Multiple-criteria decision-aiding framework to analyze and assess the governance of sustainability

Abstract

Past and present disasters and scandals, such as the BP Deepwater Horizon oil disaster in the Gulf of Mexico in 2010, the Servier Mediator (Benfluorex) scandal in 2009 and the Enron collapse in 2001, have uncovered weaknesses in governance issues. The authors argue that there is a need to develop methods and tools to diagnose and assess the governance of organizations with respect to Sustainable Development (SD). However, this task remains difficult due to the fact that it is difficult to appraise the quality of governance. The authors propose a protocol to diagnose and analyze the governance of SD and explore the use of multiple-criteria decision-aiding methods to achieve this task. Two aggregation methods to assess the global governance are proposed: (1) The identification of a final governance index for an Organization. This method helps in establishing a global diagnosis of the quality of the governance of an Organization with respect to SD challenges. The governance index is based on the calculation of three indexes: the partial opportunity index, the partial risk index and the partial equilibrium index. (2) The ranking of a set of Organizations according to their governance of SD. This method aims at assessing a set of Organizations based on a pairwise comparison according to a set of criteria that represents the seven domains of the ISO 26000 norm (ISO 26000—Guidance on social responsibility, 2010). This method is based on the outranking aggregation approach ELECTRE III. A practical example is used to illustrate two methods of governance assessment.

Appendices

Appendix 1

See Table 7.

Table 7 Set of indicators to assess the governance of an Organization with respect to SD perspectives

Appendix 2: ELETRE III method

2.1 a. Equivalence and preference threshold

The equivalence threshold q _j and the preference threshold p _j are defined as follows:

• if |g _j (O _i ) − g _j (O _h )| is less than q _j , the difference is considered as insignificant; it can then be stated that the Organization O _i and the Organization O _h , are indifferent in terms of sustainability for the given criterion;

• if |g _j (O _i ) − g _j (O _h )| is greater than q _j , the difference is considered as significant; if g _j (O _i ) is greater than g _j (O _h ), it will then be stated that the Organization O _i is strictly more sustainable than the Organization O _h ;

• if the preference threshold p _j is not equal to the equivalence threshold q _j , the interval between these two values represents an ambiguity range over which it is presumed that the priority is higher even though the difference |g _j (O _i ) − g _j (O _h )| cannot be genuinely considered as significant. It will then be stated that the sustainability on Organization O _i is slightly higher than the sustainability of the Organization O _h .

2.2 b. ELECTREIII’ assignment procedures

The ELECTRE III method helps to compare an Organization O to another in the perspective of eliciting the assertion: “the governance of the Organization O _i1 is at least as sustainable as the governance of the Organization O _i2.” This assertion is denoted “O _i1 outranks O _i2” or “O _i1 S O _i2.”

The following situations should be considered: [O _i1 S O _i2 and O _i2 S O _i1] or [no O _i1 S O _i2 and no O _i2 S O _i1]. The first possibility corresponds to an equivalence situation (O _i1 I O _i2) between the two organizations where the two organizations are considered of equal importance. The second situation corresponds to incomparability (O _i1 R O _i2) between the two organizations.

We use the index σ(O _i1, O _i2) to calculate the credibility of the assertion “the governance of the Organization O _i1 is at least as sustainable as the governance of the Organization O _i2 .” This index takes values in the interval [0, 1]: is equal to 0 if the assertion “O _i1 S O _i2 ” is rejected and 1 if the assertion is validated. Between 0 and 1, the credibility index is calculated using two other indices:

• Concordance index C(O _i1, O _i2). This index considers the concordant criteria with the assertion “O _i1 S O _i2” taking into account their relative importance (weight of the criteria).

• Partial discordance index d _j (O _i1, O _i2). This index considers the discordant criteria, expressed individually, with the assertion “O _i1 S O _i2.” When the gap on one criterion g _j is bigger than v _j , the discordance indexes take the value 1 and can help to reconsider the credibility of the assertion “O _i1 S O _i2” (σ(O _i1, O _i2) = 0). v _j is the veto threshold.

The ELECTRE III procedure in resumed in the Fig. 10:

Fig. 10

Global principle of the ELECTRE III method

The calculation of the credibility indexes σ(O _i1, O _i2) et σ(O _i2,O _i1) can help to obtain a fuzzy outranking relation that synthesizes all the comparisons pair by pair on the set of Organizations. We then obtain a partial pre-order based on ELECTRE III.

The final pre-order on the set of Organizations is the result of the intersection between the two pre-orders based on two distillation procedures called “upward distillation” and “downward distillation.” Thus, the Organization O _i1 will be considered more sustainable than O _i2 if, in one of the ranking results O _i1 is ranked before O _i2 and if, in the other ranking O _i1 is at least better ranked than O _i2; the Organization O _i1 will be considered of equal sustainability to O _i2 if the two Organizations belong to the same equivalence class in the two pre-orders; lastly the Organization O _i1 and O _i2 are said to be incomparable in terms of sustainability if O _i1 is better ranked than O _i2 in the upward distillation and O _i2 is better ranked than O _i1 in the downward distillation or vice versa.

The rank of the Organizations is fixed as follows: all Organizations that do not admit Organizations more sustainable than themselves are allocated to rank 1, Organizations of rank 2 are the ones that only admit Organizations of rank 1 as more sustainable, Organizations of rank 3 are the ones that only admit Organizations of rank 1 and rank 2 as more sustainable and so on.

It is important to notice that the partial pre-order is dependent on the value of the different thresholds on each criterion. Thus, a sensitivity analysis should be performed in order to give robust conclusions to the final Decision Maker (DM).