This list - CRO's 100 Best Corporate Citizens 2008 - matters. If you think for a minute that it doesn't, then get on the phone or sit upright at your computer to listen to or read some of the phone calls and e-mails CRO magazine received from irate companies that found themselves MIA from the list or lower in the rankings than they would have liked.
This list - CRO's 100 Best Corporate Citizens 2008 - matters.
If you think for a minute that it doesn't, then get on the phone or sit upright at your computer to listen to or read some of the phone calls and e-mails CRO magazine received from irate companies that found themselves MIA from the list or lower in the rankings than they would have liked.
Somewhere in a corporate boardroom or in the compliance officer's suite, rest assured that an Excel wizard is analyzing the category ranks and studying the algorithm, trying to figure out what Intel (No. 1) did right in Environment or Climate Change, or why a competitor ascended or nosedived this year in the ordering.
And, although it may be about bragging rights for some firms, for many corporations their position on 100 Best may impact operations. It also translates into recognition for some of their policies and practices, a well-earned "attaboy" from an unbiased arbiter.
Dave Stangis, the Director of Corporate Responsibility for Intel, which has been on the list since Business Ethics magazine developed it nine years ago, characterizes Intel's top-of-the heap ranking as "a really strong attribution."
He adds that 100 Best over the years has had "a huge impact internally" at the company and executives view the category scores and rankings as a significant "learning opportunity."
Business Ethics magazine published 100 Best for the first seven years, and CRO published 100 Best in 2007, and now presents 100 Best 2008.
In the nine years that 100 Best has been tabulated, just three companies-Intel, Cisco (No. 14) and Starbucks (No. 35)-have appeared on the list every year. See the full list now (pdf).
In 2008, CRO-in partnership with IW Financial, a Portland, Maine, research and consulting firm that did much of the heavy lifting-tweaked the methodology to emphasize the corporate responsibility efforts of large, impactful corporations in eight categories: Climate Change, Employee Relations, Environment, Financial, Governance, Human Rights, Lobbying and Philanthropy. In so doing, we added, renamed, combined or dropped other categories, and gave Climate Change and other issues related to Environment the greatest weight because of their acute importance. For information about the methodology, see "Transparency, Policy, Performance Weighed Heavily in the Rankings" article below.
As an aside, you won't find CRO or IW Financial on the 100 Best list itself. Neither company was under consideration because the companies were not in the Russell 1000 index, our starting universe for the 100 Best evaluations. But I believe both companies deserve a footnote mention because despite taking a few elbows by companies looking to curry favor, we stood by our principles and let the 100 Best category data speak for themselves, watching the proverbial chips fall where they may concerning companies' rankings.
As author Kurt Vonnegut famously wrote in "Slaughterhouse Five," when things got messy, "so it goes."
As you will see, the 100 Best rankings, which were compiled without interviewing companies under consideration, were driven by the numbers. Period.
CRO's new single-minded focus in 100 Best 2008 on large-cap, U.S.-headquartered public companies meant that 23 companies on the 100 Best 2007 list, including Green Mountain Coffee Roasters (No. 1 in 2007), weren't under consideration for the 2008 rankings. Another three companies in 100 Best 2007 weren't in the mix in 2008 because they merged with other companies or were acquired.
And, eight companies that would have secured places in 100 Best 2008 were excluded this year because of alleged transgressions that ranged from suppression of information about product risks to accounting scandals. For details, see "In the Penalty Box."
Even with those eight companies temporarily pushed aside, a spot on 100 Best shouldn't be viewed as an automatic sainthood nomination. Among the largest companies in the United States, many of the corporations that made the list face complex regulatory issues, some cope with the consequences today of yesterday's sub-par practices, and many have very diverse businesses scattered across dozens of countries, further complicating the equation. Instead, these data-driven rankings should be seen as a way to gauge how the major players in U.S. business stack up against one another relative to their corporate responsibility programs in the real world.
Even 100 Best 2008 leader Intel, based in Santa Clara, Calif., faces antitrust regulatory probes in Korea, Europe and the U.S., as well as class-action lawsuits in the U.S., related to an Advanced Micro Devices' (AMD) lawsuit alleging that Intel violated the Sherman Act.
