(CCI) – is a very small element of CSRas a whole. Communities are just one ofthe many stakeholder groups that CSRshould address.

CCI refers to businesses contributingfinancial help, in-kind assistance or hu-man resources such as time or skills, to-wards social initiatives that seek to meetthe social and economic needs of thecommunities in which they operate.

It is in fact an umbrella term underwhich corporate philanthropy, sponsor-ship, cause-related marketing, employ-ee volunteering and partnerships stand.These differ by the extent to which thebusiness is involved in the activity.

For instance, philanthropy or charita-ble donations and sponsorships are gen-

erally characterised by paternalistic arms-length rela-tionships, where one-off payments are made by the or-ganisation; cause-related marketing involves simplylinking the sale of a company’s product to a particularcharitable cause; and partnership involves the companyworking with other organisations (generally charities orNGOs) to solve social problems.

These can be thought of as waves of development ofCCI, with philanthropy or sponsorship being the mostbasic – yet, it is the most common amongst the businesscommunity in Sri Lanka.

Globally, companies have come to realise that this formof engagement is insufficient. And so they have madetheir community investments more strategic and inter-linked with their businesses. They have moved awayfrom traditional cheque-book philanthropy and engageinstead, in long-term strategic alliances with special-in-terest organisations. This ensures that they focus only onthe areas in which they have a comparative advantage,thereby maximising the positive impacts they can createwith the resources at their disposal.

To make their choice of community investment even


CSR PERSPECT IV ES

UNRAVELLING THE CSR

more strategic, global corporations have begun to exten-sively measure and report the impacts of their commu-nity-investment activities through various globally es-tablished tools and frameworks.

This approach ensures that businesses are focusing onthe most appropriate area, and it also provides stakehold-ers with an understanding of the actual impacts createdby these entities through their CCI efforts – as opposedto what is spent on each initiative, which is what mostlocal businesses talk about.

It must be remembered of course that for major globalcorporations, CCI is an additional component. They arefirst managing the impacts of their business operationsand ensuring that they are accountable to all stakehold-ers – in other words, they are practising CSR.

CCI IS NOT CSR: So project-based investment incommunities by companies is not the equivalent of CSR.Instead, CCI is a component of corporate responsibility.This is in stark contrast to what the majority of SriLankan businesses seem to believe vis-à-vis CSR. Per-haps the confusion has been caused by the term ‘CSR’itself, in particular its ‘Social’ aspect.

For this reason, companies that understand what thismanagement practice entails – Dialog Telekom is an ex-ample – have begun to refer to this simply as CorporateResponsibility (or CR), or Corporate Accountability inthe case of the STING Index.

The terms ‘sustainability’ or ‘triple bottom line’ (whichcompanies often use interchangeably with ‘CSR’) alsodon’t just refer to communities. They are fundamentallyabout the economic, social and environmental arenaswithin which businesses operate – the ‘social’ arenarefers to employees and customers, as well as communi-ties and the range of other stakeholder groups that cor-porates have an impact on.

In the world’s most widely used sustainability-report-ing framework, the Global Reporting Initiative, aspectsrelating to CCI account for just five per cent of the indi-cators that should be measured and reported on. Compa-nies cannot claim to be practising CSR if they do not firstaddress areas such as energy and water usage, labourconditions or supply-chain standards for instance.

Having studied publicly-available reports of leadingentities in Sri Lanka, we note that they talk about the

money they have donated to variouscharitable causes, the effort they haveput into repainting school buildings inrural areas, and sponsorship agreementsthey have entered into with this or thatsports team.

But nowhere do they talk about howthey treat their employees, how theiremployees feel about their work envi-ronment, what they are doing to preventharmful discharges from their organisa-tions into the environment or what theyare doing to ensure high standards ofconduct in their supply chains.

The real motive for their CSR-talkthen appears to be public relations – thetelltale sign usually being that the per-son responsible for CSR sits in the cor-porate-communications or marketingdivision.

Hardly any of these companies basetheir philanthropic decisions on feed-back from stakeholders. Instead, oneperson decides on what cause to support– rendering this as being largely pater-nalistic, arms-length CCI, which is notinterlinked with the core business, andis therefore not strategic and certainlynot sustainable.

The majority of businesses in Sri Lan-ka are thus missing out on a vast arrayof opportunities and benefits that wouldresult from being recognised as sociallyresponsible and accountable.

They are also leaving themselves opento various risks, as a result of not man-aging their impacts properly and not en-gaging in meaningful dialogue withstakeholders. They are simply engagingin arms-length CCI through cash or in-


The business of CSR requires a strategicand holistic approach to meeting corporateresponsibilities. Tiara Anthonisz explains.MYTH

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Companies cannot claim to be practising CSR if they do not first address areas such as energy and water usage, labour conditions or supply-chain standards…


CSR PERSPECT IV ES

UNRAVELLING THE MYTHkind donations, without focusing any of their energy onissues that relate to holistic CSR.

CCI, in the absence of CSR, will not last in the longrun and has limited benefits (if any) for recipients, com-panies and the economy as a whole.

