Environmental responsibility. Corporate governance and ethics. Fairness toward employees. Accountability to local communities. Providing responsible products and service to customers. Maintaining a healthy rate of return for investors.
Those are just some of the challenges of responsible business in the 21st century, challenges that are being met head-on by the 100 companies listed. These are the 100 Best Corporate Citizens for 2007—companies that are proving that good corporate citizenship and good business go hand in hand.
The 100 Best Corporate Citizens list takes a systematic approach to assessing the social and environmental characteristics of a good corporate citizen. The list is drawn from approximately 1,100 publicly held U.S. companies in the Russell 1000, S&P 500 and Domini 400 indices, relying on extensive data collected by KLD Research & Analytics, an independent investment research firm in Boston.
Now in its eighth year, the 100 Best Corporate Citizens list was developed by Business Ethics magazine, with statistical analysis designed by Sandra Waddock and Samuel Graves of Boston College. This is the first year the list has been published in CRO magazine, which salutes the 100 Best companies for their leadership roles in corporate citizenship. See the full list now (pdf).
Highlights of the List
Corporate responsibility is included with the SME Toolkit from IBM.
Last year, the information technology company approached the International Finance Corp. (IFC) of the World Bank to help improve a technology platform the IFC offers for free to owners of small- and medium-sized enterprises (SMEs) in the developing world. In the SME Toolkit, IBM saw a chance to use its technological expertise to address economic development, job creation and a more equitable distribution of wealth in emerging markets.
The new business management platform, which will also be available to women- and minority-owned businesses in the United States, will offer a versatile set of guidelines and tools for entrepreneurs to learn accounting practices, connect with other entrepreneurs or simply download purchase-order forms.
The project is an example of how Armonk, N.Y.-based IBM links good corporate citizenship with good business practices, a strategy the company sees as essential to the future of the corporation—and one that helped push IBM to sixth place on the 2007 list of 100 Best Corporate Citizens. “We don’t think you can survive without integrating business and societal values,” says Kevin Thompson, IBM’s Manager of Corporate Citizenship.
In addition to addressing societal values, IBM’s corporate citizenship strategy has two more goals. First, IBM aims to work on projects aligned with “what we do well,” according to Thompson. Second, the company seeks projects offering potential business opportunities. The Toolkit fulfills both: IBM’s technology will improve the Toolkit’s functions and in turn, IBM will build relationships with companies in growing markets. These companies, IBM hopes, will eventually turn to it for their business needs. "We are addressing core social problems while simultaneously working with a market segment of strategic importance to IBM,” Thompson says.
Serving the community in traditional as well as innovative ways is one of eight categories considered in compiling the 100 Best Corporate Citizens list. Corporate governance practices, diversity policies, employee relations, environmental practices, human rights issues and product quality and safety are also weighed in addition to total return to shareholders over three years. KLD Research & Analytics, an independent investment research firm, compiles the data and creates a ranking system by assigning points for strengths and weaknesses in each category, and giving each category equal weight in the final scoring (For more on how the list is compiled see Methodology).
The list represents the best corporate citizens as measured by performance in the eight stakeholder categories. It is not a list of perfect companies. These are firms with oftentimes far-flung, complex operations, whose performance is not always ideal. Despite good intentions and best efforts, they may not always succeed at correcting persistent problems. As the list of 100 Best Corporate Citizens has evolved over eight years, so too have the challenges of doing business in a fast-paced global economy.
Take the issue of labor rights abroad. Any company sourcing supplies from countries with a history of exploiting workers raises concerns because of potential human rights violations. Most apparel and footwear companies as well as technology companies on the list, however, rely on factories throughout Asia, Latin America and Africa where workers may be forced to work overtime for low pay, or aren’t free to organize unions. The problems linger, but in the last five years KLD says it has seen evidence of some collaboration on tough issues involving companies, international and national institutions, non-governmental organizations, and labor groups, among other stakeholders.
Nike (No. 3), once a poster-child for sweatshop abuses, is a leader among apparel companies pushing for improvements throughout its supply chain. Now the Beaverton, Ore.-based shoe and apparel company wants to get at the reasons why suppliers don’t comply with Nike’s standards, and expects to find some answers within its own company as well as with the factory management. One idea being explored: creating strong human resources management at the factory level to tackle excessive overtime. Nike hopes factory owners will see lowering turnover and investing in workers is profitable. The company wants to get to the point where the “worker has stopped being seen as a commodity and is being seen as a value-added piece of the manufacturing process,” says Hannah Jones, Nike’s Vice President of Corporate Responsibility.
Nike is one of five consumer companies, in both cyclical and non-cyclical business, in the top 10. In addition to Timberland (No. 8), Starbucks (No. 9) and General Mills (No. 10), the consumer companies include the list leader, Green Mountain Coffee Roasters of Waterbury, Vt. Green Mountain is the first company ever to rank first two years in a row. IBM, which is the only other company to have topped the list twice, in 2000 and 2002, is joined in the top 10 by semiconductor chip makers Advanced Micro Devices (AMD) (No. 2) and Intel (No. 5), as well as Motorola (No. 4) and Agilent Technologies (No. 7).