Intel readily addresses the issue, and is contesting the allegations. Stangis says Intel recently filed answers to questions on the issue from the European Commission, for instance, and he argues that the "push" for much of the scrutiny comes from AMD, a competitor.
And, Gap (No. 61) faced a corporate responsibility crisis in October when a published report in the U.K. alleged that the apparel retailer was using child labor in India. Gap says it quickly launched an investigation and cancelled the work order because an unauthorized subcontractor was using child labor to manufacture a GapKids product.
Gap says in 2006 it shut operations in 23 factories for violations of its Code of Vendor Conduct.
When it comes to such a Corporate Responsibility moment, we feel, the aggressiveness and appropriateness of a company's response is key.
Overall, 21 corporations that were listed in 100 Best 2007 found themselves among the 100 Best in 2008, as well. They range from IBM (No. 21) and Pepsico (No. 22) to Motorola (No. 51) and Avon Products (No. 98).
It may surprise some that the utilities industry, frequently under fire for its massive carbon footprint and other environmental missteps, was the most heavily represented sector in 100 Best 2008, with 19 corporations, from PG&E (No. 10) to El Paso (No. 87), among the listees.
Mark Bateman, Director of Research at IW Financial, says there is "an inherent logic" to companies from problematic industries like utilities, oil and chemicals securing positions on the 100 Best because the rankings' methodology emphasizes and rewards the disclosure of information and policies.
Companies in these industries have more potential problems than those in supposedly "clean" industries so chemical, oil and utilities companies may be more sophisticated in addressing environmental management and human rights concerns than the financial sector, Bateman adds.
Incidentally, nine banks, brokerages or financial companies have spots on 100 Best 2008. These rankings and the companies Financial tallies were not impacted by the companies' huge write-downs in the fourth quarter related to subprime mortgage-related debt. Most of the data for 100 Best 2008 were collected through Aug. 31, prior to the write-downs.
Other companies, like Freeport-McMoran Copper & Gold (No. 52), with its copper and gold reserves, and media conglomerate Walt Disney Co. (No. 50), were the sole representatives of their industries on the list.
Intel showed ample corporate responsibility soul, and sits solely atop 100 Best 2008 overall.
As Intel's rise to the top shows, the key to achieving optimum ranks in 100 Best was to score well across a broad swath of corporate citizenship categories. In fact, in 100 Best 2008 only four companies (PG&E in Governance, Ford in Human Rights, Motorola in Climate Change and one of the Penalty Box companies in Philanthropy) achieved a category ranking of "1". That means that the companies that scored first out of 1000 companies in Employee Relations, Environment, Financial and Lobbying had scores in other categories that dragged down their rankings, leaving them off the list of the leading 100 companies.
Intel ranked in the top 100 in five of the eight categories, scoring its best mark in Environment (which measures environmental disclosures, policies and performance) and in the top 200 in another category, Philanthropy.
IW Financial notes that "Intel believes that global climate change is a serious economic, social and environmental challenge that warrants an equally serious societal and policy response."
In 2006, Intel joined the U.S. EPA's Climate Leaders program, pledging to reduce its global greenhouse gas (GHG) emissions 30 percent per production unit from 2004 to 2010.
"Intel helped establish a goal for PFCs (perfluorocompounds) that the entire industry could support," Intel President and CEO Paul Otellini told CRO." It came together before Kyoto and was the first worldwide, industry-wide goal to address climate change. We view our environmental strategies as integral to the way we do business. We strive to lead by example, and to be trusted stakeholders to governments worldwide."
Otellini says Intel views sustainability "through a business lens" and such an approach can lead to a competitive advantage. "For example, we have a dedicated capital funding program for energy conservation projects," Otellini adds. "Since 2001, we have spent more than $20 million and achieved savings of more than $42 million and more than 500 million kilowatt hours."
As Intel's Corporate Responsibility Director, Stangis notes that his role is almost like an internal consultant on corporate responsibility issues.
He has found, too, that Intel's credibility on sustainability issues is far-reaching. For example, Otellini is a member of the Copenhagen Climate Council, which hopes to push for a new global treaty on climate change.