TOWARDS SUSTAINABLE CSR: CCI does not ad-dress the very reasons for CSR becoming a mainstreammanagement practice.

The public awareness of issues created by major multi-nationals who set up operations in developing nations totake advantage of cheap labour and materials, and laxregulation; increasing name-and-shame action by NGOs,which has brought to light numerous child-labour scan-dals, human-rights violations, environmental damageand unsafe products; and the widespread agreement of

the impacts on the environment caused by man – all ofwhich resulted in the public demanding greater respon-sibility by companies who were in turn compelled to takeaction in order to avoid or put a stop to boycotts by pres-sure groups and the general public.

None of these demands for CSR are or can be addressedby philanthropy. They all require systematic assessmentsof the internal impacts of business on society, the econ-omy and the environment, and a strong commitment tomanaging them effectively.

CCI also does not deal with the challenge posed by themedia and the public of closely following cases of busi-ness irresponsibility, since it does nothing to contributetowards putting a stop to cases of irresponsibility likeholistic CSR does.

Under prevailing economic conditions, businesses areseeking more and more ways to trim the fat. CCI is con-sidered fat, since it essentially takes away from profits.There is little benefit to recipients if companies pull outfrom a particular charitable cause when times are tough– this is even likely to negate any social welfare that may

have been caused by handouts, when employees are laidoff so that businesses can survive, and more people areplunged into social and economic uncertainty.

If these companies are truly committed to making apositive long-term contribution to society, they need toengage in a practice that delivers lasting benefits, whilstalso facilitating profitability. Strategic CSR does this.

Companies will manage their risks effectively, therebypreventing financial losses and improving their reputa-tions. They will cut costs by managing inputs and wasteeffectively, which allows them to avoid laying-off work-ers. All this ensures stable or increasing share prices,which fosters further job creation and ensures livelihoods.

Community interests are thus best served by ensuringbusiness sustainability through CSR.

So companies in Sri Lanka need to practise properlyintegrated strategic CSR, if they are to be sustainable inthe long run. This is not to say that business should notalso be involved in their communities. This is after all, acomponent of CSR – and so yes, it should be addressed.

However, businesses need to first ensure that they aretruly responsible and accountable to all stakeholders. Itis only then that their community investments will be vi-able and beneficial to society in the longer term.

They will then be engaging in ‘real good’, rather thanwhat can best be described as ‘feel good’.

CONCLUSIONS: The business of CSR, like any oth-er, is characterised by a few leaders, some followers anda large number of stragglers. After a while, however, ev-eryone will attempt to jump on the bandwagon by tak-ing various actions that in their minds make them social-ly responsible.

Eventually, the winners will come from the ranks ofthose who have understood what it takes to execute cor-porate responsibility effectively – a strategic and holis-tic approach, in short.

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Global corporations have begun to extensivelymeasure and report the impacts of their community-investmentactivities…

Having challenged the notion that CSR is allabout philanthropic giving or green initiatives,the next step is to work out how businesses canleverage a strategic approach to CSR in orderto build strong brands.

In the modern, interactive world that we live in, the or-dinary consumer has an enormous amount of power tovoice his or her opinions and be heard. This is an era inwhich the power to influence has flowed from business-es to the small investor and the ordinary consumer.

This shift in power has meant that businesses need tolisten to their stakeholders and engage with them – andtake relevant and timely action.

Gone are the days when businesses could simply com-municate what they are doing… and for consumers tobelieve them. In this modern era, it is not what you saybut what you do that matters most.

CHANGING PARADIGM: This change is significant,because management can no longer sit behind a desk andplot what they want to say with their public-relationsagency. This is an era in which managers need to active-ly engage with their stakeholders, carry out research andthen decide on a course of action based on those find-ings… before, that is, they even begin to communicate.

Essentially, this is about understanding expectationsand delivering them through actions that enhance andprotect the corporate brand.

This is easier said than done, of course…Having said that, many progressive companies are in

fact successfully engaging in this mechanism and reap-ing rich rewards, the benefits of which accrue to theirbrands.

Think Ceylon Tobacco or CTC as it is also known, andCargills. Their management is heavily involved in ac-tively engaging with their stakeholders. A desk doesn’tseparate these managers from their stakeholders. Themanagers are, in fact, in the front line – facing stakehold-ers and explaining what they stand for, one-on-one.

One could argue that for CTC, this stakeholder-engage-ment mechanism is a must, if it is to offset the negativesassociated with tobacco and smoking. But in spite of thenegatives associated with its product, to the objectivereader, CTC is a reputable blue-chip corporate. Hence, itis gaining considerable value by adopting this process.

It could be argued that Distilleries (a. k. a. DCSL) is ina similar situation. But some may feel that it takes nosuch action and isn’t therefore perceived to be as rep-utable. DCSL finds itself way down on the STING Cor-porate Accountability Index this year.

Cargills, on the other hand, is using its considerablereach to evolve its business model from being that of apure retailer who purchases supplies, to a logistics-and-support company that links farmers at one end with con-sumers at the other. This model can enhance its brandsubstantially.

