Big Data and the Coming Age of Radical Transparency

Conscious Leader Conversations
Art speaks with CSR and Technology Pioneer Bahar Gidwani, Co-Founder and CEO of CSRHub.

Art Stewart: Bahar, given all the recent advances in responsible business practices such as GRI, CDP, SASB (the Sustainability Accounting Standards Board), Dodd-Frank and Sarbanes-Oxley, why do we have this persistent gap between what is actually going on and the public’s recognition of the extent to which business is transforming itself?

Bahar Gidwani: There are a couple of drivers in this scenario, Art. First, it’s a big company versus small company context. A lot of focus is on what the 100 largest companies are doing as we now have a strong feedback loop between society and company performance. When you look at the next 2,000-3,000 companies, many of them do not experience that level of direct pressure or attention from the public or NGOs. As a result, they are moving along doing the best they can and are not necessarily being subjected to the same level of scrutiny or discipline. That is one of the reasons for the gap between perception and reality that has emerged along with a deep sense of distrust.

While a lot of people work for the top 100 companies, most work with or know someone from smaller companies and recognize that they may not be behaving quite as well as they should. They have direct personal experience with the fact that some companies aren’t telling the truth. It’s not just a theory but a big company versus small company distinction. The fertile ground in moving forward is to bring pressure on the medium size and smaller organizations. There are many tools to do that such as obvious ones like social networking. If we can drive consumer preferences or supply chain behaviors through adherence to ethical standards, then such standards become a meaningful contributor to financial performance.

Art Stewart: Is it fundamentally a communications issue given that the largest 100 companies are naturally more exposed due to their enormous interconnected stakeholder universe?

Bahar Gidwani: Likely. It is also due to the watchdog community being well-suited to tracking large company behavior. There is a legacy business based around analysts interacting with a company, chatting with the people, visiting and auditing. This is too big of a world, too complex of an economy for such an old-style approach. It is time to shift to a new operating mode that is web-based, individual and crowd configured – driven to a great extent by new capabilities in aggregating large amounts of data. You’ll end up with radical transparency that enables the influencing of a much broader range of people.

Art Stewart: How can Big Data be leveraged to advance radical transparency and accountability?

Bahar Gidwani: Think about the consumer point of purchase experience; all the information that has been gathered on us, stored, analyzed and shared by advertisers to enhance the efficiency with which they entice you to buy. We can effectively use the same kind of Big Data techniques to help individuals affect the performance of companies. If you’re a procurement manager and trying to decide who to purchase materials from, you can get information pushed to you on the ethical track record of that supply candidate.

Traditionally, these types of assessments were done using mostly credit data. Being able to do behavioral comparisons across an aggregate set of criteria will revolutionize corporate responsibility practice. We haven’t been able to leverage that kind of data integration yet on sustainability but I believe we will soon. Credit is one of the first Big Data businesses and it has shown us the way. Now we need to create a sustainability, or trust, score and make that assessment broadly available to support a range of decision making scenarios.

Art Stewart: A trust score certainly addresses this notion of radical transparency…

Bahar Gidwani: If you think about how credit scores work, you can access credit history information and a score for individuals and companies that is pretty consistent from one credit bureau to another. There is a consistent view because they’re drawing on somewhat the same data involving purchase and payment history, assets and other factors. Recently we’ve seen new credit rating systems that incorporate who your friends are and the extent of your social network on the theory that those factors are legitimate determinants of your credit risk or that they can enhance your credit-worthiness.

It is possible to apply the same kind of formulation to determine ethics and trust by assessing all the different data on what is said about you or written about your company. We can look at what kinds of fines you’ve paid or the lawsuits that have been filed. Then we can analyze what various types of people have said about you and see who you associate with the same way. We can see who’s in your supply chain and customer base. You can determine a trust score very much like a financial credit score.

As an organization, if you are comprehensive in your self-reporting, lots of people can acquire data on a range of factors that form some measure of trust – including your sustainability performance. SASB can be one of those components. It will be fairly uniform across a group of companies. If you review 130 mining companies and all of them have reported the same eleven things, you hope that the data is a uniform set. The truth is it may not be. Each company might have misunderstood or reinterpreted the data in its own way and, unfortunately, some companies may have lied. With SASB based on company reported data, it doesn’t really give you the full 360 view that you need on trust. This kind of data from companies is an important part of what we’re looking for, but only if it can be externally verified and cross referenced.

The external data is actually the more exciting part and growing the fastest. It is pulled from web tools and sites that are tracking consumer behavior or gathering feedback from supply chain analytics. It also pulls from the broad-based work of various NGOs who are gathering their own data on large numbers of companies in order to achieve social purposes.

Art Stewart: What are the next steps in optimizing the capability you are describing so that you can produce the most reliable snapshot for a trust score or ranking?

Bahar Gidwani: You first make the data free or release it. People may have to pay something for the data, but it has to be a small amount and it must be easy to access. One of the problems we continue to have is there are chunks of data that are not yet shared. One company will audit a supplier, find problems, but not share what they found. The need now is to get certain types of data more broadly shared and sharable. There may have to be ways in which it’s anonymized to address privacy concerns.

