The Ethics of Ranking Companies on Ethical Business Practices

Recently, the publication Ethisphere, published its 2010 “World’s Most Ethical Companies” list.  The 100 companies are listed in twenty-five categories such as Aerospace, Chemicals, Food and Beverage, Financial Services, and Healthcare.  Four Minnesota companies are on the list, a good showing for our state.  Only California, New York, and New Jersey had more companies mentioned.  Minnesota’s four were Ecolab (Chemicals), General Mills (Food and Beverage), and Best Buy and Target (Specialty Retail).  My guess is that a number of other Minnesota companies might also have been included (like Medtronic, 3M, Toro, Allina, and HealthPartners), especially given the criteria used for the listings.

A committee of judges considers the following weighted criteria in arriving at an “Ethics Quotient” for each company:  Industry Leadership, Internal Ethics/Compliance System, Integrity Track Record/Reputation, Innovation, Corporate Citizenship and Responsibility, Corporate Governance, and Executive Leadership (“Tone from the Top”).

Annual rankings of companies on hard-to-measure attributes like “most ethical” are, no doubt, limited in their significance – just as each year U.S. News & World Report rankings of academic institutions have limited significance.  But they do try to recognize relevant institutional qualities – and to hold them up for emulation.

There is one aspect of the “ratings game” in ethics, however, about which I would sound a note of caution.  It appears on the Ethisphere website under the heading:  “IT CAN PAY TO BE ETHICAL.”  The message is this:  “Investing in ethics is beneficial for any company, even in a recession."  This graph compares the ‘WME Index,’ for all publicly traded 2010 World’s Most Ethical Company honorees, against the S&P 500 and FTSE since 2005.

Readers may get the impression from this part of the website that ethics is ultimately about profitability – what some call “the business case” for corporate responsibility.  Worse than this, readers might infer that integrity, corporate citizenship, and internal ethics programs are worth pursuing only if they do in fact track positively with financial performance.

I do not mean to suggest, of course, that there needs to be an inverse relationship between integrity and the bottom line.  Surely moral virtue and ethical business culture often lead to marketplace rewards.  This is because they typically lead to increased trust by employees, customers, and other stakeholders.  But from time to time business decision makers must stand up and be counted – and courageously take actions that are not rewarded by the market.  We need to acknowledge this – and we need to hope that the Ethisphere judges will also acknowledge it, whether it tracks well with the S&P 500 or not.

Kenneth E. Goodpaster is Koch Endowed Chair in Business Ethics at the University of St. Thomas - Opus College of Business