And when Stangis met with the CEO and senior staff of Woolworths, a supermarket chain in Australia, a two-hour discussion ensued about Intel's corporate responsibility initiatives.
"It is a boardroom conversation," Stangis says, referring to corporate responsibility. "It hasn't been at this level before."
Eaton (No. 2) , a diversified industrial manufacturer operating in more than 140 countries in industries ranging from aviation and military weapons to machinery and passenger cars, ranked in the top 100 in four categories and in the top 200 in two others.
The company scored its best marks in Employee Relations and Climate Change.
Alexander Cutler, the Cleveland, Ohio, company's President, CEO and Chairman, says Eaton is a "different" kind of company because of the importance it places on values, including establishing a global ethics framework, respect for the individual and a holistic approach "to doing business right."
Eaton never asks employees to compromise their personal ethics, and supports internal help and counseling phone lines, Cutler says.
He adds that about 97 percent of the company's approximately 63,000 employees complete the annual employee survey.
On the employee front, too, Eaton participates in the U.S. Occupational Safety and Health Administration's Voluntary Protection Programs.
Regarding its 22nd rank in Climate Change, Eaton's goal is to reduce GHG emissions 18 percent (adjusted for production) by 2012. And it has several employee education programs to emphasize the company's curbing of water usage and waste.
Eaton scored 80th in Environment and was among the first diversified industrial companies to earn global ISO 14001 certification for its environmental management systems.
Deere & Co. (No. 4), the farm equipment and lawn mower manufacturer headquartered in Moline, Ill., ranked in the top 100 in Climate Change and Human Rights and in the top 200 in Philanthropy, Environment and Financial.
The company ranked 80th in Human Rights. Robert Lane, Chairman and CEO of Deere, says of the company's human rights stance that it has consistent employee guidelines and a worldwide supplier code of conduct despite operating in many countries with varied cultures.
"We are often noted for the clean and safe working conditions in non-U.S. factories that we provide our employees here in the U.S.," Lane says. "For instance, I have personally had the opportunity to observe the same low emissions paint process in our China factory as we use in the U.S. factories. We maintain the same high standards and our employees embrace this commitment."
Deere earned its best category mark, 47th, in Climate Change. Lane notes that Deere in 2007 invested almost $500 million in wind energy to assist rural economies in electricity production.
"We also developed high-performance tractors with diesel engines designed and manufactured by Deere that are more fuel efficient than the models they replaced," Lane says.
For example, Deere's PowerTech Plus diesel engines, which are certified Tier 3 and Stage III-A by the EPA and European Union (EU), respectively, "boast best-in-class fuel economy as well as increased performance and power density compared with earlier engines," IW Financial states.
Lane believes that Deere's position in 100 Best is "rewarding" and means recognition "for being a strong corporate citizen."
He notes that 100 Best may assist employee retention and recruitment efforts. "We know from our own experience that current employees and future employees want to work for a good corporate citizen," Lane says. "This is an important trend that is showing even more strength with new employees."
Meanwhile, Motorola (No. 51), the communications company headquartered in Schaumburg, Ill., has the distinction of garnering the top ranking, among 1000 companies considered, in Climate Change.
A founding member of the Chicago Climate Exchange in 2003, Motorola in 2007 became the first member to include all of its worldwide manufacturing sites that aren't currently covered under the Kyoto Protocol and the EU's Emissions Trading Scheme in the company's GHG-reduction commitment, says Maryann Clifford, Motorola's Ethics & Compliance Officer.
"Motorola has worked for many years to reduce its GHG emissions and mitigate contributions to global climate change," Clifford says. "This is not just the right thing to do. It also helps us reduce costs, improve operational efficiency and meet the expectations of our stakeholders."
As part of that effort, in 2007 Motorola completed a transition from managing and auditing environmental, health and safety compliance on a site-specific basis to a common system that takes in all of the company's manufacturing facilities around the world, Clifford says.
"Reporting has helped us to drive continuous improvement," Clifford says, referring to annual environmental reports.
She adds: "As the saying goes, what gets measured, gets managed."