Another challenge for Green Mountain is measuring the social effects of its advocacy work in coffee communities. By studying whether farmers are able to stay in their communities year-round, and whether they are able to reinvest in their farms, the company hopes to measure how its efforts affect poverty and hunger in coffee growing communities, says Rick Peyser, Director of Coffee Community Outreach and Social Advocacy, a new position at Green Mountain.
For fiercely rival semiconductor giants AMD and Intel, scoring well as a corporate citizen has involved cooperation as well as competition. Following in the footsteps of the apparel industry, AMD and Intel, as well as several other technology giants, are working together to develop guidelines and monitoring procedures to address social and environmental concerns at their factories. The effort is at the toddler stage and has yet to prove itself, but the aim of the Electronic Industry Code of Conduct these companies have created is to establish a common set of expectations, and to streamline monitoring procedures to avoid duplication. “It’s almost a paradigm in how the world can regulate itself going forward,” says Dave Stangis, Director of Corporate Responsibility at Intel.
The top 10 companies also represent firms with a consistent track record at corporate responsibility. Intel, Timberland and Starbucks have been among the 100 Best all eight years. Overall, the top 10 represent a trend among many corporations to be more accountable to a range of stakeholders in their companies, not just shareholders. All of the leaders have published corporate responsibility reports, most referencing Global Reporting Initiative (GRI) guidelines.
Protecting the environment is an important criterion for making the list. And this year, the environment was high on the agenda for many companies, with an increasing focus on using sustainable materials and on tackling climate change. Among the top 10, eight companies are members of the U.S. Environmental Protection Agency’s (EPA) Green Power Partnership. These are businesses with a commitment to use green power for at least some portion of their electricity needs. Four of the top 10 are EPA Climate Leaders that work with the government devising strategies to address global warming.
Missing from the list and from the top 10 for the first time ever is Hewlett-Packard. Like many companies on the list, the Palo Alto, Calif., computer company has an impressive record in giving to the community, creating a diverse, fair workplace and actively protecting the environment. But last year, HP was charged with using illegal methods known as “pretexting,” or pretending to be someone else, to investigate leaks of information from the board of directors. Patricia Dunn resigned as Chairman of the Board last September in the wake of the scandal, and HP paid $14.5 million to settle civil charges with the California Attorney General. The company is still under investigation by the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice and the Federal Communications Commission.
Twenty-four newcomers made the list this year. Joining office furnishing companies Herman Miller (No. 14) and Interface (No. 16) is first-timer Steelcase (No. 17), the creator of the Think chair, an office chair made out of 44 percent recycled material, and designed to be recycled when no longer needed. Steelcase’s leadership in environmental design is one reason for their making the list, but the company is also recognized for charitable giving and support for education. In 2005, the company helped plan and finance the West Michigan Center for Arts and Technology, an educational center for at-risk urban youth and a training center for underemployed adults. Steelcase, of Grand Rapids, Mich., helped design the center’s space as well, using environmentally benign materials and lots of natural light.
“It was the convergence of certainly our first three priorities: education, diversity and economic development, but also our priorities of health care and the environment,” says Brian Cloyd, Steelcase’s Director of Corporate and Community Relations.
New to the list this year is Google (No. 30), while Microsoft (No. 41) returns after a hiatus of several years. Google, of Mountain View, Calif., receives high marks for providing some form of equity in the company to all its regular employees, and for encouraging its engineers to devote 20 percent of their working hours to independent projects. Microsoft, of Redmond, Wash., gains kudos for bridging the “digital divide” between technology haves and have-nots around the world, for accommodating disabled workers, and for providing restricted stock options to most employees. But both companies have faced anger from human rights groups over censoring Internet content in China. In late January, Google and Microsoft announced that they are working with Yahoo and Vodafone, as well as human rights groups, academics and socially responsible investors to develop a set of principles to protect human rights for Internet users worldwide. The companies stand for “maximizing free expression,” as well “access to information,” and for allowing individuals to use the Internet without threats to their freedom, says Bob Boorstin, Google’s Director of Policy Communications.
Another issue that snared companies on the list this year was the backdating of stock options. The practice largely occurred in the stock market boom of the late 1990s and early 2000s so executives could gain from a dip in their company’s stock price. Aside from the inflated payoff to the option holders, backdating presents problems because a company’s annual revenues may appear higher. According to KLD, more than 100 cases of improper backdating are under investigation by the SEC and others. Three companies on the list, Autodesk (No. 47), Hansen Natural Corp. (No. 91) and Coherent (No. 93), face informal levels of inquiry.
The options backdating scandal demonstrates how far off perfection is among all corporations. SEC investigations, labor violations and disputes over cleanup of toxic pollutants pepper the records of even the best corporate citizens. Still, corporations that made the list are all making substantive efforts to improve society and do less harm to the environment in measurable ways, often because it is simply good business. The more corporations link good citizenship with good business, the more real and sustained their efforts at improving society and the earth are likely to be.
“Where we are really focused is in integrating business and societal values,” says IBM’s Thompson. “We feel for this to be sustainable long term, it needs to be linked and directly connected in terms of what we do with our business operations.”
Agree or disagree with the companies that made our list, or have any other thoughts to share? Let us know by emailing us at email@example.com. We welcome your feedback.
Find out more about the methodology behind the list...
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Abby Schultz, author of this article, is a freelance journalist specializing in business and environmental issues, who has written for The New York Times, Fast Company and Fortune Small Business.
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