June 16, 2008
Principled Companies Praised
by Anne Moore Odell
Ethisphere Magazine publishes its second annual list of the World's Most Ethical Companies.
After examining 10,000 global companies, a panel of judges at the Ethisphere Institute selected 93 companies as the World's Most Ethical Companies.
Ethisphere Institute is a think tank that studies business ethics and corporate responsibility.
This is the second year Ethisphere Magazine has published the list and the reasoning behind their
selections, and the first year that Forbes is a partner.
"We consider business ethics to be a aggregate of
many aspects, including both sustainability and governance," said Robert Leffel, associate
director, Ethisphere Institute. "In our view, ethics is more than sustainable 'green' operations or
solid governance systems. It's also social responsibility and commitments, innovation that
contributes to public well being and greater good, strong leadership and tone from the top,
internal culture of ethics, internal ethics and compliance systems and programs, good legal and
regulatory track record of integrity."
The Ethics Quotient that forms the basis of World's
Most Ethical Company rating comprehensively looks at companies, evaluating them on seven
categories: corporate citizenship and responsibility, corporate governance, innovation that
contributes to public well being, industry leadership, executive leadership, integrity track record
and reputation, and internal systems and ethics.
A committee of Ethisphere researchers and
editors, attorneys, government officials, professors, and business leaders undertook a multi-step
evaluation process of the companies to narrow the long list down. This year, researchers also had
information from the companies themselves in response to a questionnaire developed by the
Professor John W. Dienhart is the Frank Shrontz Chair for Business
Ethics at the Albers School of Business and
Economics, Seattle University. He was on the committee that chose the World's Most Ethical
Companies. Dienhart explained how he looks for an ethical culture within a company.
ethical culture is defined by having two things, "explained Dienhart. "First, fair processes to
determine how the good things, such as promotions and raises, and the bad things, such as letters
of reprimand or travel to very unpleasant places, are distributed. Having fair processes does not
mean instituting a democracy. It simply means having objective standards that are transparently met
by the organization. The more voice those affected by the decision have in setting the standards,
the better. These voices need to be taken seriously, but they are not votes as in a democracy. The
manager still needs to make a decision and be accountable for it."
"Second, is important that people are treated decently and with compassion. This does not mean
being 'nice.' The business environment can be fast paced and gruff people are often very effective.
The important point is that managers and employees respect for the dignity of those with whom they
work and interact
Both public and private companies are found in the World's Most Ethical
Companies. Some of the 53 companies that appeared on the list for the second time include Duke
Energy, Deere & Co, General Electric, Google, and McDonald's. Other companies found on the list
include HSBC, Dole Food, Aveda Corp., American Express, and BMW.
points to Costco and Expeditors as two examples of companies that act ethically. "Costco and
Expeditors are two examples of companies that meet these criteria. Does this mean these companies
are perfect? Of course not. But they get it right much more often than not. We need to remember
that these companies are made up of tens of thousands of people. What is significant about Costco
and Expeditors is the amount of consistency they have regarding fair processes and dignified
treatment amongst employees and other stakeholders," said Dienhart.
Ethisphere also notes
that companies aren't perfect. The larger the company, the more exposure to lawsuits and the more
places for there to be unethical behaviors.
"We don't automatically disqualify companies
that may have had some ethics or compliance issues in the past," said Leffel. "We take into account
the seriousness and the nature of those issues, their character (i.e. systemic or isolated one off
event), and how the company handled the issue. Quite importantly we now look into the efforts of
companies in the aftermath of the problem, e.g. what action they took to make sure that it won't
happen again. Nobody is a saint, but some are making serious and visible efforts while others are
not trying hard enough."
Ethisphere research shows a growing trend towards greater
transparency and disclosure, with more information being made available by companies, including the
growing number corporate citizenship reports. Companies are realizing that corporate citizenship
and responsibility are more that just philanthropy. More companies are also focusing on positive
ongoing engagement with local communities and other key stakeholders, greater efforts in the area
of supply chain integrity, and increased focus on sustainability.
SocialFunds.com, "Another trend is greater understanding of correlation between ethical practices
and profit/shareholder value among senior executives, which results in stronger leadership and tone
from the top, which in turn positively impacts culture and internal systems for ethics and
compliance, and makes ethics institutionalized within the company."
Significant changes to
the 2008 process of selection for the World's Most Ethical Companies from last year's methodology
were made. Last year, the list was criticized for focusing heavily on larger and predominantly
public companies. However, this year Ethisphere opened and publicized the nomination process,
allowing more global companies to apply, and, as a result, received many more nominations, many of
them coming from smaller companies that might have otherwise escape their attention.
Ethisphere also developed a 70-question survey that was sent to thousands of potential
candidates. Ethisphere furthermore created a process for data verification and audit, and
encouraged companies to provide us with evidence and supporting materials.
"If you look at
our methodology and criteria, and examine the type of questions we ask, "you will no doubt
appreciate the depth and thoroughness of the process," said Leffel. "However, we see it as an
evolving process and we always look to improve, therefore we welcome any feedback. Third party
information is extensively used and will be used more as we are creating partnerships and alliances
with other respectable organizations in specific areas, e.g. governance, sustainability,
environment, supply chain, etc."
Ethisphere charted the stock performance of the publicly
traded award winners from 2007, and notes that the World's Most Ethical companies consistently and
significantly outperform S&P500, by more than double over the period of last five years. Explained
Leffel, "This a proof positive that being ethical (in a full sense of it) is actually profitable
and adds significantly to the shareholder value."
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