A similar thing could be said about CRO's 100 Best Corporate Citizens 2008: What gets measured, managed and disclosed, gets ranked.
Special Note to Readers -
100 Best Corporate Citizens Repeat Performers
The following companies have been on the 100 Best Corporate Citizens list for all nine years:
Intel Corp., Starbucks Coffee Co. and Cisco Systems Inc.
Now Find out more about the methodology behind the list...
Methodology: Transparency, Policy, Performance Weighed Heavily in the Rankings
Climate Change, Environment did much to settle scores
In determining CRO's 100 Best Corporate Citizens 2008, CRO evolved the 9-year-old process in four significant ways.
First, CRO required that the data used in rankings be only from publicly available sources on the theory that transparency is a basic principle of the Corporate Responsibility profession.
Second, CRO ranked only Russell 1000 companies, while in the past the rankings also included members of the Domini 400. (Note: In 2008's July/Aug edition, CRO intends to rank the 100 Best Corporate Citizens among small- and mid-cap Companies, which will capture many of the previously included Domini 400 firms.)
Third, CRO switched ranking providers from KLD Analytics to IW Financial, the leader in ESG (environment, social and governance) ratings, and the only company CRO knows of in the segment that holds a patent on its processes. In its role as the media voice of the professional Corporate Responsibility Officer, CRO's two goals with 100 Best are to recognize excellence and send the message that corporate responsibility is a competitive imperative-and requires attention to all eight areas included in the rankings.
And fourth, CRO added, combined, dropped or renamed some of the categories. For example, the Diversity and Employee Relations categories in 2007 have been combined into Employee Relations, which includes diversity metrics. Among other changes, CRO added a Lobbying category, although it was given the least weight of any category because lobbying in itself isn't necessarily "good" or "bad."
IW Financial uses a standardized process for the 100 Best list. CRO's methodology for 100 Best Corporate Citizens 2008 builds on the methodology of the CRO's 10 Best Corporate Citizens by Industry 2007 lists that CRO first published in the Fall. As you can see from the tables, each of these U.S.-headquartered companies was evaluated, primarily using data through Aug. 31, in eight categories: Environment, Climate Change, Human Rights, Employee Relations, Governance, Philanthropy, Financial and Lobbying. Since the goal is a comparative determination of "best," IW Financial ranked the companies in each category. CRO determined the final ranking as a weighted average of these eight categories. In addition, CRO did a final review to eliminate those companies which had been involved in a recent (during the past three years) major public scandal (involving a government or regulator-imposed fine, admission of guilt, conviction or other comparable infraction).
CRO and IW Financial worked together to remove as much subjectivity as possible from the evaluations. One of the potential pitfalls in doing this kind of research and evaluation is that prior impressions can color the evaluation. By designing an evaluation methodology that relies on the actual comparisons of companies within categories and based on predefined criteria, we have removed the possibility of a pre-conceived notion tainting the final list. The result is a "data-driven" evaluation of companies, which some might find too coldly rational. CRO and IW, however, hold that this data-driven approach goes to great lengths to eliminate subjectivity, bias and risk of misinterpretation. In the 10 Best by Industry lists 2007 and in this 100 Best 2008 list, CRO was confident enough of the objectivity and thoroughness of IW Financial's process to go straight to publication without allowing a time-consuming company review of the data prior to publication. While CRO remains highly confident in the integrity of the IW Financial data-collection efforts, in the future, CRO will allow company review in an effort to provide continuous improvement in the process.
Mark Bateman, Director of Research at IW Financial, commented, "While I might be able to guess which companies were going to make it onto the list, I didn't know for sure. It is interesting to watch a company emerge as its score accumulates in the various categories. There may be some surprises for people on these lists, but the data speaks for itself. Based on the data and categories included in these evaluations, this is an unbiased evaluation of corporate citizenship."
IW Financial relies on data from a number of sources. IW Financial reviews company financial disclosures, sustainability/environment/citizenship reports, websites, EPA databases, and a number of other sources as part of its standard research processes.
