Large and profitable companies are more likely to be engaged in children's rights

The first finding shows that companies which receive a high score in the Global Child Forum Corporate Sector and Children’s Rights Benchmark are more involved in human rights violations. But what about other factors that are important for understanding how a company is doing overall, such as its size or how profitable it is? Is there any correlation between engaging on children’s rights and these measures of a company’s success?

We looked at both revenue and EBITDA-margins as measures of a company’s financial performance, and the correlation analysis showed that there is, in fact, a relationship between a company’s score in the benchmark study, and how well it’s performing overall. (For definitions on financial performance indicators, please see light blue box at the bottom of this page).

The analysis was made on four company performance groups, based on average score in the benchmark: Beginners (score 0-2.5); Improvers (score 2.6-5.0); Achievers (score 5.1-7.5) and; Leaders (score 7.6-10). For more information about the analysis please see the Methodological Note.

The results show that companies with a higher score, i.e. Leaders and Achievers:

  • on average are larger, measured by revenue (Graph 5, see below)
  • on average have a higher EBITDA-margin than those with a lower score, i.e. are more profitable (Graph 6, see below).

There was no similar correlation between EBITDA-margin and revenue.

As the children’s rights benchmark score also includes indicators on general sustainability, another test was made only on the children’s rights related scores to control for any effect from performing better on general sustainability, and the results of this test show that:

  • the median EBITDA-margins are then slightly higher than for the overall score, indicating a higher profitability on average for companies that are scoring well on the children’s rights component of the benchmark (Graph 7, see below).

Graph 5: Correlation between revenue and benchmark score

Graph 6: Global correlation between EBITDA-margin and benchmark score

Graph 6: Southeast Asian correlation between EBITDA-margin and benchmark score

* Achievers & Leaders combined due to small sample size of Leaders (n=13).

Graph 7: Correlation between EBITDA-margin and children’s rights only score

Companies were divided into the four equal groups based on their total score in the global benchmark study 2019, when only looking at indicators including children. Group number 1 are companies with the lowest scores and Group 4 with the highest scores. This analysis was only performed on the global sample.

Good governance at the heart of good performance?

It is possible that what lies at the heart of these correlations between profitability (EBITDA-margin), revenue and a higher benchmark score, is in fact good governance structures and sustainability management. Companies that are systematically well-managed, also seem to be performing better in other areas such as profitability, sustainability and children’s rights. It is also possible that larger companies with better finances have more resources to spend on children’s rights issues. Important to note is that the analysis doesn’t show any clear causal direction between the benchmark score and the correlation with revenue and profitability, leaving the question of what is cause and effect in this relationship.

A question that remains is also whether these findings around size and profitability, has any connection to the findings relating to a higher involvement in human and children’s rights controversies? Although no correlation analysis had been made on the relationship between company size and violations, it is not unthinkable that the larger the company, the larger the footprint and with that exposure to potential human (and children’s) rights violations as well.

Benchmark Quant Analysis

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About financial performance indicators

REVENUE is the income generated from normal business operations. It can also be referred to as turnover. Revenue measures how much money the company is earning and is calculated as how much is sold x the price for the goods/service.

EBITDA is the abbreviation for: earnings before interest, taxes, depreciation, and amortization. It is what remains from the revenue once direct operating costs have been subtracted. EBITDA-margin is used as an indicator of the overall profitability of a business.