These examples are indications of how companies canbuild a competitive advantage through a strategic ap-proach to CSR – one that directly influences the way itdoes business and impacts the brand.

ROLE OF A BRAND: So yes, there are several waysin which a company can build brand equity, as follows:❍ Through the quality of its products or services.

❍ By means of actions that relate to how it runs its busi-ness (i.e. governance) and how it goes about doingbusiness (ethics).

❍ Via actively managing its image and perceptions.Building a corporate brand, therefore, requires an un-

derstanding of all stakeholders – and their different needsand perceptions on the one hand, and aligning the actionsof the company towards what management wants thebrand to stand for on the other.

Managing this dynamic is the responsibility of theCEO. It involves engaging with stakeholders and gettingfirst-hand feedback through interaction or market re-search.

However, the basic foundation of the business must bethat it has the right systems and controls, and an ethicalworking environment that has sound procedures of gov-ernance in place.

Most corporates in Sri Lanka take this for granted.They have a loose understanding of the manner in whichthey are run. Very few have incorporated this into theirstandard operating procedures, or used it to build theircorporate culture or have established policies in writingon which employee performance is evaluated. We arenow operating in a post Golden Key era, where manypeople have got their fingers burnt. Trust is more thanwhat you say. It’s about what you do and how you treatyour customers, employees and suppliers.

As we all know, because of the Golden Key fiasco, theCeylinco brand is now severely under strain and is nolonger the trusted financial institution that it was. This isprimarily because of a lack of accountability and gover-nance. In fact, research conducted by Brand FinanceLanka in the fourth quarter of last year concludes thatbecause of such financial scandals, customers now trustgovernment-backed financial brands since they know


BRAND ING AND CSR

STRATEGIC CSR BUILDS

that even if they are badly run, the state will bale themout. These, then, are the challenges on which a businessthat intends building a reputation of trust and confidencearound its brand would approach its task. No longer is aslick advertising slogan likely to convince people to dobusiness with you. Instead, they will be looking at thefoundations on which you have built your business.

BRAND-BUILDING INITIATIVES: This new way ofthinking outdates the old marketing mantra – that youcommence your planning process with the consumer. Itis not so in today’s world.

What’s the point in providing a good service to yourcustomers if you are paying and treating your employ-ees poorly? It is just a matter of time before this resultsin poor customer service, because your employees areunhappy. The same is true of your suppliers, distributorsand so on.

Once you jump the hurdle of identifying all of yourstakeholders, the next challenge is to understand whattheir expectations are. And the only way to do this is bygoing out and meeting and talking to them. Many organ-isations are amazed at what they hear and learn duringthis process. The next challenge is to be able to balancethe conflicting needs of stakeholders. How do you bal-ance the higher pay that your team wants with lowerprices that customers demand?

This is nothing new; but in the new paradigm, senior-management time is required to understand these issuesin a deeper sense and actively manage them whilst cre-ating new and innovative solutions for a sustainable busi-ness. In this context, having a well-defined articulatedbrand is essential. This helps direct the stakeholder-en-gagement process in a focused manner – and it enablesthe management to implement initiatives that nudge theorganisation to move towards its defined goals.

NEED FOR TRUST: As a result of the global financialcrisis, consumers have lost confidence in big businessand calls for greater accountability have grown stronger.

Whilst some research suggests that consumers wouldpay a premium for sustainable products, they are willingto ‘punish’ organisations with poor corporate-responsi-bility records.

Thus, building stakeholder confidence is essential fora company’s survival. Stakeholders must have trust in acorporation’s financial data, products, services, statedvalues, integrity and leadership.

Governments have also begun to demand greater ac-countability through a multitude of channels, the mostobvious being by means of regulation. Even if the SriLankan Government has no immediate plans to inter-vene, customers in other countries will expect local busi-nesses to comply with international standards.

Trade agreements and operating licences are anothersource of inter-governmental pressure, as we’ve seen inthe GSP-Plus debate with the European Union.

Sri Lanka Apparel is a classic success story, in termsof how it built and is building a brand. This initiative tookroot long before the GSP-Plus surfaced – its beginningswere some four years ago.

At that point, through research and a stakeholder-en-gagement process, STING Consultants (which was en-trusted with the project) found that there was a clear op-portunity to build a differentiated brand on an ethicalplatform because it was relevant to key stakeholders.

Based on this insight, the brand was built not on adver-tising but on creating a foundation that was intrinsicallylocked into ethical manufacturing standards. This wascaptured through a certification scheme, which furtherendorsed what the brand stands for.

This, then, is the new way forward for brand building.


Businesses can leverage a strategic approach to CSRto build strong brands, as the apparel industry has

done successfully. Ruchi Gunewardene elaborates.

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Sri Lanka Apparelis a classic successstory, in terms ofhow it built and isbuilding a brand…

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RANK COMPANY SECTOR SCORE CLASSIFICATION · 16 CIC Petroleum, lubricants, chemicals and pharmaceuticals 61.65 ... tent to which a company measures its performance against ... out