We are starting to have enough data to rate at least 10,000 companies and probably soon close to 50,000. This pushes the boundary of where data is available downward into the general market. Then you have to build algorithms to understand each source of data and factor in its biases. You need to account for certain types of data that are missing, that some is more accurate or more useful for certain things; that the mapping, normalizing and aggregating process done by machines moves us away from the human touch points that provide interpretive decisions. It is a shift to a model where machines analyze all the data and provide us with the facts we need as human beings in order to make human decisions.

Art Stewart: You have articulated the ultimate vision for a trust ranking. How far are we from having something more reliable than where we are now?

Bahar Gidwani: By the end of last year we were rating about 13,000 companies just on sustainability. By 2016 we hope it will be 50,000. That’s not enough because in our everyday lives we probably touch 100,000 to 200,000 companies.

It is not possible to cover 100% of life; we can’t rate everything. However, once you know something about 50,000 companies, most industrial or supply chain decisions can be censored through a trust score. Maybe 80-90% of consumer buying decisions can also be filtered as well as many ad buying decisions. Ads you view through your browser could be tuned to suit your particular needs or preferences based upon trust-related criteria or characteristics. All of this is within reach, perhaps a year or two. The question is will it happen?

Art Stewart: Where are we now in the global movement of more responsible business practices? What are the greatest challenges immediately ahead?

Bahar Gidwani: Progress has slowed. We pretty much know everything regarding the top 1,000 companies and where they stand. Reaching that threshold has slowed down improvements. Integrated reporting is moving forward, but many people question whether it is going to make that much of a difference. The challenge ahead is getting the standards that we set for bigger companies to be applied to smaller and medium size organizations – as well as private companies, not-for-profits and government entities. We have all the tools we need and we’ve built a frame. One room is complete; now the rest of the house needs to be finished.

Art Stewart: What is required to encourage real participation from mid-market companies and even the not-for-profits?

Bahar Gidwani: Here is where the entry of SASB is exciting as it effectively forces every publicly traded company that has a U.S. listing to conform to at least a minimal amount of disclosure. If they don’t conform to what SASB suggests are standard material disclosures for their particular industry, they can be sued. Now they may not all be sued instantly, but say their profits are off and there was a provision in the SASB materiality standards that they didn’t disclose that turns out to have been material, that will create a problem. Once it becomes generally accepted accounting practice for larger public companies, private entities tend to hop on board because they have stakeholders who are going to hold them to the same standard. As the accounting firms who conduct the audits become more exposed, they will increasingly drive compliance.

Art Stewart: Do you agree that the new level of interdependency emerging across the global supply chain will be a transformational factor in the impact of initiatives such as SASB?

Bahar Gidwani: Yes. For instance, if SASB requires disclosure of scope two carbon use, then anyone who sells to large companies will be required to disclose how much carbon their business activities are generating. The requirement to measure carbon will necessitate buying software, hiring people, getting tools in place and figuring it out. Sourcing companies may then have to request their suppliers to disclose how much carbon they are generating. SASB may trigger a cascade of new compliance activity throughout the U.S. economy as certain types of reporting will become mandatory. Everyone is watching SASB. Many companies that report in the U.S. are foreign entities. The new requirements will automatically start affecting the rest of the world. Companies that start reporting under SASB will encourage their peers to share the burden through their exchanges and other means, embedding the standards.

The fundamental reality is that just about every company is quickly becoming a participant, to some extent, in the global supply chain; that fact will ensure this scenario. SASB is, therefore, transformational. Everybody wants a safe harbor of not being sued and SASB will deliver it. The downside is: Factors that are deemed as immaterial will be left out of the disclosure picture, which makes SASB somewhat regressive. SASB is essentially a means in which companies may actually take a step back on their CSR commitments to consolidate the number of things that need to be reported.

SASB is going to make sure that investors get a few pieces of data that they think they might want to have. It is investor-focused, not stakeholder-focused. Employees, regulators, all kinds of other stakeholders aren’t going to get the data necessarily that they need or want because companies may actually report less than they used to – or less frequently. The company derived data stream will be broadened to more companies, but narrowed to a smaller set of items. The CSR report will become much less important and so will the annual report. What will emerge as more important is what a company’s suppliers, customers and employees have to say. AS

Widely recognized as a corporate responsibility and technology pioneer, Bahar Gidwani is Co-Founder and CEO of CSRHub – a global web platform that tracks corporate social responsibility and sustainability metrics for more than 14,000 companies. The site has more than 14,000 users comprised of corporate managers, researchers and socially-conscious individuals. Their ratings are used to manage environmental, governance, social, employment and community issues. The site’s Big Data system aggregates and normalizes tens of millions of data points from more than 380 different sources. A Chartered Financial Analyst (CFA), Bahar was previously CEO of Index Stock Imagery, Vice President at Kidder, Peabody & Co., a Senior Associate for McKinsey and a Software Analyst at Burroughs Corporation. He earned an M.B.A. from Harvard Business School, where he achieved highest distinction as a Baker Scholar, and a B.A. in Astronomy and Physics from Amherst College (Magna Cum Laude).