The Ethisphere Institute, a 10-year-old firm based in Scottsdale, AZ, is a player in the crowded field of corporate ethics ratings. For the last nine years it has put out a list it labels the “World’s Most Ethical Companies.” We’ve covered it at Forbes.com since 2011. You’ll see the 132 winners below and on Ethisphere’s site. The list is unranked and includes such disparate companies as Gap Inc., Dun & Bradstreet, Adobe Systems and Colgate-Palmolive in the U.S., Tata Power in India, illycaffe spa in Italy and Brazil’s Natura Cosmeticos.
Ethisphere announced the winners last week at its two-day Global Ethics Summit in New York, where it brought together more than 400 lawyers, corporate board members and executives concerned with ethics compliance. The list gives the winners an opportunity to benchmark their performance and to boast that they’ve been independently identified as ethical.
To earn a spot on the list, more than 750 companies applied, which involved filling out forms with some 140 questions covering ethics and compliance programs, corporate responsibility including environmental policies and community involvement, and the “culture” of ethics at a firm, as Ethisphere puts it, that encourages employee actions. There were also questions about corporate governance and oversight, and a company’s legal track record. All of the information is self-reported but Ethisphere’s 20 staffers verify as much as they can, scrutinizing documents submitted by the companies, interviewing company executives and using sources like Westlaw, SEC filings, Thomson Reuter’s Asset4 database, company review website Glassdoor, and global news reports. Ethisphere nixes companies that have significant legal charges pending and it won’t consider firms that deal in alcohol, tobacco or firearms.
The emphasis of the Ethisphere awards is on how ethically companies run themselves from the inside. To what extent do they integrate ethics into the way they’re structured, the way they’re managed, the way they communicate? How transparent are they across so-called “stakeholder” groups? “Is it just talk or is it really integrated into the business?” says Tia Smallwood, Ethisphere’s marketing director.
A couple of sample questions: “Has your organization assigned responsibility for the primary oversight of risk management within the organization to a specific member of the board, a committee or other governing authority?” and “How often does the person responsible for risk management in your organization formally communicate with the board of directors or other governing authority?”
This year Ethisphere beefed up its evaluation of companies’ governance structure and processes, which accounts for 15% of the score, expanding the list of questions on that topic from nine to 30 and asking about the board election process, and who has the right to call meetings of independent directors without executives present. “It was a much tougher process this year,” says Smallwood.
What Ethisphere doesn’t do: survey the customers or the public. Until this year it considered other awards won by companies. “We’re looking at how an organization is internally managing its affairs,” says Smallwood. “How is it managing to both reduce risk as well as to assure there’s trust and a culture of ethics within an organization, and if there’s a problem, there are mechanisms in place to deal with it in a transparent and open way?”
What drives companies’ interest in Ethisphere’s quarterly magazine on corporate ethics, webcasts and conferences are cases like the massive Chinese bribery scandal involving a local subsidiary of British pharmaceutical giant GlaxoSmithKline, which was fined $500 million in September after being accused by Chinese authorizes of bribing hospitals and doctors, running kickbacks through travel agencies and pharma industry associations, enabling it to hike drug prices and reap illegal revenue of more than $150 million. (Glaxo has cooperated with the Chinese courts and apologized for its conduct). The data breach at Target is another example of a company failing, in Ethisphere’s view, to stick to the highest standards of corporate practice. After seven years on the list, Ethisphere rejected Target’s application in 2014 as a result of the data debacle. But if a company can show that it has a robust corporate compliance policy, a CEO who preaches about the importance of clean practices in places like China and high-level executives and board members who even travel to hot spots to check on compliance efforts, it’s less likely that employees and managers will commit fraud or get involved in a bribery scheme. If a company makes security a top priority, then at least in theory, it can catch hackers before they do irreparable damage.
Until this year, it was free for companies to go through the Ethisphere awards process but Smallwood says the evaluation process has become so extensive, Ethisphere staffers felt they had to charge for the evaluation process. Fees range from $500 for nonprofits to $1,500 for larger companies. Winners who want to use the World’s Most Ethical Company logo have to pay between $5,000 and $10,000, depending on a company’s structure and size.
Companies also pay to attend the conference, which costs $2,200 per person and companies who choose to be conference sponsors (those companies can’t apply for an award) pay around $25,000. Ethisphere also makes money selling $2,500 magazine ads.
Awards like Ethisphere’s have been criticized in the past as a quid pro quo for consulting or other fees. But Smallwood points out that no one company is responsible for more than 1.5% of Ethisphere’s revenues of less than $10 million. “They’re not paying to get an award,” she says. “We’re not in that business.”
Given that fewer than 800 companies applied for the award, there’s no question the list is missing out on hundreds if not thousands of highly ethical companies. Many firms with serious social missions like environmentally-friendly cleaning products company Seventh Generation, and shoe company Toms Shoes and eyeglass maker Warby Parker, which give away, respectively, a pair of shoes and a pair of eyeglasses to people in need for every product they sell, are not on the roster. Consider Ethisphere’s list a selection of ethical companies but not the definitive list.
