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April 29, 2002
Business Ethics' 100 Best Corporate Citizens Outperform S&P 500
by William Baue
An academic study concluded that Business Ethics' list of 100 Best Corporate Citizens generated
better returns than the remaining companies on the S&P 500.
SocialFunds.com --
Last week, Business Ethics announced its third annual list of the 100 Best
Corporate Citizens, which appears in the March/April 2002 Issue of the Minneapolis-based magazine.
In addition to recognizing companies' corporate social responsibility (CSR) toward stakeholders
that include the environment and the community, the list also ranks companies' service to
shareowners, thus also factoring in financial performance. Interestingly, last year's list served
as the basis for an academic study correlating better social and environmental performance with
better financial performance.
 "The study shows that overall financial performance of
the 2001 Business Ethics Best Citizen companies was significantly better than that of the
remaining companies in the S&P 500 index, based on the 2001 Business Week ranking of total
financial performance," said DePaul University Professor Curtis C. Verschoor in the January 2002
Strategic Finance magazine article announcing the study, which he conducted in collaboration with
Assistant Professor Elizabeth A. Murphy. "The difference between the performance of the Best
Citizens and the others was strikingly large," Professor Verschoor continued.
The DePaul
study worked from total financial performance rankings conducted by Business Week magazine
on the S&P 500 index. The ranking was based on eight statistical criteria, including total return,
sales growth, and profit growth over the one-year and three-year periods, as well as net profit
margins and return on equity. The Best Citizens scored ten percentile points higher than the mean
ranking of the remainder of the S&P 500 companies.
“The DePaul University study offers
evidence that good corporate citizenship is a superior form of management,” said Business
Ethics Editor and Publisher Marjorie Kelly. “These top companies perform substantially better
than their S&P 500 peers, in strictly financial terms. It simply makes sense: managing a company
for one measure alone--shareholder value--is like flying a 747 solely for maximum speed. You can
shake the plane apart in the process.”
Business Ethics' top five Best Corporate
Citizens included: IBM (ticker: IBM), Hewlett-Packard (HWP), Fannie Mae (FNM), St. Paul Companies
(SPC), and Procter & Gamble (PG). The top three have been very stable throughout the list's
existence-IBM topped the list two out of the three years, Hewlett-Packard has placed second all
three years, and this is the second year running that Fannie Mae came in third place. The overall
list is not quite as stable, with half the companies (51) changing over three years.
The
list quantitatively ranks companies' service to seven stakeholder groups: shareowners, employees,
customers, the community, the environment, overseas stakeholders, and women and minorities. Sandra
Waddock and Samuel Graves of the Carroll School of Management at Boston College performed the
statistical analysis of the three-year average total return to shareowners. KLD Research and
Analytics, a Boston-based research firm serving socially responsible investors, provided social
ratings in the remaining six groups of stakeholders.
Social performance could thus be
ranked by category. Business Ethics highlighted how Fannie Mae, which placed third in
service to minorities and women, demonstrated its commitment to its customers. The Washington,
DC-based provider of home loans has instituted the "American Dream Commitment," a ten-year, $2
trillion program aiming to increase home ownership rates for minorities, new immigrants, young
families, and those in low-income communities.
"It is our goal to keep expanding our reach
to impaired borrowers and to help lower their costs," said Barry Zigas, senior vice president in
Fannie Mae's National Community Lending Center.
The St. Paul Companies made the most
dramatic increase in ranking by jumping from 85th rank last year to fourth place this year.
However, it remained quite stable in the category of community citizenship, which it topped for the
second straight year. Business Ethics ascribed this success to its innovative and generous
philanthropy, giving two percent of net earnings to programs that increase teachers of color,
support affordable housing, or promote voluntary civic activity.
Business Ethics
stressed that the list does not indicate CSR perfection (an unrealistic expectation), but rather it
rewards progress toward better practice of corporate social responsibility.
©
SRI World Group, Inc. All Rights Reserved.
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