CRO and IW Financial established the starting universe as U.S.-headquartered publicly traded large-cap companies, those in the Russell 1000. IW Financial analyzes about 150 data elements to complete a "score" within each category. Scores then determine the rankings within a category. The category rankings are then weighted to average into the total score. Environment and Climate Change were weighted at 16.5 percent of the total each; Employee Relations, Human Rights, Financial, Philanthropy and Governance were weighted at 13 percent each; Lobbying was weighted at 2 percent.
For example, the Environment category includes an evaluation of disclosure, policy and performance measures. All three of these areas significantly influence a company's ranking. Ford ranked 36th in the 100 Best, but within Environment, Ford ranked even better: 24th. (The lower the score, the higher the ranking.) On environmental disclosure, a metric within the Environment category, Ford had the 12th best score.
You may notice that the first ranked company in only three of the categories (Climate Change, Governance and Human Rights) made the 100 Best. Another company in the Penalty Box (see p. 41) was ranked first in Philanthropy.) For the other four categories, the top-ranked company was very good in that area, but other scores dragged down the average to put them out of the 100 Best.
Climate Change. Climate Change is given its own category because it is simply the most dominant environmental topic in the world today, with many companies now starting to completely revamp their operations, products, services and value propositions to address the issue. This category in the CRO ratings incorporates climate change disclosure (including to the Carbon Disclosure Project, as well as company websites and sustainability reports) and climate change policies (including offsets and reduction goals). Within these areas, the criteria evaluate 22 distinct attributes. While every company should be concerned about this issue, some industries need be more concerned than others. The scores in this category were adjusted within some key industries to provide a better basis for comparison across industries.
Governance. The scores related to corporate strategy and policy flow from the board of directors and the basic governance structures within a company. This category in the CRO ratings includes the one standard for inclusion on the Best lists: board independence. A majority of a board must be independent and key committees of the board must also be fully independent. In addition, ratings include general board accountability and demographics (board tenure, age of directors, over-commitment of directors to multiple boards, and annual election of all directors). The ratings also include executive compensation in the form of the percentage of CEO pay that is incentive based.
Employee Relations. Companies have a significant impact on the lives of their employees and the workforce affects the ability of companies to thrive in the marketplace. This category in the CRO ratings incorporates unionization rates, publicly disclosed employee benefits and Equal Employmet Opportunity Commission complaints.
Environment. Every company has an environmental impact. Certainly some industries have more impact than others, but the presence of economic activity involves an impact on the environment. This category in the CRO ratings incorporates an evaluation of environmental disclosure (including sustainability reporting criteria and disclosure within the 10-K), environmental policies (including management systems), and environmental performance (including toxic emissions, waste management, evidence of chemical and oil spills and environmental fines). Within the disclosure and policy evaluations, the criteria evaluate dozens of attributes.
Financial. Investors demand financial performance from companies, so any evaluation of corporate citizenship must include a company's ability to meet this most basic of corporate purposes. This category in the CRO ratings evaluates the three-year return on investment in the company stock, based on Morningstar rankings. Companies without a three-year return to shareholders were not considered for the ranking. The list is intended as an evaluation of citizenship of large-cap, publicly traded, U.S.-headquartered companies. A three-year history with shareholders is a prerequisite for consideration.
Human Rights. The international operations of companies are rife with opportunities to do the wrong thing, or the right thing. This category in the CRO ratings incorporates disclosure (including current controversies within the company's overseas operations), policy (including codes of conduct and performance goals), and exposure to 45 countries of concern. Companies with higher level exposure need to earn higher scores in disclosure and policy to do well.
Lobbying. Corporate influence in the political environment is an increasingly controversial topic. Certain industries are more involved than others, so an industry comparison is helpful in evaluating this topic. This category in the CRO ratings evaluates a size-adjusted, three-year lobbying total at the federal level. Information for this category came from http://www.opensecrets.org and the Center for Responsive Politics.
Philanthropy. One of the criticisms of "corporate social responsibility" is that companies just give money away to improve their image. While such philanthropy should not be a ticket to "corporate citizen of the year," corporate giving can have a substantial and positive impact on society, so should not be ignored. This category in the CRO ratings evaluates giving levels and policies (including employee match programs).
For more information about IW Financial and its research, visit http://www.iwfinancial.com